Overpaying to reduce ERC

Ollie_D

So, some quick background.

I have a 5 year fix with Santander due to end Dec-18, it is seeming likely that I will be moving before this ends and will temporarily be moving into rented accommodation so porting the mortgage isn't an option.

So I have accepted I will be paying an ERC, to make it less painful I am planning to overpay my mortgage with the max amount (10%) just prior to completion to reduce the ERC. Have anyone had experience of this? How close to completion could I do this?

I welcome all thoughts/views.

Ollie

RADDERS

You will need to check your offer document, as sometimes the ERC is on the amount borrowed and does not reduce.
If it does you would need to pay the 10% before the solicitor requests the final redemption statement so that the ERC is calculated correctly. I would think the month before should be ok.

BoGoF

Why wait till month before?

If you can afford it now then you will be paying less interest between now and selling.

amnblog

RADDERS wrote: »

You will need to check your offer document, as sometimes the ERC is on the amount borrowed and does not reduce.

It is on the amount repaid when you close the account, not the amount borrowed initially (excluding any overpayment allowances).


Therefore you do not need to overpay one month, two months or any months before to get the overpayment allowance.


Check with your lender before you do anything for your own calculations.

minimike2

Some lenders do not apply the overpayment allowance on full redemption, as you are not making an overpayment, you are redeeming. Two different things.

I have seen people caught out by this before thinking that the 10% would apply on redemption when it didn't.

Safest way is indeed to overpay the 10% before you redeem, but check with your lender to see what their policy is on it to be sure.

RADDERS

amnblog wrote: »

It is on the amount repaid when you close the account, not the amount borrowed initially (excluding any overpayment allowances).


Therefore you do not need to overpay one month, two months or any months before to get the overpayment allowance.


Check with your lender before you do anything for your own calculations.

Not all lenders work that way, the lender that I recently worked for the ERC was charged on the amount borrowed and the amount never changed even if allowed overpayments had been made. This only applied when mortgage was redeemed early.