Avoiding early repayment charge

Thadeus

Hi there

I am about to be in the position to clear my mortgage however I have £6k in ERC.

Is there any way to avoid it?

Thank you

Urbanshyne

Wait until the fixed period of your mortgage expires.

Thadeus

My fixed period is until 2021 and I have 10 years left

Browntoa

Then leave a minimal outstanding amount until then

Thadeus

I am allowed to over pay by 10% each year.

Would i not expect fees if i pay more than that?

Urbanshyne

Yeah, you would expect fees if you paid over the 10% allowance.

I would probably bank the money, pay up to your 10% allowance for the next 3 years, then pay off the balance in full once the fixed period is up.

Though, I would only do this if it were cheaper than paying £6000 now. It's likely to be, but it would be worth checking.

Thadeus

It turns out i would be paying IRO £7.5k of interest over the next 29 repayments until my fixed rate expires. So i would be better to just pay the ERC?

FloppyDisk

But if you pay the 10% every year does that drop the 7.5k to below your ERC?

Urbanshyne

Have you calculated the mortgage interest on a constant mortgage balance for 3 years or as a declining balance over time?

You're also going to have a cash balance equivalent to the remaining mortgage balance which has the potential to return x% over 3 years. Don't forget that.

It would help to have the figures and rates.

Thrugelmir

What rate of interest are you paying?