Over-Over payment - Worth it?

Rob_Mogs

Hi Guys,

I hope I'm posting this in the correct section here.


Basically, in short, We can pay £7.3K off as an over payment without charge currently.


I have in total about £20-23k I want to pay off as a lump sum the end of this year.


So if we say I'll pay £21.3k off in total it means an over-over payment of £14k.


My maths isn't that great to able to work out what the interest would be if I didn't pay the extra, Vs what we'd save if I did pay the extra 14.

Anybody able to assist if I give some or the rates we're on etc?

Or is it a case of it'll always work out as a saving?


Cheers.

Rob_Mogs

I also need to add that we are looking to move home next year.
In reality, we want to move asap but it'll take until next year no doubt.

Prof_Calculus

Hello,

I’m not an expert, but I would have thought that it might be best not to ‘over, over’ pay if you would incur a penalty of £14k! That money might be better off being used during your future move.

Perhaps post the figures and rates, though, as I might be wrong.

julicorn

I'm not 100% sure if I'm reading your post right. I'm assuming you're having to pay some sort of penalty if you pay off more than you're allowed on your mortgage. Whether overpayments still work out better would depend on how much the penalty is, what your mortgage rate is and what your remaining balance is as well, and aside from that also how much the money could earn in a savings account instead.

Because you write you're allowed to pay off £7.3k penalty free, and you're often allowed to pay 10% of your remaining balance, I'm assuming your remaining balance is around £73k? So let's say the mortgage provider charges you a 1% penalty for overpaying (that would be very low, it's probably higher), that would be £730. So you'd have to save at least that much on interest with your overpayment for that to be worthwhile (and that's not even taking into account the interest you could make simply by putting it into a savings account instead). With those figures, you'd need a rate of over 5% for that to be worthwhile over the course of a year I think, but haven't put it in a calculator to double check (it's all a bit theoretical without further details anyway).

Urbanshyne

Yeah, I'm with Julicorn. We'd need to know your mortgage interest rate and the redemption rate.

Rob_Mogs

Prof_Calculus wrote: »

Hello,

I’m not an expert, but I would have thought that it might be best not to ‘over, over’ pay if you would incur a penalty of £14k! That money might be better off being used during your future move.

Perhaps post the figures and rates, though, as I might be wrong.

I'm not sure where you've got the figure of £14k penalty from, what I meant was that after out 10% I would be over our fee free amount by 14k.


That being said, I have been reliably informed that I have already paid my 10% for this year.

So all in all I would be in the 20k plus penalty fee bracket.

Rob_Mogs

Urbanshyne wrote: »

Yeah, I'm with Julicorn. We'd need to know your mortgage interest rate and the redemption rate.

By the time I make the over payment our remaining balance will be £73,000.


I will have £20,000 to pay as an over payment, this will be ON TOP of the 10% I have already paid this year.


Our early re-payment charge is 3%.


Our interest rate is 2.29%


Monthly payments of £364.


Term remaining is 22Y 2m


Any other info you need?


I usually leave the paperwork to the OH and just hand over chunks of cash

julicorn

Not worth it, that repayment charge is too high. That would work out as a £2,190 penalty, so you'd need to make at least that in your difference in interest recuction.
If your monthly payment amount stayed consistent, you would 'save' around £580 in the first year on interest, so would need 4 years to make up that penalty charge. That is not even taking into consideration that you can make money off that £20k in savings accounts instead. Really, even at the current relatively poor rates, you can get instant access accounts for 1.3%, meaning that really you're only saving 1%, or around £200 in that year, so way off the penalty you would be paying unless you're tied into this specific mortgage product for over a decade. And even then, it would be better to put your money into fixed savings accounts, which should pay a similar amount of interest as you're paying on your mortgage.
(Figures might be slightly off, put I'm 99% confident it's not worth it).

Instead, it would be better to earn some interest in a savings account and then just pay that off your mortgage as a lump sum when your fixed term ends.

greent

A 3% ERC combined with a relatively low fixed interest rate means it's not worthwhile. As you are looking to move next year, stick the extra money (now slightly confused as to whether it's 14k or 20k, but that's irrelevant to the overall point) into a savings account (or even a high interest current account) until you move.

When you move you can demonstrate that you have this cash towards the fees (expensive - stamp duty, solicitors for 2 lots of conveyancing, some form of EA fees etc) and to take out a smaller mortgage going forward than you'd otherwise have to. If you can continue to save monthly too it also demonstrates that you have the budget capacity to afford a larger mortgage next time.

billy2shots

Have I missed how long the Fixed period has left?
Surely that is the deciding factor.

I cleared my mortgage last week which effectively meant a £57,000 overpayment. The penalty for doing so was £460. The key fact was I had 11 months left on the fixed term which meant a 1% penalty for each remaining month.

Check your T&Cs because some banks penalties change as the the remaining fixed period gets shorter. It might not be worth paying now but holding on for X amount of months.

greent

Would agree that lots reduce the ERC as time goes on (often 3% - 2% 1% from what I've seen) However, OP says ERC are 3% and that they are looking at possibly moving next year - so paying ERC would seem not worthwhile