Mathematician needed 11 February 2019 at 5:43PM in Mortgage-Free Wannabe 12 replies 826 views

ficino

I need someone to work out whether its cheaper for me to pay off my mortgage now or wait the two years until its paid off in March 2021.

My mortgage balance is £11,094.62, interest rate is 1.79%. I have just made an over payment of 10%. The early Repayment charge is 2%.
Which is the better option? - pay the 2% Early Repayment charge and pay off the mortgage now, or keep paying my monthly payments (£190.20) with another 10% over payment next January after which monthly payments will then reduce until it is paid off in March 2021?.

I can't work it out so any help would be great.

miss_undastood

Let me put the children to bed and get excel out.
But it looks cheaper to let it run its course than paying the ERC

There won’t be a lot in it though.

When you overpay by 10% next year will your payments reduce or remain as they are?

Voyager2002

Your lender should give you exact figures for the total cost either way.

Not possible to calculate it without a bit more information, for example as highlighted in the first reply.

miss_undastood

ERC now is 2% (£218.42)
Keeping it going until March (keeping payments the same with the 1 overpayment) will cost £325.75 in interest assuming you haven’t paid yet in Feb

miss_undastood

And you’ll have around £5500 balance remaining in March 2021

ficino

When I overpay, the monthly payments reduce.
The lender didn't give me an exact amount but said there wasn't much in it ie about £220 for continuing payments, but @£260 for full repayment. I'm wondering if this is correct.

A_Frayed_Knot

Ask them or Tell them to keep your payments the same and not to reduce them !!! (if mortgage provider allows), that's just their way of squeezing more interest out of you. (Reduced my payments after my first fix was up) :mad:

That way you will pay off quicker (which means less interest added on each month) and in the few last months payments will be minimal.

Is your money earning more than your mortgage charges? Have you a comfortable emergency fund?
Are all your other pots full? If so, then I would be tempted to pay it off, other than the fact, it seems cheaper to pay off than to keep.

Good Luck in whatever you decide to do

ficino

My lender says that if i keep the monthly payments the same after a 10% lump sum payoff, then I would have paid off more than the 10% allowed in a year and be subject to an early repayment penalty.

Butti

You could do what I did which was get them to work out how much you can overpay by after lump sum without incurring charges....then change your payment to that. i think I incurred about £3.50 last year in overpayment charges!

getmore4less

you have to factor the ERC the mortgage rate and a savings rate.

£11,094.62 1.79% £190.20pm full term around 5 years 1month

Does the ERC drop next year*?

if not ERC £222 or 24 month interest £325 before overpayment and adjustment

if you have the £11k all you need is to raise about £50 a year from savings that's 0.46%

plenty of savings options paying that.

You can get more than 1.79% in a 1&2 year savings account.
You could get more using monthly savers.

Just save the money

Should have done the same with the 10% overpayment.


* if the ERC drops to 1%

ERC now £222 12 months interest £182 left £9k ERC £80 (after overpayment) total £262 interest needed £40 or 0.36%

ficino

Thanks getmoreless. The ERC next year will still be 2%, but of the remaining amount ie, £190.20 pm plus a 10% pay off the total amount remaining in March next year,. Then the monthly payment will reduce (to a figure I can't calculate!), then I'll pay off another 10% which will reduce the monthly payment etc..
I have 5 savings accounts all paying between 2% and 5% plus a Santander 123 account and a Club LLoyds acc.

So you are suggesting not to pay off the 10% each year nor the total mortgage as I'm getting more in savings interest?