Help! pay off lump sum or wait?

Mrsave

Hi,

I came into some money £90,000 and want to pay into my mortgage of outstanding £162,300. I am in a fixed deal until Sep 2021 @ 2.59%, 20.5 yrs left and pay in £850 p/m now, lender lets me have 10% no charge over payment then its a 5% charge over the 10% per calendar year.

Question is do I pay in £90,000 now and take the ER charge of £3600 (I would pay in the 10% - £16,230 so £70,081 inc the 5% charge) or pay 10% in at the end of this year and end of next year, then pay remainder of savings at end of my fixed term. I would obviously put the lump in an ISA till Sep 2021. I would keep it at £850 p/m throughout.

Kind of hard to work out as I would switch to a sub low 2% mortgage in Oct 2021.

If any one can work this out then this would be much appreciated, as my brain is imploding!
My workings so far say I would pay it off around Sep 2027 if I payed in the lump now if keeping payments at £850 throughout.

Thanks!!!

CrunchyHorse

I don’t know much about all this but this is what I came up with if it’s any use:

If you put the £90k into savings, you’d earn £150 a month interest.
You’d then be paying £350 a month interest on the mortgage.
So altogether paying £5,400 by September 2021.

If you overpay the mortgage in one go you’d pay £4,428 in interest by September 2021, plus the penalty fee which would make it £8,028.


I’ve not included the fact that the interest rate will decrease by maybe £1 a month, or what happens if you overpay the 10% a year but if you run it all through an interest only repayment calculator it should give you a pretty accurate number x

CrunchyHorse

Just had a look, I got that you’d pay £5,041 in interest if you overpay by 10% a year, so would be about £3k cheaper than paying it all in at once.
(Definitely double check all this though!)

getmore4less

Summary

Mrsave wrote: »

Hi,

£90,000 cash
£162,300 Mortgage

2.59% till Sep 2021 (27/28 months)
20.5 yrs left
£850 p/m now,

10% ERC free
5% ERC
.............
Thanks!!!

When does the ERC free per year reset?
some is year(jan) some is anniversary (sept?)

Is the 5% ERC for the full term or does it reduce?

((5%/28)-(2.59%/12))*12= -0.447% that's the net savings rate needed

you could ask how much to reduce the term to increase the payment.

At these rates and if you go sub2% you may be better just looking for good savings and consider more pension contributions(iif a 40% tax payer often a no brainer)