Overpayment dilemma

sandancer

I have a £71,000 balance left on a 5 year fixed rate.

Current repayment £1437 pm
Fixed interest 1.94% until mid 2023

I've been paying £600 pm overpayment, but this year onwards we'll exceed the 10% allowance.

Dilemma - Do I bank the money once the allowance is met, for the following year. Or maintain the overpayment and incur a 1% ERC charge per month?

Not sure which is more beneficial to reduce the term.

Your advise is appreciated.

[Deleted User]

If all you care about is reducing the term, then overpaying still makes that happen BUT it would cost you money due to the ERC.

Could you consider banking it to earn interest, and then make a full 10% overpayment on the first day of next years allowance? Maximum un-penalised mortgage reduction as far as I see it.

ThePants999

Unless your aim is to repay the entire sum before the end of the fixed rate, you should never exceed the allowance. Any overpayment that exceeds the allowance is effectively earning less than 1%, as it's saving you 1.94% but costing you 1%. Once you hit the overpayment limit, you'll be better off just sticking the rest in a savings account, and using it to overpay once the fixed period ends.

Quite surprised a 5-year fix has only a 1% ERC!

Thrugelmir

sandancer wrote: »

Or maintain the overpayment and incur a 1% ERC charge per month?

Seems rather pointless and a waste of money. Might as well earn some interest on the money instead. Or increase your pension contributions.

chunkytfg

I was always under the impression the 10% limit was based on the amount of the original mortgage not how much it is for that year? so borrow 100k and for the feed term you can overpay 10k per year?

I could be wrong but it might be worth checking

getmore4less

Plenty of places to park some money at more than 0.94%.

dimbo61

The 10% overpayment allowed each year is Nearly always 10% of the outstanding balance at the beginning of the year.
Unless you have an offset mortgage ?

gary83

I looked at a couple of providers who all specified it was 10% of the remaining balance at the beginning of the calendar year. Helpfully Santander online shows you your total overpayment and your remaining allowance for the year to make sure you don't inadvertently overpay by too much. Easy enough to track it on a spreadsheet but it's good to use the figure to double check