Best way to pay off mortgage with ERC

calvr1ch

Hi all

Just after a bit of advice regarding a thought I have regarding paying off our mortgage.
We lost our dad a few months back and so will inherit his house that will be sold. This inherited money will enable us to pay off our mortgage.
We took out our mortgage last September on a five year deal so as such we are tied in with early repayment charges which is at 5% at the moment. However by the time Dads house is sold it will come down to 4%. With the mortgage I am able to pay off 10% each year without incurring costs. The current balance on my mortgage is approx £45k so I was thinking of paying £4.5k as a lump sum and paying 10% again in October when it falls into the next year. After that I would pay the mortgage in full on the remaining balance paying the 4% ERC.
Does this sound the best way of reducing the amount of ERC I will pay?
Any other ideas would be welcomed.

Thanks in advance.

Tom99

Yes I think you have the right idea. What interest rate are you paying on the mortgage?
If you deferred the final repayment by another year you would be able to pay off a 3rd 10% and pay 1% less penalty.
So if you were paying say 2.5%pa mortgage interest but could get a 1yr fix on savings of 2% it may be cheaper to delay the final repayment.
However even if it works out that way the saving may be so small that you just want to get the mortgage paid off.

muhandis

It's hard to say without knowing what the interest rate is that you are currently paying on your mortgage....

calvr1ch wrote: »

Does this sound the best way of reducing the amount of ERC I will pay?
Any other ideas would be welcomed.

Thanks in advance.

sal_III

You are likely to be better off by sticking the lump sum in a savings account and repay the mortgage at the end of the fix. Sit down and do the math.

calvr1ch

It’s 2.09%

calvr1ch

Full info
Remaining balance £45750.45
Monthly payment £508.27
Interest rate 2.09% fixed until 31-12-2023

Tom99

calvr1ch wrote: »

It’s 2.09%

Then almost certainly the cheapest would be to find a savings fix and repay most of the mortgage later.
You would need to compare the net interest on the savings if any of it would be taxable.
You could take a 1yr fix at 2% and take stock in a years time.
1yr mortgage interest at 2.09% say £940
less 2% on savings say £900
less 1% less penalty say £450
Net gain £410
The actual figure may be slightly different because it may still be worth paying off the 10%'s as soon as you can.

BoGoF

Who is the mortgage with?

calvr1ch

It’s with Natwest

BoGoF

calvr1ch wrote: »

It’s with Natwest

Was just checking it wasn't with Halifax as fairly sure they changed their 10% overpayment rule to a calander year not the 'mortgage year'.