Pay off completely or maximum overpayments ?

AdamBrunt

Hi all,

We are currently about 2 years into 10yr fixed 2.5% ( I think - possibly less ) rate mortgage. The outstanding balance is approximately £75k and we are paying £700ish a month.

With the sad passing of my mother, we will shortly be in the position where we would be able to more than pay off the mortgage in full which, obviously would incur a fairly sizeable ERC this early into the fixed period.

Compound interest rates were never my strong point so my question is ... how do I work out if we are better/worse off paying it off in full ( and paying the ERC ) or keep paying the monthly amount plus the maximum allowed overpayments ?

Socajam

I would keep the money and wait until the fixed rate expired
Why give away money to the banks.
On a different note: do you have a life happens fund and an emergency fund?

AdamBrunt

Socajam wrote: »

I would keep the money and wait until the fixed rate expired
Why give away money to the banks.

Whilst this is true ... depending on the size of the ERC and/or fixed interest rate, there is a surely a point at which x years of compound interest is less than the ERC meaning not paying the ERC would actually make you worse off ?

paddyz

Just do the sums and work out the best route to pay it off fully

Sorry for your loss too

Zola.

Sorry to hear of your loss.

The contract of your mortgage should clearly say the ERC terms and costs, I have found the amount to be on a sliding scale the further you get into the contract.

If you went through a mortgage broker, you could be lazy and just email them!

pavlovs_dog

At its most basic...

if you contact your mortgage provider they will be able to tell you what your settlement figure would be

you can then plug your current mortgage debt and interest rate into a mortgage calculator to work out how much you would pay over the remainder of the mortgage if you continued paying normally.

The difference between the two sums will help you to identify how much settling your mortgage now will cost / save you.

other options to consider would be to save/invest your inheritance and carry on paying off the mortgage as normal (check out the savings and investment boards for advice there). Alternatively if your mortgage allows overpayments, you could drip feed your inheritance as overpayments so you don'y pay the ERC but do significantly reduce the interest you pay on the mortgage over the remainder of the term.

longway2go

Not sure if you are aware but their is an overpayment calculator on this site. If you find out how much your early repayment fees are at different points you will be able to calculate if paying off early will benefit you or not.

Sorry for your loss.

Retter

If it’s like my mortgage you’ll probably have a 5% overpayment charge until year 5 which then decreases by a percentage point each year until it expires inside the last year. At 2.5% fixed your overpayment/settlement charge would be roughly equal to two years worth of interest payments.

On the face of it (in £ terms) it would be worth clearing your mortgage but it’s a decision for you depending on your priorities.

If I came into enough money to clear mine I’d do it, but that’s just me.