Should i pay off my mortgage early even though i incur penalties

Tonyteeth

Good morning,just after a little advice.I have a mortgage with the Santander and have asked for a settlement figure but unfortunately it occurs a penalty on the account.
I currently pay just shy of £500 pcm on a mortgage of around £70,000 but I am tied in with the product till December 2023,to pay it up early will incur an extra £3500 approximately on top of the £70,000,so I am a little stumped on what to really do for the best.
Any advice would be greatly appreciated.

Sea_Shell

Do they have a limit that you CAN pay off each year without penalty?    Say 10% or so?

Moneyminded

It sounds like you are on a fixed rate with Santander, if so they permit you to overpay 10% of the outstanding balance each year penalty free. Login to your mortgage account and see how much of this over payment allowance you have left for this year and pay that as a starting point. This will reduce the outstanding balance and also the early repayment charge as this is usually a percentage of the outstanding balance. 
To work out if it is worthwhile paying off the mortgage now (i'm assuming using savings?) then you would need to calculate how much you would pay in interest between now and December 2023, is this more or less than £3,500?  

Tonyteeth

Sea_Shell said:

Do they have a limit that you CAN pay off each year without penalty?    Say 10% or so?

Yes I have spoken with Santander and it is 10% that I can over pay on.I will take a look at my account just to see what interest I am paying per month

greent

I have paid off a sub account before with a penalty whilst it was still in a fix - I calculated that the penalty was less than the interest I would have paid if I let it run to the end of the fix.

Definitely calculate how much interest you would be charged until Dec 2023 (simple spreadsheet should sort this if it's a reducing balance) and also take into account any interest that you may earn on the £70k if it's held in savings.

If it doesn't stack up at the mo, Quite often the penalty is a reducing one - may be worth looking at again when the penalty %age reduces, if this is the case

Tonyteeth

thanks for your reply,i have just gone through everything and the interest being paid is on a sliding scale.I am paying £135 a month at the minute so works out roughly £4500 on interest until the end of the fixed rate term in dec 2023.If I put the £70000 in a savings account that I can get access to that's going to make roughly £900 a year on interest.Even if I pay off the 10% I am allowed for each financial year in overpayments I still think it will fall short