Should I pay a 6% ERC?

antony_

Hi
  I owe about £50k on my mortgage. Due to a family death I should be coming into £25k in about 3 months.
My mortgage is a 10 year fixed which I started 2015. Interest rate of 3%, ERC of 6% (so, effectively 2 years interest). The ERC will come down to 3% at the end of 2022
Given that savings accounts are paying next to nothing at the moment and I don't want to risk the money, also as in the case of financial difficulty I have literally no one I could turn to, I'm thinking of using the money to pay off some of the mortgage and take the 6% hit. In my eyes, it's the same as leaving the money in my bank account as I would effectively be paying 6% over the two years anyway
Is there anything else I could/should do with the money instead? My dream is to pay off my mortgage as soon as possible and have that security but I accept that that might be blinding me to better alternatives
Thanks

blue_max_3

3% isn't too horrendous on £50K. I'd use it to pay off capital each year. Usually, you can pay off 10%pa.

antony_

blue_max_3 said:

3% isn't too horrendous on £50K. I'd use it to pay off capital each year. Usually, you can pay off 10%pa.

It's 5% per year with my mortgage

dimbo61

So pay off 5% this year and 5% next year.
Keep some in savings and enjoy some.
Maybe a new kitchen or bathroom.
Maybe pay more into your pension or a new more economical car.
Please don't give your lender one penny more than you need too.

getmore4less

What is the current full term and payment?

Ask the lender how much it would be to change the full term to something shorter.

antony_

dimbo61 said:

So pay off 5% this year and 5% next year.
Keep some in savings and enjoy some.
Maybe a new kitchen or bathroom.
Maybe pay more into your pension or a new more economical car.
Please don't give your lender one penny more than you need too.

The point being they are getting the money anyway
(a) Don't pay the ERC. Pay 3% this year in interest, 3% next year (the balance will be slightly lower in the second year, but then there's compound interest)
(b) pay the ERC of 6%. That's 2 years of interest in advance, and the balance is now considerably lower. Also I'm not losing money through inflation

blue_max_3

antony_ said:

The point being they are getting the money anyway
(a) Don't pay the ERC. Pay 3% this year in interest, 3% next year (the balance will be slightly lower in the second year, but then there's compound interest)
(b) pay the ERC of 6%. That's 2 years of interest in advance, and the balance is now considerably lower. Also I'm not losing money through inflation

If you pay off 5% this year, you will have less balance and pay less interest through out the year. And the same next year. Then you will owe £40k and 6% of that will be less than the current balance.
With (b), your balance isn't effected by the ERC. You'll still owe the same. You will be free to apply for a lower rate product though.