Would you avoid fully paying off a mortgage simply to avoid paying an ERC ?

AdamBrunt

Hi all,
As above.
If you were in the position to fully pay off your mortgage but by doing so you would incur an Early Repayment Charge, would you avoid paying it off in full to save yourself the ERC ? Or would it depend on how much the ERC was ?

We are in the position of being able completely pay off the outstanding £60k on our repayment mortgage but would incur a £1750 ERC. The lender is perfectly happy to let us pay off an amount so the minimal balance is maintained until the ERC no longer applies.

Would you take the £1750 hit or wait it out ?

pjcox2005

I'd 100% wait it out unless the interest i was being charged on the remaining balance was above the £1,750. And that would be net interest (i.e. mortgage interest less the interest being made by keeping the money in a savings account).

Whilst exciting to be mortgage free, nothing actually changes as you still have the choice/security to pay it off at any time if you really needed too so why waste the money paying the ERC.

AdamBrunt

pjcox2005 said:

I'd 100% wait it out unless the interest i was being charged on the remaining balance was above the £1,750. And that would be net interest (i.e. mortgage interest less the interest being made by keeping the money in a savings account).

Whilst exciting to be mortgage free, nothing actually changes as you still have the choice/security to pay it off at any time if you really needed too so why waste the money paying the ERC.

That's what I'm thinking.

I think the minimal balance we can have is £100 and the current interest rate is about 2.49% [ it was a fixed rate taken out before the BoE went crazy ]. The ERC is in place for another 5 years. Off the top of my head there is no way that's going to incur £1750 in interest. Or is it ?

Incidently, we are also saving ourselves £20 per month in life assurance which was setup to cover the remaining mortgage in the event of either of us dying before its paid off.

Thrugelmir

Does your product allow you to make unrestricted overpayments? 

[Deleted User]

AdamBrunt said:

I think the minimal balance we can have is £100 and the current interest rate is about 2.49% [ it was a fixed rate taken out before the BoE went crazy ]. The ERC is in place for another 5 years. Off the top of my head there is no way that's going to incur £1750 in interest. Or is it ?

You can work it out yourself. Grab a calculator.

Let's pretend that your balance remained at £100 for the next 5 years.

Now calculate 2.49% of £100.

Now times that answer by 5.

Is the answer more or less than £1750?

AdamBrunt

Thrugelmir said:

Does your product allow you to make unrestricted overpayments? 

Yes. No limits/restrictions on how much you can overpay unless you pay it off in total. However, the ERC is based on the original mortgage value rather than the current balance