Early repayment charges

paulalou76

Hi all,
I'm nearing the end of my mortgage, 3 years 7 months left, on a deal that ends in 3 years 3 months. I'm wanting to reduce my mortgage so it finishes at the same time as my current deal, firstly by overpaying my 10% allowance each year to reduce the term then by using the overpayments to reduce the monthly payments later on in the mortgage once the life of the mortgage is the same as the mortgage deal.

Ideally,  towards the end of my deal I'd like to be paying the minimal monthly amount, having reduced my monthly payments.

I've paid off my 10% allowance for this year but I'm wondering whether its worth incurring the early repayment fees. For example, if I pay off £500 this month I'll incur a fee of £28 but I'll still be saving £40 on interest (£12 difference) and reducing the term by 1 month.

What would other people do? Is it worth incurring the ERFs while the fee/interest balance is still in my favour?

getmore4less

to do the numbers need more info.
Details of the mortgage amount term payment rate etc   and ERC % change timings.
£28 on a £500 OP does not look right at 5.6% they are usually multiples of 1%

how much do you have as a lump sum or monthly  in excess of your contractual payment.

paulalou76

When using the Santander calculator on my account to see what was possible (I didn't complete the overpayment) I chose the option to have the fees taken from the £500. On my current deal I pay £425 a month at 2.29%, with approximately £17,400 left to pay.

getmore4less

When is the next 10% and does the ERC rate change from 5%  to a lower amount?

£500 ERC 5% paid from the £500  should  be £476.19  fee £23.81

I think you will struggle to make any saving if you work on getting savings interest up and overpaying the 10% each year

To save £1 a month you need an overpayment of £524  which has a fee of £26.20
that's 2 years 2 months to break even

To go to 3y 3 months 39 months to break even you need a rate  of 1.54%  a savings rate of (2.29-1.54) 0.75% will make you better of saving (as you can do 10% each year th savings rate on some of it can be much lower)
You should be able to get at least 1% from savings there are regular savers over 2%

 

getmore4less

Forgot to add the basic calculation.
On  a 3y 7m schedule
£17,400 2.29% £422pm interest £740
5% ERC £870

paulalou76

Thanks for that calculation, that helps with understanding how much interest I have left to pay on the full mortgage. My idea was not to invoke the entire remaining ERC, just to pay off enough in overpayments while the ERC is less than the interest saving, so in my example above this is +£12 (£28 versus £40). As soon as the difference is £0 or negative and not in my favour, I'd stop paying overpayments until my next fee free 10% kicks back in.

getmore4less

Are you saving up more than the next  2 years 10% lumps that are ERC free because that's the saving limit not the full term.
On a £500 overpayment(that a fee comes out of)  you save £10.90 a year so over 2 years to recover and 3y 3months will be £35 (not £40) on a £24 fee,  and you will have had 2 ERC free lumps by then,  and a bit of interest sticking it in savings.