Can't figure what option is best Nationwide mortgage dilema

ourkidsidmse

OK so any help would be appreciated I'm stuck with the maths here.

£61648 is my outstanding mortgage balance.

I have a 10 year fixed rate (I know bad decision with hindsight) 2.89% started in June 2015.

Monthly payment is £500 and every month I have been overpaying by an additional £220.

Max annual overpayment allowed £12,500 (10% of initial amount borrowed) each year runs 1st june to 31st may.

This mortgage year I can pay penalty free another £10,520.

1st June can pay another £12,500.

I have the funds to repay in full however if I do this now there would be a 5% penalty.

If I wait until 1st June the penalty reduces to 4% then June 2022 3% June 2023 2% June 2024 1%. Plus whenever I repay the mortgage an additional £65 fee.

I was planning to max the repayment now and then another £12,500 in june and then clear with a 4% penalty which I reckon to be £1520 approx.

Is this the smartest option? I think from my calculations doing the max £12,500 overpayment each year at the earliest opportunity clears it all by oct 2023 with around the same interest charges as the repayment penalty if I clear it all this June, plus the benefit of me keeping hold of my money longer and earning interest.

So what option is the best from a moneysaving point of view?

caeler

I guess it depends how fast you want to be mortgage free and how much you want to avoid/minimise the ERC. Maybe work out the ERCs payable at each of the times you mention to consider the difference to decide if it’s worth waiting? 

ourkidsidmse

caeler said:

I guess it depends how fast you want to be mortgage free and how much you want to avoid/minimise the ERC. Maybe work out the ERCs payable at each of the times you mention to consider the difference to decide if it’s worth waiting? 

Just want to know which option is cheapest and annoyed with myself that I can't figure it out!

MFWannabe

ourkidsidmse said:

OK so any help would be appreciated I'm stuck with the maths here.

£61648 is my outstanding mortgage balance.

I have a 10 year fixed rate (I know bad decision with hindsight) 2.89% started in June 2015.

Monthly payment is £500 and every month I have been overpaying by an additional £220.

Max annual overpayment allowed £12,500 (10% of initial amount borrowed) each year runs 1st june to 31st may.

This mortgage year I can pay penalty free another £10,520.

1st June can pay another £12,500.

I have the funds to repay in full however if I do this now there would be a 5% penalty.

If I wait until 1st June the penalty reduces to 4% then June 2022 3% June 2023 2% June 2024 1%. Plus whenever I repay the mortgage an additional £65 fee.

I was planning to max the repayment now and then another £12,500 in june and then clear with a 4% penalty which I reckon to be £1520 approx.

Is this the smartest option? I think from my calculations doing the max £12,500 overpayment each year at the earliest opportunity clears it all by oct 2023 with around the same interest charges as the repayment penalty if I clear it all this June, plus the benefit of me keeping hold of my money longer and earning interest.

So what option is the best from a moneysaving point of view?

Personally I’d pay mortgage off in June 
Although I’d be paying ERC it would amount to interest I’d be paying anyway and I’d be mortgage free
Also I’d then be saving £720 per month 

getmore4less

If nationwide allow you to keep your payment the same after large overpayments there will be an optimal amount to leave for a few months.

ourkidsidmse

getmore4less said:

If nationwide allow you to keep your payment the same after large overpayments there will be an optimal amount to leave for a few months.

they do allow me to keep the same monthly payment.

getmore4less

10y fix 2.89% June 2015   (£125k over 32year £500pm ?)

Now £61,648  paying £500pm +  £220
ERC free now £10,520(5%)   June 1st  £12,500(4%) 

Pay the £10.5k now(assume you just came into this money as with overpayments sooner is better than monthly)
You are into exact payment months so this may be a little out.

Now to June 3 months

amount	rate	payment	owing
£51,128.00	2.89%	£500.00	£49,994.67

call that £50k less the £12,500
£37,500 ERC 4% £1,500

but you can still pay £500pm, that accumulates £500* 0.0289/12 == £1.20 interest per month and the ERC 4% is £20 
That's around 20/1.20 == 16/17 months  from June this year where the ERC costs more than the interest

£37,500  £500pm for a year becomes 

amount	rate	payment	owing	interest
£37,500.00	2.89%	£500.00	£32,518.10	£1,018.10

Then you can do another £12,500 , £20k left,  too much to go another year

what if you targeted to have £12,500 left in another year with £500pm.

amount	rate	payment	owing	interest
£18,000.00	2.89%	£500.00	£12,447.03	£447.03

ERC on £18,000 4% £720 saved £273 letting some run another year

Could work out the optimum but the returns go down for those last few months
for £20k left  ERC £800.

amount	rate	payment	owing	interest
£20,000.00	2.89%	£500.00	£14,505.60	£505.60

then 4 months

amount	rate	payment	owing	interest
£2,005.00	2.89%	£500.00	£17.15	£12.15

Total interest around £518  saving  £282
probably not worth bothering for an extra £9.


Does depend on being able to keep paying at £500pm

ourkidsidmse

getmore4less said:

10y fix 2.89% June 2015   (£125k over 32year £500pm ?)

Now £61,648  paying £500pm +  £220
ERC free now £10,520(5%)   June 1st  £12,500(4%) 

Pay the £10.5k now(assume you just came into this money as with overpayments sooner is better than monthly)
You are into exact payment months so this may be a little out.

Now to June 3 months

amount	rate	payment	owing
£51,128.00	2.89%	£500.00	£49,994.67

call that £50k less the £12,500
£37,500 ERC 4% £1,500

but you can still pay £500pm, that accumulates £500* 0.0289/12 == £1.20 interest per month and the ERC 4% is £20 
That's around 20/1.20 == 16/17 months  from June this year where the ERC costs more than the interest

£37,500  £500pm for a year becomes 

amount	rate	payment	owing	interest
£37,500.00	2.89%	£500.00	£32,518.10	£1,018.10

Then you can do another £12,500 , £20k left,  too much to go another year

what if you targeted to have £12,500 left in another year with £500pm.

amount	rate	payment	owing	interest
£18,000.00	2.89%	£500.00	£12,447.03	£447.03

ERC on £18,000 4% £720 saved £273 letting some run another year

Could work out the optimum but the returns go down for those last few months
for £20k left  ERC £800.

amount	rate	payment	owing	interest
£20,000.00	2.89%	£500.00	£14,505.60	£505.60

then 4 months

amount	rate	payment	owing	interest
£2,005.00	2.89%	£500.00	£17.15	£12.15

Total interest around £518  saving  £282
probably not worth bothering for an extra £9.


Does depend on being able to keep paying at £500pm

cheers that is pretty much how i had the figures although the penalty reduces down by 1% each year, i'm thinking that it makes financial sense to overpay the max each year at the start of June as well as the 10.5k asap. This should mean that its all paid off a few months after June 2023. I wanted to clear sooner for mortgage freedom but sensibly I know I should do the cheapest option, just feels weird and confusing that paying it sooner costs more (Ithink)!

getmore4less

That's not what the numbers show.

Do the two ERC free overpayments.
Then pay the ERC to leave around £18-£20k to continue for 1 year and a bit.

Paid off June-Oct(ish) 2022.

The interest on the bit you pay off paying the ERC is more of it goes over 16 months from June 2021, Oct 2022.

getmore4less

Thought I would do the let it run  scenario to get a feel for the scale of the savings.
Assuming the starting point June 2021
£37,500 ERC 4% £1,500
let it run at £500pm 2.89% for 1 year then pay off £12,500

amount	rate	payment	owing	interest
£37,500.00	2.89%	£500.00	£32,518.10	£1,018.10

2nd year start June 2022

amount	rate	payment	owing	interest
£20,018.00	2.89%	£500.00	£14,524.13	£506.13

3rd year start June 2023 4 months

amount	rate	payment	owing	interest
£2,024.00	2.89%	£500.00	£36.33	£12.33

total interest is £1,536 nearly the same,  but then you need to factor in £37,500 starting  in savings against £500pm going into savings

The alternative of aiming for around a 1y to 1y 4m saves ~£273/£282 again you have the savings to add on top

if you can find savings at say net 1% that changes the run time  as net interest per £500 is 1.89%   78.75p per month against £20 ERC    20/0.7875  == 25 months which is very close to time needed.

Really depends how much you want to chase that last £1

A quick look and finding 1% does not look good, for £500pm there are some savers around 3% but that won't cover the 4% ERC but will cover quite a bit of the interest