Early repayment penalty vs. interest

Wilseus

To cut a very long story short, my wife and I both owned modest homes, both with quite small mortgage balances left. We decided to both sell and jointly buy a large detached house. Because we had so much equity we only needed to get a small mortgage to do this (under £100K.) We decided on a 5 year fixed rate for peace of mind.
The sale of my house did not go through as quickly as I had anticipated, so in order to avoid losing the house we wanted, we ended up having to increase the mortgage application to about three times the original amount, in order to cover the equity from my house. Unfortunately we didn't think to change it to not being a fixed rate, and now that my house has sold, I have a six figure sum of money in my current account, which I can't just overpay back into the mortgage without having to pay a whopping 5% on most of the overpayment.

Does anyone know of a formula or a tool where I can input the figures and it will give me an illustration of interest charges if I decide to overpay the maximum overpayment that doesn't charge a penalty?

MaryNB

Like this one?
https://www.moneysavingexpert.com/mortgages/mortgage-overpayment-calculator/
It will tell you how much interest you'll save. 

getmore4less

You may still save if you overpay more than the ERC free amount but timing will be important.

need more information.
lender(some have overpayment options more than the typical 10% per year)
mortgage rate
ERC free overpayment allowances
ERC rate
dates when the ERC rate changes(if it does some don't)

Wilseus

MaryNB said:

Like this one?
https://www.moneysavingexpert.com/mortgages/mortgage-overpayment-calculator/
It will tell you how much interest you'll save. 

I've looked at calculators like that but they are too simplistic for working out this sort of thing, because of all the variables below.
I also want (need) to use the overpayments to reduce the monthly payments, by degrees, which complicates things.

getmore4less said:

You may still save if you overpay more than the ERC free amount but timing will be important.

need more information.
lender(some have overpayment options more than the typical 10% per year)
mortgage rate
ERC free overpayment allowances
ERC rate
dates when the ERC rate changes(if it does some don't)

The lender is Halifax (their penalty-free repayment amount is 10% per year, resetting on the 1st January)
Rate is 1.71%
The early repayment charge is 5% year 1, 4% year 2 etc, reducing every September the 10th for 5 years.

I have already repaid the first 10% of the opening balance.

getmore4less

As the ERC drops 1% Sept and you can overpay 10% in Jan there will be a window where it may be worth paying the ERC  and then you need to wait till the next window 

I have the basics set up to work that out will do something with that information but it will be later or even tomorrow.

its pretty straight forward once you know what you want to knock up a spreadsheet. 

Wilseus

getmore4less said:

its pretty straight forward once you know what you want to knock up a spreadsheet. 

I did actually try doing that, but eventually gave up when I couldn't get the spreadsheet to agree with the default monthly payments/term.

amnblog

Why did you take the extra on a five year rate if you were looking to repay it ASAP.

Wilseus

amnblog said:

Why did you take the extra on a five year rate if you were looking to repay it ASAP.

Because I had originally planned to borrow a much smaller amount but had to increase my borrowing to allow for my house sale not completing in time. I think I am right in saying that if I had changed the product, rather than just the amount borrowed, I would have had to reapply which might have taken too long.

amnblog

Not the case. You could have had the £100K you needed long term on a 5 year rate, the rest on a shorter rate ( minimum 2 year (c 27 months) rate with Halifax).

Did you apply direct to Lender? 

getmore4less

looks like I lost the previous attempt at doing this so will do another one.
there is a post somewhere with it in but can't find it.

The base calculation is interest saved against the erc payment

As the ERC drops 1% each year we only have to look at a year(12months).

if you overpay just after the ERC drops you get the full 12months saving and that drops to nothing if you overpay just before the next 1% drop(each year after that you get the full saving.

For yours using a £10k overpayment(it scales) and a reset month of Sept.

Amount	£10,000
rate	1.71%
erc break	1.00%
erc cost	£100.00
month	saving	ERC month
1	£171.00	September
2	£156.75	October
3	£142.50	November
4	£128.25	December
5	£114.00	January
6	£99.75	February
7	£85.50	March
8	£71.25	April
9	£57.00	May
10	£42.75	June
11	£28.50	July
12	£14.25	August

Once you get to Feb you save less than the ERC so best to wait till the next drop

It can get a bit more complicated,
You can factor in savings, you only need ~0.71% to break even over optimum ERC

You then have the ERC free effect which needs to be done over the 5years, more important for those that have a lump sum that is  maybe only 2-3 years worth of ERC free

Wilseus said:

getmore4less said:

its pretty straight forward once you know what you want to knock up a spreadsheet. 

I did actually try doing that, but eventually gave up when I couldn't get the spreadsheet to agree with the default monthly payments/term.

 Why not put up what you did(or your numbers and the discrepancy) and we can see if it can be fixed.

Wilseus

amnblog said:

Not the case. You could have had the £100K you needed long term on a 5 year rate, the rest on a shorter rate ( minimum 2 year (c 27 months) rate with Halifax).

Did you apply direct to Lender? 

No, I used a broker. I don't think she told me this, but in her defence I did tell her to do whatever was quickest and easiest, and she did get me a new offer in under 24 hours. We were buying from a developer and they were about to withdraw the house from us, and we'd already paid money up front (yes I know now: developers are !!!!!!, never pay money up front.)