Gifted £100k - wanting to Overpay - Lump Sum n Fine or stagger it until fixed term runs out 2023

My hubby and I have been gifted £100k 
We owe about £190k on the Mortgage, we want to overpay 

Option 1: if we paid £100k now we would be fined approx £1600 -£1700?

Option 2: if we can overpay £18k now, then next year £17k and then in 2023 when we remortgage in March 2023 pay approx £75k off the remainder then ?

Which option would be best ? 

If we go with option 2 - where should i stick the money ? Premium Bonds ? ISA and Savings ?

TIA 

Comments

  • btw option 2 - is within the annual limits of allowed overpayments 
  • biscan25
    biscan25 Posts: 452
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    Option 2 almost definitely, but need to know your mortgage interest to know for sure.
    I'd put the money in a fixed savings account with a term tying in with the end of your term. e.g Savings accounts: 0.66% easy access or up to 2% fixed (moneysavingexpert.com)
    Pensions actuary, Runner, Dog parent, Homeowner
  • Our interest rate is 1.92%
  • biscan25
    biscan25 Posts: 452
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    OK, here's my sums, happy for someone to peer review.
    Assuming exactly 2 years to your mortgage fixed term ends.
    Option 1 Paying 100k now reduces interest as follows (1.0192^2-1)*100000 = £3,877, minus your ERC (1600) gives £2,277 saving.

    Option 2 Paying 18k now reduces interest as follows (1.0192^2-1)*18000 = £697.90.
    Paying 17k now reduces interest as follows (1.0192^1-1)*17000 = £326.40

    Then  we add on some savings interest, best buy fixed savings are 1 year 1.3%, 2 year 1.6%.
    So for your £17k 17k*0.013 = 224.40
    For the 75k, year one gives £1,200 interest, year 2 £1,220.
    So a total saving of £3,667.40

    There will be a small amount of tax on interest on option 2 (£120 ish assuming you have no other savings interest), but this will go away if you split the funds between you.
    Pensions actuary, Runner, Dog parent, Homeowner
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