Should I pay mortgage or incur £2,650 penalty?


I would really appreciate some advice.

In January we remortgaged for home improvements leaving us with a mortgage of £59,000. We fixed the rate for 5 years @ 1.89% given the economic climate.

We were then gifted enough to pay this off from my in-laws. We didn't know this was in the pipeline, otherwise we would not have re-mortgaged.

We are told if we pay off the mortgage in full we will incur a penalty of £2,650. We could pay off 5% and then another 5% next May and keep doing this and paying the monthly mortgage payments (£347) as normal.

I am inclined to pay it in full and want the freedom of having no mortgage. However the penalty just seems so high. 

Thoughts welcome!


  • powerful_Rogue
    powerful_Rogue Posts: 7,464
    Name Dropper First Post First Anniversary
    edited 16 June 2022 at 10:58AM
    Have you stuck the figures in a calculator to see if you would be better off paying the penalty and clearing the mortgage vs the additional interest payments?
  • D924
    D924 Posts: 88
    Name Dropper First Anniversary First Post
    Keep the mortgage. 1.89% fixed for five years is a really good rate which you obtained just in the nick of time really, and you can invest the money elsewhere even some savings accounts pay more than 1.89% now!
  • powerful_Rogue
    powerful_Rogue Posts: 7,464
    Name Dropper First Post First Anniversary
    Having a quick look at the MSE mortgage overpayments calculator, it appears if you paid it all off now, you would save £2790 in interest.
  • diystarter7
    diystarter7 Posts: 5,202
    First Anniversary First Post Name Dropper
    Stick with the mortgage and my feeling is today rates will rise for savers etc. Put most of in a years fixed etc. Then end your mortgage when fixed term ends.

    You could give the lenders another call and tell them clearly you are doing them a favour by letting go of the low mortgage rate and a pyment of about 250/300 is more appropriate - speak to a manager/senior person.

  • I’m sure I heard something somewhere about a 3% savings account. 3% on £60,000 is £1800 a year so over five years £9,000 + with compounding interest.

    paying off early will incur £2,650 or £530 a year fees. 

    As I’m writing this the Bank of England have pushed up interest to 1.25%, so savings will go up, whilst your fixed mortgage stays the same.  

    If it were me, I’d put the money into the highest interest account, hopefully a good ISA, but that’s an age thing,(I  believe ISA are exempt from death duties/inheritance tax) pay off the mortgage til the fix runs out and then look at paying it off.

    Whatever you choose to do, I wish you all the best. 
  • Thanks - interesting. My OH is keen on the high interest account whilst I am more conservative and want to pay it off, but perhaps it makes sense. We did do some initial calculations and it did show that in the long term paying it off would save us money.
  • I have just asked my other half to read this post.

    I thought the reply would be pay it off. 

    I’m surprised I got it wrong!!

    I think it’s the interest rates have gone up and probably will do again, that’s the only reason we are in agreement 😁

    As I said before, wishing you all the best 

  • I think we are in agreement in terms of putting the money into a hig interest account. Do you think it is worth waiting a few weeks and watching what happens as interest on high savings accounts may increase even more...
  • savingholmes
    savingholmes Posts: 26,848
    Name Dropper First Anniversary Photogenic First Post
    With many of the higher interest rate accounts you need to drip feed it in using regular saver

    I would also look at your pension provision - as you could put some into your pension(s) and get tax relief potentially. (Not a financial adviser - you need to look at your own circumstances and weigh it up and whether you need advice)
    Achieve FIRE/Mortgage Neutrality by mid 2030
    1) MFW Nov 21 £201,999 with 237 payments to go - now £184,341 Equity 26.26% (lower post move compensated by EF)
    2) Mortgage neutral by June 2030 AVC £7,613/£127,466 AVC target 5.97%
    3) FI Age 60 annual income target £12,500/30,000 41.66%
    Achievements: CC free since April 22. 1 year EF from Jan 24 & dedicated pot for home improvements
Meet your Ambassadors


  • All Categories
  • 341.7K Banking & Borrowing
  • 249.7K Reduce Debt & Boost Income
  • 449.1K Spending & Discounts
  • 233.8K Work, Benefits & Business
  • 605.9K Mortgages, Homes & Bills
  • 172.4K Life & Family
  • 246.7K Travel & Transport
  • 1.5M Hobbies & Leisure
  • 15.8K Discuss & Feedback
  • 15.1K Coronavirus Support Boards