Overpay vs penalty

stephsirr

We have an inheritance and want to pay a lump sum in excess of our 10% off our mortgage.  The quote is £3,400 in penalties.  The saving on mortgage payments (interest only) is £1,900 over the same period (ie the mortgage expires next June). I can’t work out why it’s so high when we will still have a mortgage of £100k with them and it’s quoting a full pay off penalty of over £7k. Can we haggle!? I’d rather pay it off and know it is done but feels like a waste of around £1,600

K_S

stephsirr said:

We have an inheritance and want to pay a lump sum in excess of our 10% off our mortgage.  The quote is £3,400 in penalties.  The saving on mortgage payments (interest only) is £1,900 over the same period (ie the mortgage expires next June). I can’t work out why it’s so high when we will still have a mortgage of £100k with them and it’s quoting a full pay off penalty of over £7k. Can we haggle!? I’d rather pay it off and know it is done but feels like a waste of around £1,600

@stephsirr I'm afraid there's unlikely to be any haggling on the ERC.

What is the interest rate? If it's low enough, might be worth doing the numbers on putting the lump-sum in the highest-rate savings account available to you until the ERC expires next June.

You could get 2.15% on a 120-day notice account as per the MSE top savings accounts listed here 
https://www.moneysavingexpert.com/savings/savings-accounts-best-interest/

dimbo61

So pay off the 10% allowance ASAP and put the rest of the inheritance into the best savings accounts you can find till June next year.
Do not pay one penny in ERC,s 

IAMIAM

dimbo61 said:

So pay off the 10% allowance ASAP and put the rest of the inheritance into the best savings accounts you can find till June next year.
Do not pay one penny in ERC,s 

Totally agree with this

stephsirr

Thanks all.  So - 10% it is.   However, I'll have to pay tax on the interest won't I?  7 months at 2.15% will take me over £500 of interest.  Might be better in Premium bonds for some of it?   Cut off point is next June so it would be 7 months in this tax year and just over 2 in next?

Or part in an ISA? I don't have an ISA at all at present but the interest rates look a bit puny although factoring in the tax on interest may end up slightly more. 

diggingdude

Have you overpaid at all this year? Make sure it's 10% for the year not as a one off. Not worth penalty for going £1 over