Redeeming mortgage in chunks?

jacggors

Hi everyone, I'm fortunate in now being in a position where I can pay off my mortgage sooner than expected. Unfortunately I'm in a mortgage deal so I'll have early repayment charges to make, but they'll still be lower (just) than the interest that would build up if I waited until the end of the deal and pay the mortgage off then.

I'm slightly worried about making one big payment just in case it goes to the wrong place, or something goes terribly wrong and I lose all my money somehow. So I was thinking of paying it off in four installments over the next couple of weeks, rather than all in one go, and seeing the balance go down before I make the next payment.

I was wondering if anyone knows, is there a financial advantage (or disadvantage) to just paying it all off now rather than making smaller payments? I spoke to someone at the bank and she was saying there are overpayment charges for overpaying by more than 10%, and then a redemption charge for paying off a mortgage before the end of the 25 yr term. She seemed to think initially that it could cost more by paying in chunks (overpayment charges for paying off more than 10% in the year) because I'd be charged the % penalty for overpaying over the allowance for the year each time I did that, and then still have to pay a redemption charge when I pay it off in full. However, as I started asking more questions, she seemed to go the other way and while she emphasised she wasn't advising me and couldn't advise me, it sounded like she thought I should pay off in chunks and maybe that would be cheaper after all. Which made me doubt her non-advice a little... Does anyone understand this? I'm a bit of a newbie in these matters. Many thanks for any light you can shed.

housebuyer143

Have you considered putting the money into a high interest account and then not incurring the ERCs?
Does that work out cheaper if you factor in the interest you will also get from your savings? 

Is the ERC based on the initial loan balance or the balance on repayment? That will factor in if it's worth paying 10% first then a lump sum.

Personally I would keep the money until the end of the fixed term rather then incur any ERCs.

born_again

Given the fear of making a payment to the wrong acc. 
Why not make a small extra payment under the limit. Once you know that has arrived. Then pay the balance off. 👍

jacggors

Hi Housebuyer, thank you. Yes I have considered that, and with interest rates going up now it's certainly worth considering, but for me, I think the peace of mind of having my mortgage paid off would outweight any (modest) financial advantage of doing it that way.

The ERS is based on the balance left when I choose to pay it all off, it's 2% of the balance.

Hi Born Again, that's a good idea, thank you.

housebuyer143

jacggors said:

Hi Housebuyer, thank you. Yes I have considered that, and with interest rates going up now it's certainly worth considering, but for me, I think the peace of mind of having my mortgage paid off would outweight any (modest) financial advantage of doing it that way.

The ERS is based on the balance left when I choose to pay it all off, it's 2% of the balance.

Hi Born Again, that's a good idea, thank you.

When I paid mine I just sent it in £20k lump sums via Bacs as I had no ERCs, but if you choose to send more then I would send a small amount to confirm the bank details and then go to the bank and chaps the remaining. 

jacggors

Thanks Housebuyer!