Mortgage info

Eddielewis76

Hi,

my fixed rate mortgage is up in April 2024, I have just been looking at deals and the 10 year fixed would be the cheapest option at the moment. 

My question is to do with overpaying, I currently overpay my mortgage, and when I fix next year I recon i could easily afford to over pay so that the mortgage will be paid within 8 years. I know it’s usually on a sliding scale on how much you have to pay as a fee for paying off the mortgage early. I was thinking of overpaying and just leaving a small amount on the mortgage until the 10 years were up to avoid paying any fees. 

Is this possible to do, should I speak to my bank? should I take the 10 year fixed and adjust my overpayment to pay off the mortgage right on the 10 year fixed rate end date? Or should I go for a shorter term and pay off the mortgage within the 8 years like I planned, only issue with a shorter term is that I may have to then pay for 2 product fees for 2 mortgages rather than just the one fee for the 10 year fixed. 

Any advice will be much appreciated guys. Thanks I’m advance. 

powerspowers

Can you use the mortgage calculators to work out how much each option would cost? 

I think there is a limit to how low you can borrow on a fix, so if you did 5 years fix, you might end up on a tracker for the last bit. 

Also check overpayment limits 
good luck!

ACG

It is not something I have had to look into so not quite sure how it would work in practice, but I cant help but think if you do a 10 year fix and pay it off in 8 years you are going to end up with an early repayment charge. 

MWT

Eddielewis76 said:

I was thinking of overpaying and just leaving a small amount on the mortgage until the 10 years were up to avoid paying any fees. 

Check your lenders terms for the ERC, if it is a simple percentage of the remaining balance at the point when you pay it off, then by that point the balance will be small and the ERC correspondingly low...

If it is a flat fee which does not change then you would have to leave a minimal balance and just let the tiny monthly payments run until the end of the 10 years.

grumbler

ACG said:

It is not something I have had to look into so not quite sure how it would work in practice, but I cant help but think if you do a 10 year fix and pay it off in 8 years you are going to end up with an early repayment charge. 

The last fixed rate mortgage that I looked at recently allowed overpayments up to 10% of the principal every year without penalties. The term was less than 10 years.

Eddielewis76

Thanks for the information, i have checked my current mortgage and the early repayment fee is a decreasing percentage of the initial borrowing amount. if the new mortgage i get next year has the same ERC's that would not be great as i would have to pay 2% of the initial borrowing. there is a section in the offer i have for my current mortgage that allow underpayments, it states - "You can pay a reduced (or no) monthly payment at any time up to the amount of any overpayment reserve you have built up. You must get Nationwide’s agreement to this before reducing your monthly payments".

so in theory, i could still overpay for the 8 years and speak to Nationwide and ask to reduce the monthly payment to a very low amount (almost £0.00) until the 10 years are up, effectivly meaning that i will pay off my mortgage in 8 years but still 'pay' for the full 10 years ;-)

simon_or

Eddielewis76 said:

ERC's that would not be great as i would have to pay 2% of the initial borrowing.

I've never heard of early repayment penalties being based on initial borrowing, it's always been based on the outstanding mortgage amount at the time the penalty is applied.

jimjames

Eddielewis76 said:

My question is to do with overpaying, I currently overpay my mortgage, and when I fix next year I recon i could easily afford to over pay so that the mortgage will be paid within 8 years. I know it’s usually on a sliding scale on how much you have to pay as a fee for paying off the mortgage early. I was thinking of overpaying and just leaving a small amount on the mortgage until the 10 years were up to avoid paying any fees. 

Check what balance the overpayment is based on. With Nationwide and some others it is based on 10% of the original mortgage balance so over 10 years you'd be able to repay 100% of the balance in overpayments without triggering any ERC. Taking the normal monthly payments into account you'd probably clear the remaining balance in 8 years with 80% of the original loan. Obviously if the mortgage company use 10% of the outstanding balance then that's not so easy to do without triggering ERC.