Pay off Mortgage or wait?

Caladrisalpina

Hello all.  Our mortgage is currently £98,000, and due to certain circumstances, it could be that we will be able to pay this off in the next 6 months or so in a lump sum.  Our current deal is at 1.78% fixed until April 2025 (took out a 5 year deal in 2020)  As it stands at the moment, if we paid it off today we would be hit with a £2951.70 overpayment charge.  So my question is - Are we better to bank the cash with a high(er) interest rate account until the current deal is due to end then pay off, or take the hit and pay off as soon as, taking the charge? 
Thanks in advance.

Jonboy1889

This one should be straightforward, as long as you can be disciplined and not spend any of the money, put it in a high interest fixed rate account (til 2025), then pay off then- you will earn way more than the 1.78% it’s costing you, plus save on the ERC

Newbie_John

As above, lock it in 1 year fixed saving at 6.2% and you'll make sure you won't touch it 😉

Assuming you on 20% tax rate. You save roughly £3k on overpayment charge, then you get about £6000 interests from £100k - less £1200 tax, less about £1800 interest paid on mortgage for that year, so another £3000. And if you could repeat that for another 6 months - another £1500. 
So waiting is better by about £7500.

Sg28

I agree 100% Save it! 

You're currently paying £1744.4 in interest. 

98k in ns&i at 6.2% after tax is £5060.8.

Thats £3316.4 more in the first year. Or £276 per month!

I do the same thing my mortgage is with YBS and I also have the equivalent sum in a ybs 1 year fix at 6%. So ybs are paying me £200 per month profit on my mortgage. 

dimbo61

You could pay off the 10% overpayment allowance most fix rate deals allow each year

Newbie_John

dimbo61 said:

You could pay off the 10% overpayment allowance most fix rate deals allow each year

10% would be about £10k. Yearly in interests they would pay £178, if instead put £10k in 6.2% saving account that's £620 income.

Paying 10% would lose £442.