Mortgage overpayments and ERC's

Chemistry777

I took a 7 year mortgage with an initial 5 year fix.  The details says ERCs are due (on a sliding scale) if the mortgage is paid off before the initial 5 years.

The mortgage also states I can make 10% (over the original loan value) overpayments per year which I have been doing.  The consequence of these overpayments is that the mortgage will be paid off 8 months before the end of the fixed time.

Does this mean I will attract ERC's even though I have abided by the overpayment maximums?

MorningcoffeeIV

Yes, as you're repaying the mortgage early. 

kingstreet

If you are making overpayments within the allowed ERC-free limit you will repay the mortgage earlier than you would have done had you not made the overpayments. You will only pay ERCs if;-

you pay more than the allowed limit in any year
or
you repay the remainder of the mortgage before the end of the term (whether the contractual term or the one shortened by the overpayments.)

darkcloudi

kingstreet said:

you repay the remainder of the mortgage before the end of the term (whether the contractual term or the one shortened by the overpayments.)

Thats interesting as when I was taking a 10 year fix with Nationwide on a rate of 5.04% (cancelled yesterday as booked a 5 year fix today at 4.95%), they said that if I paid the mortgage early say in 4 years (thats the plan at present) as oppose to the original 10 I fixed at, I won't get charged a ERC as long as I only paid the 10% overpayments allowed, similar to what the OP is doing. Sounds like this isn't the case as if you paid it before the fixed rate ends you still get hit with a ERC? Unsure how that would work if the balance is say £12000 in the 4th year and you allowed to pay £12000 overpayments due to the original amount borrowed, so there is no penalty to pay as you are allowed to pay 10%?.

MorningcoffeeIV

darkcloudi said:

kingstreet said:

you repay the remainder of the mortgage before the end of the term (whether the contractual term or the one shortened by the overpayments.)

 Unsure how that would work if the balance is say £12000 in the 4th year and you allowed to pay £12000 overpayments due to the original amount borrowed, so there is no penalty to pay as you are allowed to pay 10%?.

There would be no overpayment penalty in that case, but you would still need to pay the ERC.

kingstreet

Let me clarify this. If you can repay the entire mortgage using annual ERC-free overpayment limit, you will NOT pay any ERCs even if you can clear the entire balance down to zero that way.

For example, Nationwide ten year fix allowing overpayments of 10% of initial loan (not outstanding balance!) each year.

penners324

Reread the Terns of the mortgage. Overpayment are usually 10% of the balance of the mortgage at the start of each year. It would be impossible to repay the mortgage early inside the fix.

kingstreet

penners324 said:

Reread the Terns of the mortgage. Overpayment are usually 10% of the balance of the mortgage at the start of each year. It would be impossible to repay the mortgage early inside the fix.

Nationwide is 10% of original loan, not of outstanding balance. Metro Bank and NatWest are 20% of outstanding loan. 

RelievedSheff

penners324 said:

Reread the Terns of the mortgage. Overpayment are usually 10% of the balance of the mortgage at the start of each year. It would be impossible to repay the mortgage early inside the fix.

Ours is based on the original balance.

Chemistry777

penners324 said:

Reread the Terns of the mortgage. Overpayment are usually 10% of the balance of the mortgage at the start of each year. It would be impossible to repay the mortgage early inside the fix.

That is not correct we took a £146k mortgage over 7 years at around 4.59% (fixed for 5 years with sliding scale of ERP over that fixed term)..  Payments are £2041 per month.  We are allowed overpayments of 10% of original balance per year, so are making overpayments of £1200 per month. I calculate the mortgage will be paid off 6 month prior to the end of fixed term.  Hence my original questions.   (Like someone else on this thread, we are with Nationwide).