Repay mortgage with penalties?

Pat38493

I would appreciate a sense check on my "back of a napkin" calculations around this.

I have an outstanding mortgage of £102650 on a 3 year fix at 3.54%

Current monthly payments are £752.75 and joint decreasing term life insurance of £48.60 per month (current payout £206K due to having already overpaid in the past).

Mortgage deal is until end August 2025.

I am allowed to overpay £27300 per year (10% of original amount borrowed) without penalty.

Over payment penalties are 2% of the over payment until August this year, and then 1% for the final year of the deal.

I am considering the option to use tax free cash from my pension pots to pay it off.

I did a few calculations and it appeared to me that paying off £27300 before August, and  then pay off the rest of it after August this year with a 1% penalty on the final payment minus another £27300, would leave me about 3.5K bettter off, after taking into account an additional year of payments. (or 7K better off if I cancel the life insurance which I might not do for other reasons).

The calculation is not entirely exact because the first £27300 would have different timing but does this seem about right?

However - thinking further about it - I can get a return better than 3.54% even in a savings account or money market fund right now, let alone equities, and I have not factored that in - I am thinking that if I then take that into account it won't be worthwhile after all?

Archerychick

Wouldn’t you be better saving that money somewhere else based on your mortgage rate of 3.45% - then you’ve got a chunk of money to pay it off when your deal comes to an end. You can currently get more interest in a savings account. I’ve got chunks of money in fixes / ISAs etc ready for the end of my deal so I can maximise the income.