Mortgage overpayments

random789

Hi

I am looking at making some overpayments to my mortgage but am unsure how it works. I can afford to overpay by £200 each month but my mortgage is split into two and I am unsure how to split the overpayment between them. 

My main mortgage is around £191,000 at 4.24% and the second is for £4,950 at 5.85%. The ERC on the small mortgage is £111. Am I better putting the full £200 per month overpayment to the small mortgage to get it cleared? I understand I will incur charges but is it worth doing this anyway? Would I be charged each year or just at the end once I have cleared the outstanding amount?

Thank you

jackieblack

As you mention an ERC, is this a fixed rate? Check whether OPs up to a certain amount are allowed without penalty, eg my Nationwide Fixed Rate allowed overpayments of up to 10% of the original amount borrowed each year before incurring an ERC.

random789

Hi, yes it is a fixed rate with Nationwide and we are allowed to make overpayments of up to 10%.  I am just wondering how it will affect me if I go over that 10% - will I be charged a percentage of that ERC each year until it is paid off?

Newbie_John

Is it a fixed term mortgage?
Start putting £200 into savings account with similar rates, once your fixed period ends - and saved enough - don't extend your fixed period and just pay off the smaller mortgage in full.

amanda1024

Generally early repayment charges are a percentage of the amount you overpay rather than a one-off charge - is £111 for if you were to repay the whole amount now? Also in general the early repayment charge will negate the saving in interest. So what I would do is to put the £200 towards the smaller mortgage for the first two months, then towards the other mortgage for the next ten months, that way you're reducing the balance on the higher interest portion first but not having the extra charges.

BikingBud

random789 said:

Hi

I am looking at making some overpayments to my mortgage but am unsure how it works. I can afford to overpay by £200 each month but my mortgage is split into two and I am unsure how to split the overpayment between them. 

My main mortgage is around £191,000 at 4.24% and the second is for £4,950 at 5.85%. The ERC on the small mortgage is £111. Am I better putting the full £200 per month overpayment to the small mortgage to get it cleared? I understand I will incur charges but is it worth doing this anyway? Would I be charged each year or just at the end once I have cleared the outstanding amount?

Thank you

As mentioned Early Resettlement Charge (ERC) is usually for clearing mortgage, ie paying £4950, not for periodic overpaying, although there may be a charge for overpaying in excess of annual allowance. 

When do the fixed terms finish? It is worthwhile considering the options with the currently agreed terms as you have some flex to save elsewhere and pay off lump sums to bring down LTV to achieve better rate before you go into next fixed term agreement. 

2 mortgages:

- £191K @4.24 % - Can get higher saving interest - Suggest don't overpay but save see below.
- £4950 @ 5.85% -  Monthly saver might be able to get  ~7% - First Direct or Co-op. If saving 12 months of £200 p/m @7% ~ £2493 ~ £93 interest - Suggest investigate this and see where you are as you approach fixed term end dates to build bubble before rates change.

Lump sum reductions can often have better effect, interest benefits accrued sooner, but you need to consider the benefits for each option.

Assumed 10% overpay per annum for Mortgage 2 = £495 maximum this year, have you paid any?

random789

Thanks for all the advice so far. Both mortgages are fixed until June 2025. There haven't been any overpayments on either mortgage up to now. I will look at the option of saving into a higher interest savings account too