Mortgage pay off now or later

Peco141

Looking for a bit of help or expertise / advice on the best option to pay off the mortgage.

Mortgage balance as of today is £52,466.88.
I've inherited just enough to pay it off, however my 2-year fix (4.79% interest rate) does not end until 30/06/2025, and I'm keen to find the cheapest option.

I think my options are:

1. First option - Pay it off completely now and suffer the 1% charge on early redemption, which I'm assuming would be £524.67 or thereabouts.
   
2. Second option - Contribute the maximum overpayment I can pay this year now, which is 10% and according to the mortgage advisor is £5,416.71.  This would bring the balance down to £47,050.17 then pay another 10% overpayment when that option arises on the 01/01/2025.

In the first scenario, I'm aware there is a £50 exit fee and £50 Title management fee. However, I'm not sure if one, or both of these fees apply if I let the 2 years fix elapse and pay off at that stage.

How do I calculate which is the cheaper/better saving option in terms of overall paid accounting for monthly payments and interest?

South_coast

Peco141 said:

....I'm keen to find the cheapest option. 

Seriously, I would just pay it all off. When you have £52k available, is it really worth worrying about the best way of optimising things, when c£600 will get rid of the mortgage forever?

Hoenir

Third option make the maximum payment allowed to reduce the balance owed now. Then settle the remaining mortgage balance in full and suffer the 1% charge. 

You'll more than recover the ERC in terms of the saving in mortgage interest. Over 5 months your mortgage interest is around a £1,000. 

Voyager2002

Peco141 said:

Looking for a bit of help or expertise / advice on the best option to pay off the mortgage.

Mortgage balance as of today is £52,466.88.
I've inherited just enough to pay it off, however my 2-year fix (4.79% interest rate) does not end until 30/06/2025, and I'm keen to find the cheapest option.

I think my options are:

1. First option - Pay it off completely now and suffer the 1% charge on early redemption, which I'm assuming would be £524.67 or thereabouts.
   
2. Second option - Contribute the maximum overpayment I can pay this year now, which is 10% and according to the mortgage advisor is £5,416.71.  This would bring the balance down to £47,050.17 then pay another 10% overpayment when that option arises on the 01/01/2025.

In the first scenario, I'm aware there is a £50 exit fee and £50 Title management fee. However, I'm not sure if one, or both of these fees apply if I let the 2 years fix elapse and pay off at that stage.

How do I calculate which is the cheaper/better saving option in terms of overall paid accounting for monthly payments and interest?

You should certainly make the maximum allowed overpayment now (option 2). Then decide if you want to pay off the remaining mortgage (benefits like peace of mind) and at least only pay the penalty on what is left, or wait for the end of your term.

You need to consider what you would do with the money in the meantime. You could put up to £20,000 into a cash ISA and receive interest tax-free, while interest received on the remaining money would be taxable. You can earn something like 5.2% at Trading 212 (more than the mortgage interest) but we don't know what tax rate you would be paying on that interest (remember that you are allowed to receive up to £1,000 in interest tax free as well as the ISA concession. So probably you would be better off paying later.

Peco141

Hoenir said:

Third option make the maximum payment allowed to reduce the balance owed now. Then settle the remaining mortgage balance in full and suffer the 1% charge. 

You'll more than recover the ERC in terms of the saving in mortgage interest. Over 5 months your mortgage interest is around a £1,000. 

I didn’t appreciate the interest amount in all honesty. 

This sounds like a no brainer then. Thanks. 

Peco141

Voyager2002 said:

Peco141 said:

Looking for a bit of help or expertise / advice on the best option to pay off the mortgage.

Mortgage balance as of today is £52,466.88.
I've inherited just enough to pay it off, however my 2-year fix (4.79% interest rate) does not end until 30/06/2025, and I'm keen to find the cheapest option.

I think my options are:

1. First option - Pay it off completely now and suffer the 1% charge on early redemption, which I'm assuming would be £524.67 or thereabouts.
   
2. Second option - Contribute the maximum overpayment I can pay this year now, which is 10% and according to the mortgage advisor is £5,416.71.  This would bring the balance down to £47,050.17 then pay another 10% overpayment when that option arises on the 01/01/2025.

In the first scenario, I'm aware there is a £50 exit fee and £50 Title management fee. However, I'm not sure if one, or both of these fees apply if I let the 2 years fix elapse and pay off at that stage.

How do I calculate which is the cheaper/better saving option in terms of overall paid accounting for monthly payments and interest?

You should certainly make the maximum allowed overpayment now (option 2). Then decide if you want to pay off the remaining mortgage (benefits like peace of mind) and at least only pay the penalty on what is left, or wait for the end of your term.

You need to consider what you would do with the money in the meantime. You could put up to £20,000 into a cash ISA and receive interest tax-free, while interest received on the remaining money would be taxable. You can earn something like 5.2% at Trading 212 (more than the mortgage interest) but we don't know what tax rate you would be paying on that interest (remember that you are allowed to receive up to £1,000 in interest tax free as well as the ISA concession. So probably you would be better off paying later.

So pay up the maximum over-repayment (c4.5k) now but invest in an isa and maybe premium bonds to make more than the interest that would be due that between now and 30th June 2025.

Had not considered this either.

Newbie_John

Keeping a mortgage for another year costs you about £2500 in interests alone.

All fixed savings/ISAs offer similar %, the flexible may soon start going down from slightly higher 5.2%.

Financially best option would be:
-pay max allowed now
-put £20k in your ISA now to one close to 5.2%, possibly another £20k to your partner etc.
-rest in saving account or Premium Bonds if you're feeling lucky - average 3% and tax free status.

But in general this may just be like £250 better + £500 saved by avoiding early repayment fee.

Obviously the easiest thing would be to just pay it off..