Nationwide ERC

Missymoo2

We currently have a nationwide mortgage which was taken out on a 5year fixed starting February 2023. Interest rate is 3.54 and we currently owe £94k.

My husband is applying to take a lump sum from his pension which would pay the mortgage off. This will be April 2025 when the balance will be £74k due to overpayments. 

I am trying to figure out how much the ERC would be to pay off the £74k if anybody could help as we would prefer to clear the mortgage.

Thank you

TheJP

Missymoo2 said:

We currently have a nationwide mortgage which was taken out on a 5year fixed starting February 2023. Interest rate is 3.54 and we currently owe £94k.

My husband is applying to take a lump sum from his pension which would pay the mortgage off. This will be April 2025 when the balance will be £74k due to overpayments. 

I am trying to figure out how much the ERC would be to pay off the £74k if anybody could help as we would prefer to clear the mortgage.

Thank you

What is the ERC percentage in your mortgage illustration? once you know that then you can work out what X% of £74k is.

TheJP

TheJP said:

Missymoo2 said:

We currently have a nationwide mortgage which was taken out on a 5year fixed starting February 2023. Interest rate is 3.54 and we currently owe £94k.

My husband is applying to take a lump sum from his pension which would pay the mortgage off. This will be April 2025 when the balance will be £74k due to overpayments. 

I am trying to figure out how much the ERC would be to pay off the £74k if anybody could help as we would prefer to clear the mortgage.

Thank you

What is the ERC percentage in your mortgage illustration? once you know that then you can work out what X% of £74k is.

Typically they can range from 1% to 4%, i would say that the ERC could be up to £3k.

Missymoo2

I will have to dig it out of the loft.

I was expecting around £2-3k mark but thinking it would be worthwhile by saving on interest payments.

TheSpectator

From a pure moneysaving perspective you would be better putting it into a savings account earning more interest than the interest you would save on paying off the mortgage.

Missymoo2

We are wanting to avoid paying the large mortgage payment every month as my husbands annual pension will be much lower than his current salary. We are trying to mitigate outgoings until we downsize.

penners324

You'd be better leaving the money on the pension scheme. Financially by a long way. No erc to pay, continued investment growth

TheSpectator

Missymoo2 said:

We are wanting to avoid paying the large mortgage payment every month as my husbands annual pension will be much lower than his current salary. We are trying to mitigate outgoings until we downsize.

So is it a case he is actually retiring rather than just taking a lump sum?

Missymoo2

He is taking flexible retirement early next year and completely retiring July 2026.

From April he would have reduced salary and 2 pensions, the following year it would be just pensions.

We would be ok paying the mortgage until July 2026 but when he fully retires it will be unaffordable on just the pension. He works for local government and has a deferred pension and current pension for the same job as he had a break. The deferred scheme he has to take a minimum lump sum. The idea is to take enough to pay the mortgage balance.

We want to downsize but waiting on a child moving out.

I am in very bad ill health and he is unlikely to head into his later years due to family history and other complications health wise.

We are making the decision more for now due to circumstances. He is 58 and I am a few years younger.

Hope that makes sense

Petriix

Paying the ERC should be a last resort if there is no alternative because you're just throwing money away. Alternatives include:
1) keeping the money in easy access savings and overpaying the maximum each year* until the fix ends;
2) porting the mortgage to the new property if you must move before the fix ends;

* Nationwide allow overpayments of 10% of the original loan each year, starting on the anniversary of the first repayment. The ERC reduces each anniversary so it will be lower after February 2025.

If you can afford to make the early repayment in one big lump then you can afford to make the monthly payments over time by simply keeping that money in the bank and paying the monthly payments from that pot. 

jimjames

If you really have to remove the money from the pension why not just keep it in a 5% savings account and use to pay/top up the mortgage each month? You then keep mortgage paid up and don't suffer ERC penalties. If the pension money isn't needed until 2026 is there a reason he's taking it now? That might mean paying higher rate of tax than needed if he has other income.

Missymoo2 said:

We are wanting to avoid paying the large mortgage payment every month as my husbands annual pension will be much lower than his current salary. We are trying to mitigate outgoings until we downsize.

As this is MSE it seems a bad move to cost yourselves more than you need to when the whole premise of the site is to make best use of your money. There seem to be plenty of options to avoid the ERC and have £3k in your pocket.