Overpayment ERC VS Savings

jamie07971

I have a mortgage with Halifax which has around 8 years left, I have 3 years left of my current 5 year fix. 

I have made the maximum overpayments for the year, Halifax have very annoyingly reduced my monthly repayments to almost half what I was already paying and want me to sit through a sales pitch to discuss reducing the term of the mortgage. I have not yet had time to do this and cannot see why they are not working in the interest of the customer and automatically reducing the term when overpayments are made rather than reducing the monthly payments. The Ombudsman is currently investigating why this is such a difficult process. 

Anyway, I have around 40K left to pay and currently around 15K in savings. I am wondering if I would be better to make a repayment with penalty via ERC or to hold on to the money. My mortgage rate is 4.50% and the savings rates are dropping every few months and currently at 4.52%, I imagine this will drop in the near future. 

I think ERC are around 3% for this current year. 

Hope the above makes sense

Thank you 

Hoenir

The mortgage term is contractual and cannot be changed unilaterally,

Both duty of care towards the customer and responsible lending practices have been imposed on lenders. Lenders a consequence have adopted a safety first due process. This avoids them being fined for malpractice. Lenders work at the macro not the micro level. Covering their backsides whatever the customer demands is the sensible course of action. 

BikingBud

jamie07971 said:

I have a mortgage with Halifax which has around 8 years left, I have 3 years left of my current 5 year fix. 

I have made the maximum overpayments for the year, Halifax have very annoyingly reduced my monthly repayments to almost half what I was already paying and want me to sit through a sales pitch to discuss reducing the term of the mortgage. I have not yet had time to do this and cannot see why they are not working in the interest of the customer and automatically reducing the term when overpayments are made rather than reducing the monthly payments. The Ombudsman is currently investigating why this is such a difficult process. 

Anyway, I have around 40K left to pay and currently around 15K in savings. I am wondering if I would be better to make a repayment with penalty via ERC or to hold on to the money. My mortgage rate is 4.50% and the savings rates are dropping every few months and currently at 4.52%, I imagine this will drop in the near future. 

I think ERC are around 3% for this current year. 

Hope the above makes sense

Thank you 

I have expressed my feelings about the Halifax on here a number of times and as much as it is deemed to be contractual, Halifax currently appear to be the only lender forcing this upon customers. Have a look for those and see what you think.

Have you asked for details of the meeting ie if it is so important there should be an approved agenda rather than just being a random fishing trip. If you review the scope of the meeting and provide written answers what objection do Halifax have to those responses. Bear in mind you may never have met your mortgage broker or have never been anywhere near the lender when you initially took the mortgage out, so why are they being so demanding now? Further they do not require you to attend a review with staff if you change jobs or take out additional lending eg loans or credit cards.

I am assuming that as you say it is currently being investigated by the Ombudsman you have reached an impasse with Halifax, I would be interested to see their position. And what the Ombudsman might say, although I have little confidence in their conduct given they blatantly refused to review all germane evidence on a recent complaint and hid behind their own delays and process rather than do what should have been done and was morally correct.

That aside I am not sure using savings to pay off mortgage is best value. You should really do the maths, if you are unsure of the ERC then I would suggest you do not know enough about the cost/benefits to make the decision. Also if the 15k is the total of you savings what other options do you have for emergency needs? If you do find that is a marginal financial gain to pay a lump off the mortgage you may lose that and much more if you need to source funds via another route in an emergency. Can you stand that risk? 

lfc321

Does your ERC reduce over time as you get towards the end of your fix? There might be a time at which paying it will be worth it.  It’s just a question of doing the maths. 

At the moment, it sounds like the savings and mortgage rates are about the same, so you might as well put the extra money into a savings account and avoid the ERC (assuming you can be disciplined enough not to spend it, of course). 

If your savings rate dips below the mortgage rate, it will be time to redo that maths and see whether paying the ERC is worth it. I would expect the savings rate would have to reduce quite a bit to make it worth paying a 3% ERC. 

jamie07971

Thank you for the comments they are very helpful