Calculating ERC

Yorkie1

I have a mortgage with Nationwide. Full 25-year period expires November 2034.

Current deal is a 5-year fix from Feb 2024 - January 2029 at 3.99%. (Balance at start of fix was about £20300).

Current balance is about £13K as a result of lots of overpayments. Currently overpaying £150 a month, working on the basis of overpayments taking me to a nil balance at about the end of the current fix.

However, I now wonder whether I was being swayed by the prospect of avoiding an ERC when I didn't know what the ERC would actually be ... and whether it would actually be better to pay it off sooner!

The annual overpayment allowance is £11850 (10% of the original loan in 2010). ERC is 5% until end of Jan 2026, then 4% the following year and so on. 

I realise that contractual payments would reduce the balance below £13k, but for the sake of argument, if I overpaid £13K before January 2026, would the ERC be calculated as follows?

£13000 - £11850 = £1150.
5% of £1150 = £57.50 = ERC

The rough ERC calculator on the NW website says it would be £650, but it doesn't make allowance for the annual allowance (my mortgage offer says " When we calculate the ERC, we deduct any overpayment allowance remaining in the year from the balance used.")

I don't think I'd be charged the fixed £65 administration fee if I paid the mortgage off now, as there are fewer than 10 years to run.

Would there also be any legal fees, for example, involved in redemption of the mortgage and discharge of the security, updating Land Registry etc?

I've seen the NW website pages on ERC and mortgage redemption.

eschaton

Paying off the mortgage early and paying the ERC would only be beneficial if you can’t get better returns on the cash elsewhere. 

I was on a BR tracker so my interest payments had gone from £45pm to over £200pm. 

It was due to end in August 2030. I started overpaying last April and had cleared it by October. I was wiped out, but no mortgage and that was more important to me. 

My lender had a £225 administration fee to end it early. 

When I made the final payment, it was around £200 lower than I had roughly calculated so I queried the fee. He just said, they don’t charge it and being down to near zero I wasn’t going to argue. £225 was a welcome bonus. 

For the security, I paid £336 including an ID check fee in Scotland. 

Hoenir

eschaton said:

My lender had a £225 administration fee to end it early. 

Was this the fee to have the mortgage charge released? Payable whenever the mortgage is finally cleared.