Trying to pay off my mortgage early but facing a dilemma

Guybrush1

Hi all,

I need to make a decision and would like to share some thoughts about my current situation and see your feedback please.

Wife and I signed up for a 35years joint mortgage 5 years ago and like many we would like to be mortgage free well before that date. We are with HSBC and we have a 10 % overpayment allowance per year without any fee.

So far we managed to inject 10 % every year and as a result our mortgage is around a half of what originally was, it comes without saying that we are incredibly proud of that.

Our existing deal is coming to an end and we need to renew our rates ( we are staying with HSBC, no point to move elsewhere ) and here comes our dilemma.

We would like to inject an extra amount of money into our mortgage but by doing that we will definitely pay the ERC; maths suggest this would be quite cheap given that we are close to the end of the term. Of course our plan would be to keep up with the overpayments too, so when signing up for the new rates we will keep paying 10% a year.

Here comes the dilemma.

By paying the ERC will we somehow be negatively impacted ? I mean will our credit score somehow be affected ? Will we look less attractive for a future loans ? Will we somehow look bad and being negatively impacted ?

On the top of that I tried to break down the numbers and write a prospect for both scenarios

- simply keep up with 10 % overpayments

- Inject an extra amount of money now, pay ERC + keeping up with overpayments.

Surprisingly, 5 years down the line, the 2 ending figures aren't much different, yes monthly payments are a bit lower on one side but overall the figure we are wanting to inject now isn't having much of an impact. For example, if we inject 10K extra, in the end the difference between 2 figures is just 5k.

I have done some maths myself and google AI confirmed my rough calculations.

I was genuinely excited about injecting an extra amount of money on the top of everything but I am starting to think that maybe this isn't as good as I thought.

Can I please have some feedback ?

Isthisforreal99

People assume throwing everything at their mortgage is 'moneysaving' but most of the time isn't in the current climate of savings rates exceeding mortgage rates. What rate is the mortgage? What could you get by imvesting it?

The ERC will have zero effect on your credit history. Your best way to avoid it is temporarily going onto the lenders standard rate then paying your lump sum ( depending on amounts) But as above is that the best use of your.money.

10% overpayments will have little impact on the capital in the earlyy years but over the lifetime of the mortgage will.

El_Torro

Option 1

When your existing deal comes to an end you can just put whatever overpayment you want into your mortgage and then sign a new deal, thus avoiding the ERC.

Option 2

Alternatively you can save as much as you can in high interest accounts (maybe even go with a fixed rate saver) until your new deal expires and overpay then.

Option 3 would be to overpay and pay the ERC of course, but that seems like the worst of the 3 options. I'm especially curious as to why you can't do Option 1 now.

saajan_12

We would like to inject an extra amount of money into our mortgage but by doing that we will definitely pay the ERC; maths suggest this would be quite cheap given that we are close to the end of the term. Of course our plan would be to keep up with the overpayments too, so when signing up for the new rates we will keep paying 10% a year.

You should not be paying the ERC. Just wait until the day after the fixed rate deal finishes, then pay off whatever you want and then get the new deal to start.

Or get a quote for a new mortgage for the balance less the amount you want to pay off now.

badmemory

Paying money into regular savers at normally much higher rates than normal savers to then send to the end of term mortgage would seem like a good idea.

Guybrush1

Thank you all for getting back to me.

I'll try to answer you all in a single post, think it's easier.

Nobody was born educated, we all learn along the way and when we signed up for a mortgage we knew nothing about interest rates and stuff. We simply noticed it was quite cheaper compared to a rent and we took the opportunity.

We signed up in 2021 when rates were lower than now and we secured a 2.24 % for 5 years. We noticed that we could overpay without any fee so we thought it was a good idea with the vision to cut a lot of years if done right, so we started. Interests rate "mess" started shortly after and we noticed that when the bank of england change the interests rate it can be a mess, so we did some homework and we realised the following:

• Not knowing these things, we have been really lucky in signing up with such a low rate.
• Looking at the historical data, in the past interest rate were really high
• Given the above we need to do our best to pay off the mortgage as soon as we can as we genuinely don't want to be at the mercy of these people !!

We know very little about investments and stuff and honestly we are quite scared, we are just workers and savers. That being said we thought to throw what we have into the mortgage as a form of investment. It's naive but it's better than nothing.

I can see that most of you are essentially saying that our money need to work for us so we should invest them and then throw them into the mortgage. Seems a logical solution, however we need to learn the basics here. Any good please to start some reading and learn something please ?

In regards of the ERC we also called HSBC and they confirmed it won't trigger anything, it's just a fee to pay, they also said that can be avoided if we just stay in the variable rate for a couple of days…..so this seems to be a quite sensitive option it we are wanting to go ahead, as you guys said

Thank you for reading