Halifax mortgage: overpay £100k now with 6% ERC or use 10% penalty free allowance every year

EsparagosBlancos

Hi Guys,

I have £100k to go towards my mortgage, I am trying to figure out what would be better:

1. Pay off £100k straight away but pay 6% ERC, or
2. Pay 10% overpayment, put £40k into ISAs (me and my partner) and £40k into fixed saver account

Option 1 reduces balance dramatically but ERC is high, Option 2 seems to be better, but mortgage balance remains high. Facts:

• Balance: £150,000

• Rate: 4.87% fixed until 2035

• Term left: 18 years 4 months

• Fixed deal ends: 31 August 2035

• ERC schedule: 6%, then 5%, 4%, 3%, 2%, 1% yearly

• Overpayment allowance: 10% per year

• Cash available: £100,000

I will appreciate your opinion.

ACG

It partially depends on your tax band, how much you have in ISAs and rates you can get.

But generally speaking, if you can get more than 4.87% on a savings account I would bump it all in there. If you cant, then I would put in the most I can without incurring an ERC and put the rest in savings until next year.

EsparagosBlancos

Hi ACG,

Thanks for your reply.

I don't have anything in ISA at the moment. I would put £40k with 4% return tax free, and £40k into 3.8% saving fixed term, taxable at 20%

GrumpyDil

Alternatively, depending upon your pension provision and earnings you could consider paying some of the money into a pension instead.

ellenvan

Personally I wouldn't pay the ERC . So pay the 10% straight away.

Then ISA , then pensions, whatever is left in fixed rate savings.