Mortgage overpayment advice please

$17mma · 25 May 2006 at 1:20PM

Ok I hope this makes sense..

Mortgage left £55,545.12
Rate recently changed to 7.11%:eek:
Tied in until 3/3/08
Interest only
Allowed to make over payments of 5k per year without penalty
Penalty for overpayment over 5k is 6% of the over payment
Penalty for clearing early 6% of balance

Currently have £25k in savings and can make overpayments of £500 per month

Please advise on the best way to quickly clear this mortgage. Or thebest strategy to move.

Much appreciated

$17mma · 25 May 2006 at 8:39PM

Someone please help

plane_boy2000 · 26 May 2006 at 5:13PM

Wow. Dont know the best answer to your problem, but it sounds like you got a really bad mortgage deal.

Is your interest calculated daily? if so I would pay the 5K you are allowed off ASAP, but as for moving mortgage it looks like it would be to costly to be worthwhile. Perhaps you could use the £500 a month you have to put into a special high interest regular savings account? HSBC are offering a rate of 8% if you have a current account with them and make the same regular payment into their savings account each month - you could do this and then use it as a lump to pay off when your tie in ends rather than pay the 6% penalty?

http://www.hsbc.co.uk/1/2/personal/savings-investments/savings/regular-saver

gallygirl · 27 May 2006 at 5:45AM

Crikey, what a pants deal!

My suggestions would be:
1. Look for best cash isa, if you haven't got one already. Pay 3k in from savings to take advantage of tax free for the whole of the financial year. Do the same next year.

2. Make an immediate op of 5k on mortgage and do the same next year. At 7.11% you would need to get a savings rate of over 9.11% to be more beneficial to keep savings (9.11% less tax @ 22% = 7.11%).

3. Look elsewhere on here for best savings rate for the remaining savings - possibly the HSBC deal? You may get more if you put so much in an account & don't touch for a year - but don't tie up too much. Probably you will end up with several different products, including regular saver.

4. Have another look at your mortgage agreement. Am assuming op restrictions apply to interest - can you make lump sum payments on capital as well? Am not fully conversant with interest only deals so am probably talking through hole in head here!)

5. Slap mortgage adviser. If you didn't use one slap yourself - hard!

And just to finish on a negative note.... You may find it hard to get a good deal when your tie-in ends as your mortgage is so 'low' - we owe the same and have been looking around but a lot of the good deals are for over 100k:eek: , also having to pay arrangement fees will have a disproportionate affect on a small mortgage. On reflection, maybe you should estimate how much you would owe if you made Op's and look now to see what kind of deals are on offer - if they are for a minimum of 50k it may be better to grit your teeth and concentrate on savings rather than mortgage for the next 2 years.

One way to get round minimum amounts, if you have good income & credit score, is to remortgage in 2 yeears for a much larger sum, giving access to better deals, go for a good offset account then pay additional sum straight into offset savings so you won't pay interest on it. This type of account would be good for you anyway as you could put your savings in, and also £500 a month which would reduce the interest due on a monthly basis.

Hope this helps

Mortgage overpayment advice please

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