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    • Ziggy#51
    • By Ziggy#51 12th Oct 16, 11:04 AM
    • 2Posts
    • 0Thanks
    Help with early mortgage redemption?
    • #1
    • 12th Oct 16, 11:04 AM
    Help with early mortgage redemption? 12th Oct 16 at 11:04 AM
    Due to an inheritance which is anticipated during November we’ll be in a position to redeem our mortgage early. Our question is when’s the best to time pay it off at the lowest cost to us bearing in mind the following points.
    At present we have a Repayment Mortgage with approx. £66K outstanding over the remaining 6½ year term. We’re currently on a low rate deal which expires May2017. Our lender has quoted a Redemption figure of £69K including almost £2K Early Repayment Charges (ERC) if we were to redeem now.
    The lender allows 10% no penalty capital repayment per annum which means once we’ve received the inheritance we could repay £7.3K for this year and around £5.7K early 2017 which reduces the capital significantly but still continue paying until the low rate deal expires May2017 to avoid ERC. We will still of course still be paying the monthly a repayments of £855 which reduces the capital further but also includes a fair amount of interest too.
    So my question is simply would it be more economical to:
    1. Redeem the mortgage immediately on receipt of the inheritance and swallow the ERC which means no further £855 monthly repayments or outstanding mortgage.
    2. Continue paying £855pm plus the 2x10% annual no penalty capital reductions then redeem after the low rate expiry date which will mean 6-more months @ £855 but a much lower sum to redeem in May 2017.
    This may seem a straightforward question but firstly the lender won’t quote any further in advance than 30 days & the way lenders do their calculations make it too complicated to understand their final figures so what is the least costly option?
Page 1
    • Thrugelmir
    • By Thrugelmir 12th Oct 16, 11:15 AM
    • 58,187 Posts
    • 51,562 Thanks
    • #2
    • 12th Oct 16, 11:15 AM
    • #2
    • 12th Oct 16, 11:15 AM
    What's the interest rate you are paying?
    Financial disasters happen when the last person who can remember what went wrong last time has left the building.
    • Ziggy#51
    • By Ziggy#51 12th Oct 16, 12:16 PM
    • 2 Posts
    • 0 Thanks
    • #3
    • 12th Oct 16, 12:16 PM
    Early Redemtion & Interest Rates
    • #3
    • 12th Oct 16, 12:16 PM
    Low interest rate deal is currently 2.19% which expires May 2107 then reverting to whatever rate maybe applicable then but was 4.74% when taking out the low interest deal.
    • SavingSteve
    • By SavingSteve 12th Oct 16, 1:12 PM
    • 482 Posts
    • 206 Thanks
    • #4
    • 12th Oct 16, 1:12 PM
    • #4
    • 12th Oct 16, 1:12 PM
    Should be simple maths. What interest, after tax, can you earn on the amount not being paid in (i.e. assume you already pay up to the 10%). From that number deduct the interest (note interest, not the full repayment amount) you would pay on the mortgage. That is the cost to you of keeping the mortgage.

    Compare that amount to the ERC to determine which you are better off with.
    • getmore4less
    • By getmore4less 12th Oct 16, 2:37 PM
    • 31,885 Posts
    • 19,109 Thanks
    • #5
    • 12th Oct 16, 2:37 PM
    • #5
    • 12th Oct 16, 2:37 PM
    With a 2.19% rate most likely you will be better of waiting.

    even without any payments the interest between now and May is <£1000

    with a £7k overpayment in Nov Nov-May max interest is <£800

    another overpayment in Jan then crunch the new ERC against the interest til may.
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