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    • italianie
    • By italianie 12th Feb 18, 9:17 AM
    • 55Posts
    • 6Thanks
    italianie
    Paying off mortage in May, should I pay ERC?
    • #1
    • 12th Feb 18, 9:17 AM
    Paying off mortage in May, should I pay ERC? 12th Feb 18 at 9:17 AM
    I'm being made redundant in May and have a small mortgage remaining which I intend to pay off with my compensation and savings. I'm with First Direct and will have about 4 years left in my fixed term, I believe the Early Repayment Charge is around 800. I've phoned FD and they suggest to avoid the ERC I could pay the majority of the mortgage by lump sum but not all off, they would then recalculate the small remaining balance over the remaining 4 year term to avoid the ERC, which would cost me peanuts each month. My current interest is fixed at 1.98% remaining balance remaining approx. 40,000.


    My question is, would it be better to pay off the mortgage to own my home and fork out the 800 ERC? Or would I be better taking the option suggested by First Direct to avoid the ERC? I'm considering that there would still be interest to pay even on a small remaining amount, which might add up to similar or more then the ERC itself, not sure how the maths would work out. Would appreciate any advice.
Page 1
    • ACG
    • By ACG 12th Feb 18, 9:51 AM
    • 16,698 Posts
    • 8,681 Thanks
    ACG
    • #2
    • 12th Feb 18, 9:51 AM
    • #2
    • 12th Feb 18, 9:51 AM
    If you reduced the balance to say 500, you would be paying 1.98% on 500. That would be about 1 a month in interest, multiply that by 48 months and it is costing you 48 over 500 years, so you would be 750 better off by not clearing the mortgage.

    I have just guesstimated those figures so you might want to double check them. But you may find it better to keep the mortgage or at least part of it.
    I am a Mortgage Adviser
    You should note that this site doesn't check my status as a mortgage adviser, so you need to take my word for it. This signature is here as I follow MSE's Mortgage Adviser Code of Conduct. Any posts on here are for information and discussion purposes only and shouldn't be seen as financial advice.
    • italianie
    • By italianie 12th Feb 18, 10:46 AM
    • 55 Posts
    • 6 Thanks
    italianie
    • #3
    • 12th Feb 18, 10:46 AM
    • #3
    • 12th Feb 18, 10:46 AM
    If you reduced the balance to say 500, you would be paying 1.98% on 500. That would be about 1 a month in interest, multiply that by 48 months and it is costing you 48 over 500 years, so you would be 750 better off by not clearing the mortgage.

    I have just guesstimated those figures so you might want to double check them. But you may find it better to keep the mortgage or at least part of it.
    Originally posted by ACG
    Thanks that's really helpful and it makes a lot of sense to do it this way, when put like that.

    Knowing this, I can't think of any other reason why it would be worth paying the ERC, other then having the reassurance that the mortgage is totally paid off and celebration of being a home owner. I think I can hang on for another 4 years for that if needed.
    • ACG
    • By ACG 12th Feb 18, 11:19 AM
    • 16,698 Posts
    • 8,681 Thanks
    ACG
    • #4
    • 12th Feb 18, 11:19 AM
    • #4
    • 12th Feb 18, 11:19 AM
    Thanks that's really helpful and it makes a lot of sense to do it this way, when put like that.

    Knowing this, I can't think of any other reason why it would be worth paying the ERC, other then having the reassurance that the mortgage is totally paid off and celebration of being a home owner. I think I can hang on for another 4 years for that if needed.
    Originally posted by italianie
    Check the figures though. The last thing I want is you coming back in 4 years telling me you are not 750 better off... I could be wrong.
    I am a Mortgage Adviser
    You should note that this site doesn't check my status as a mortgage adviser, so you need to take my word for it. This signature is here as I follow MSE's Mortgage Adviser Code of Conduct. Any posts on here are for information and discussion purposes only and shouldn't be seen as financial advice.
    • enthusiasticsaver
    • By enthusiasticsaver 12th Feb 18, 1:13 PM
    • 6,255 Posts
    • 12,396 Thanks
    enthusiasticsaver
    • #5
    • 12th Feb 18, 1:13 PM
    • #5
    • 12th Feb 18, 1:13 PM
    I think I would take FDs advice and pay a lump sum off but not repay it completely. 800 is a lot to lose when the mortgage interest rate is only 1.98% anyway so it is not like the mortgage payment will be high once the balance is almost paid off.
    Debt free and mortgage free and early retiree. Living the dream

    I'm a Board Guide on the Debt-Free Wannabe, Mortgages and Endowments, Banking and Budgeting boards. I volunteer to help get your forum questions answered and keep the forum running smoothly. Any views are mine and not the official line of moneysavingexpert.com. Pease remember, board guides don't read every post. If you spot an illegal or inappropriate post then please report it to forumteam@moneysavingexpert.com
    • getmore4less
    • By getmore4less 12th Feb 18, 1:58 PM
    • 31,890 Posts
    • 19,117 Thanks
    getmore4less
    • #6
    • 12th Feb 18, 1:58 PM
    • #6
    • 12th Feb 18, 1:58 PM
    Should be possible to find savings for 2% now and if the "rates can only go up people" are right(they have to be sooner or later) you should be able to better that.
    • dimbo61
    • By dimbo61 12th Feb 18, 2:26 PM
    • 9,846 Posts
    • 5,295 Thanks
    dimbo61
    • #7
    • 12th Feb 18, 2:26 PM
    • #7
    • 12th Feb 18, 2:26 PM
    Have you got another job lined up ?
    What are you going to live off until you get another job or retire ?
    Maybe wait and see if you NEED the money to live off for the time being and pay mortgage and other bills as normal.
    • Gary1984
    • By Gary1984 12th Feb 18, 2:36 PM
    • 3 Posts
    • 0 Thanks
    Gary1984
    • #8
    • 12th Feb 18, 2:36 PM
    • #8
    • 12th Feb 18, 2:36 PM
    A minor consideration perhaps but when I worked in a home insurer's customer service department I noticed that premiums would actually be slightly higher for people who owned their property outright than for those that had a mortgage.
    • AnotherJoe
    • By AnotherJoe 12th Feb 18, 3:32 PM
    • 9,032 Posts
    • 9,924 Thanks
    AnotherJoe
    • #9
    • 12th Feb 18, 3:32 PM
    • #9
    • 12th Feb 18, 3:32 PM
    Is that because we have a propensity to set fire to our houses more often? "hah now its all mine I"ll do what i want to with it, thank you very much"

    Or is it age associated, and older people are more likely to have paid off their mortgage?
    • italianie
    • By italianie 21st Feb 18, 6:43 PM
    • 55 Posts
    • 6 Thanks
    italianie
    Have you got another job lined up ?
    What are you going to live off until you get another job or retire ?
    Maybe wait and see if you NEED the money to live off for the time being and pay mortgage and other bills as normal.
    Originally posted by dimbo61
    Fortunately my wife is working, and I'll a bit of money still spare to tied me over a few month. I'm not too concerned about finding further work, and happy to take a pay cut if needs be on the reduced outgoings. I'll probably take a break and find something I enjoy doing.
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