Paying off mortgage

[ATownCalledAlicia]

So I am soon to be in the fortunate situation (through sad circumstances) to be able to pay off my mortgage.

It's a fixed term ending in 2020 so there would be an early repayment charge. I think at present it's around £4k.

My question: is it more financially viable to pay off the mortgage ASAP and suck up the charge or wait until the term ends and pay it off? If the latter, then we could make overpayments to the maximum value which would decrease the interest but obviously there would still be interest.

I know this will depend on exact values (I could do the sums if my maths was up to it) but I wondered if there is an answer in general terms?

I think if the early repayment charge is less than the interest you would pay between settling the mortgage and 2020 (taking into account that interest charges would be lower if you make maximum overpayments during that time) then it would better financially to pay off early. I haven't thought about this in detail, just off the top of my head mortgage company might be able to do the numbers for you

How much is the maximum you can repay without a penalty?

You need to work out the net interest charge you’ll pay over the period ie interest in your mortgage less interest earned in the same period. If it’s more than the ERC then it makes sense to pay it off

The rule of thumb is overpayment or 10% per annum in over payments.
So I would work out the savings based on over paying 10%.

Personally, I wouldn't pay the 4K. Also, the early redemption fee usually reduces the closer you get to the end of the deal term, so read your t&c's

It can work out about the same so you may as well pay off early but worth checking as you will gain some interest on the balance you hold. You can put total amount into a fixed saving account to match the fixed term. To maximize your position though you need to withdraw and pay off the maximum you can each year. How many years have you got left on the fix? If it's 18 months then wait if it's five years ask yourself are we likely to dip into it? Also not paying the monthly payments is so incredibly liberating it's worth it for many people I love the fact that I actually own my house and now only work part time.

Just seen its two years so you will pay the interest either monthly or in one go when you clear it. I'd just clear it

If you put the money into a savings account the interest rates are very low and you may need to pay tax. Look on money saving expert website, I am sure that they always advise pay off debt, before saving. I would definitely over pay each month or pay off the whole mortgage.

I was in a similar situation recently. My monthly interest for the year left on my (fixed rate - and not a great one, due to poor timing and extra loading for buy to let after we had to move for work) was twice what the early repayment charge was.

I'm afraid you'll have to do some sums - but start with the easiest ones to see if you have to do the hard ones - what's the interest you'll pay between now and 2020 (look at your last statement to estimate) - if it's a lot more, you don't have to muck about with the sums for overpayment (if it's close, you can get estimates using the money saving expert overpayment calculators)

Although like others, the freedom I feel from knowing I don't have a monthly mortgage payment looming over me can't be underestimated

Thanks all, time to get out the calculator 😱

Is this any use?

www.moneysavingexpert.com/mortgages/mortgage-overpayment-calculator

Personally I'd pay it off and take the 4k hit, I think it would be too tempting to dip into the money and buy a new sofa here, a holiday there, new car etc and end up with not that much to show for it. I'd pay the mortgage off and then enjoy the money freed up by clearing it.

Saying that maybe you have more self control than me!

Can you pay off all but fifty pence?

Whether it is worth it will depend on whether the interest saved, after accounting for what you would get in a savings account, would be more or less than £4k and the MSE calculator will help you with that.

Don't assume you can't beat your mortgage rate with savings. My mortgage rate is 1.1% so I'm saving any spare money rather than paying it off as I can get up to 5% interest. Also has the advantage that the money is still available to pay for big purchases that might otherwise require a loan or remortgage.

But if you think you would just waste a lot of the money if you didn't pay it off, might be worth paying it off, or putting some money away in fixed term savings, so you can't just spend it.

Can you pay off all but fifty pence?

They scale the charge rather than charge it all at the last penny - so if you paid off 50% of the mortal age, they'd charge you 50%of the fee (a slight simplification, as you're often allowed to overpay by a % or a fixed amount, and no overpayment fee is due on that)

Have you called your mortgage provider? Ours have been really helpful when it comes to working out some of these numbers so might be worth giving them a ring and asking if they can advise on what each option will cost you!

I will call when I actually have the money! I wasn't sure if they would be that helpful but I can only ask.

Still waiting for probate as the tax man is doing their bit at present.

I'm thinking I may just take the hit, the knowledge that we are actually mortgage free will be amazing!

Mine were helpful. The people in the call centres don't really have ulterior motives in terms of keeping you tied in but they do have all the information at their fingertips so worth an ask! Good luck!

The tax man may take a while, if there is property it can take 6 months.

I would make the maximum 10% overpayments and then invest the remaining money until the day the fixed term expires and pay it off then. The interest you end up paying during the wait, offset by whatever interest you earn from the investment, will definitely end up being less than the penalty charge for paying off early.

It is usually worth paying off as mortgage interest rates are higher than interest on savings. However if you can pay off 10% now (without penalty ) and 90% in January then if the lack of penalty on the 10% sum is a better saving than the interest on the 90% between now and Jan just pay it off in one go.

If you'll be paying the 4K in interest anyway, just pay it off now.