Dumb question about ERC's

[prettygreenteacup]

Couldn't really find an answer on Google, so hoping someone can answer my likely daft question!

If you overpay a lump sum on your mortgage on the last day of your fixed rate, do you still incur the ERC? Does the ERC reduce the further into the term you are? Or is it a set percentage until the deal has expired?

Just forward planning. We overpay smaller monthly amounts but if we wanted to knock off around 30k, which is well over the 10% allowance, would we get the ERC at the end of the fixed rate? Would we have to temporarily go onto a tracker before fixing again to avoid that?

For context, we don't need to remortgage until 2026 and it'll be about 152k by then.

Is it better to pay the 10% lump sums over the next 3 years instead of one bigger at the end?

You'll need to check your mortgage documentation but it's usually a sliding scale that reduces each year. You can easily get round any ERC anyway by just waiting one day after it expires to go on a new deal, so go onto SVR for one day.

As to how best to pay it off, it really depends what you current mortgage rate is. As a tough rule of thumb, if your rate is higher than you can get in savings interest, put money in to the mortgage as and when you can up to the ERC amounts. If you are fixed on a low rate from a year or two ago, then keep your money in a high interest savings account and use it to bring down your remortgage value when your deal ends.

Speak to your bank and ask them.

Normally you would get charged immediately if you go over your allowance. Depending on what your rate is, you may be better off saving the money in a fixed interest account and pay at the end of your penalty period.

Thank you! Didn't think to maybe start the new deal one day after and pay off a bigger lump sum on that gap day. I will keep that in mind!

We are on a low rate and currently have a good amount of savings building up interest in ISAs and accounts but we are also starting to trickle in a small monthly overpayment too. I was just unclear on the best way to pay off a larger lump sum at the end of the deal without sacrificing some for the ERC!

There's no need to pay the ERC in this case at all then, you just remortgage as normal when your deal ends but put in your extra money which will bring your LTV and mortgage amount down.

And if you're on say a 2% or something fix then definitely I wouldn't be overpaying any into mortgage until that deal ends. If you have a regular sum of money each month to put aside, have a look at monthly savings builder accounts, some of which pay up to 7%.

My mortgage let me pay off whatever amount I wanted in the last month of a deal - that was with Barclays