Mortgage Early Repayment Charge
Discussion
I've got £85,000 outstanding on my mortgage, I want to make an overpayment of £50,000 but according to my mortgage agreement with Santander, I am liable to pay an early repayment charge of £2,550.
I don't know if this assumes I am paying off my entire mortgage, or if it's what they will charge me the moment I go over my 10% allowance.
In any case, I've worked out that the interest I'll pay in the next two years (when my term ends) is £2,900. As the repayment charge is £350 less, am I right in saying it still makes financial sense to make the overpayment and pay the charge?
Is there anything else I need to consider? Thanks.
I don't know if this assumes I am paying off my entire mortgage, or if it's what they will charge me the moment I go over my 10% allowance.
In any case, I've worked out that the interest I'll pay in the next two years (when my term ends) is £2,900. As the repayment charge is £350 less, am I right in saying it still makes financial sense to make the overpayment and pay the charge?
Is there anything else I need to consider? Thanks.
It would be great if there was a calculator for these type of things but I have never found one that was useful so if anyone has one to share I’d really appreciate it.
The OPs example is a good one that must be relatively popular. Another would be refinance calculator.
In my case, due to the builder of my current house wanting the sale to proceed no matter what, I had to get a mortgage with out the assumption of sale of my previous house. This meant carrying a larger mortgage for a week. But, there were no penalties for paying off a portion of the mortgage early and by maintaining the same payments I was able to reduce the duration by 15 years. This also meant I jumped the interest heavy period at the start of the mortgage and moved to the principal paying period. In doing so I effectively reduced the total finance cost by about 80% and making the interest rate by near 0 when compared to the original details.
But, did I make out as well as it sounds? Would I have been better just getting a small mortgage over a short period of the vendor would allow? That’s where the calculator would help
The OPs example is a good one that must be relatively popular. Another would be refinance calculator.
In my case, due to the builder of my current house wanting the sale to proceed no matter what, I had to get a mortgage with out the assumption of sale of my previous house. This meant carrying a larger mortgage for a week. But, there were no penalties for paying off a portion of the mortgage early and by maintaining the same payments I was able to reduce the duration by 15 years. This also meant I jumped the interest heavy period at the start of the mortgage and moved to the principal paying period. In doing so I effectively reduced the total finance cost by about 80% and making the interest rate by near 0 when compared to the original details.
But, did I make out as well as it sounds? Would I have been better just getting a small mortgage over a short period of the vendor would allow? That’s where the calculator would help
Mattt said:
Volatile time in the markets, but have you considered how much interest/growth you’d get on the £50k by not paying it off?
I cashed out of a s&s isa precisely because of the volatility and will be looking to do an early repayment later in the summer also.I’m not saying it’s the right thing to do but it makes a lot of sense for me.
ChrisNic said:
Even if you kept the money in an instant access savings account you would (currently) earn about 1% so a potential £1000 over the next couple of years.
Thats a good point, it could be worth me paying off 10%, and sticking the rest in an instant access until my fixed term is up. The question is, how many instant access accounts pay interest on £50k? I don't know what I'm doing with stocks and shares, so I would want something low risk.
red_slr said:
Check if the fees are on a sliding scale each year into the agreement, they usually are.
So you might be better off paying the 10% max now and then in n months when you reach the next birthday of the agreement you might find the fees drop quite a bit.
You could be right.So you might be better off paying the 10% max now and then in n months when you reach the next birthday of the agreement you might find the fees drop quite a bit.
I'm surprised the early repayment figure isn't a % of the total, or maybe it is but Santander just present it as fixed fee on the assumption you pay the entire mortgage off.
Depending on the exact dates/times. In these uncertain times it may be wise to keep some cash to one side for the moment. I would overpay 10% now, and then 10% on the next anniversary of inception. I believe this is 10% of the original amount not the current balance (but you'd have to check). At the end of the mortgage term you'll have the freedom to do what you want.
Jasmine1 said:
ChrisNic said:
Even if you kept the money in an instant access savings account you would (currently) earn about 1% so a potential £1000 over the next couple of years.
Thats a good point, it could be worth me paying off 10%, and sticking the rest in an instant access until my fixed term is up. The question is, how many instant access accounts pay interest on £50k? I don't know what I'm doing with stocks and shares, so I would want something low risk.
red_slr said:
Check if the fees are on a sliding scale each year into the agreement, they usually are.
So you might be better off paying the 10% max now and then in n months when you reach the next birthday of the agreement you might find the fees drop quite a bit.
You could be right.So you might be better off paying the 10% max now and then in n months when you reach the next birthday of the agreement you might find the fees drop quite a bit.
I'm surprised the early repayment figure isn't a % of the total, or maybe it is but Santander just present it as fixed fee on the assumption you pay the entire mortgage off.
Most lenders will be using 1% per year so if you take out a 5 years fix then the fees are often (but not always) 5% in year 1 and 1% in year 5 with 4,3,2% being in year 2,3,4 if you see what I mean.
Sarnie is your best bet on this one but if you look on your agreement it will give this detail.
Jasmine1 said:
I've got £85,000 outstanding on my mortgage, I want to make an overpayment of £50,000 but according to my mortgage agreement with Santander, I am liable to pay an early repayment charge of £2,550.
I don't know if this assumes I am paying off my entire mortgage, or if it's what they will charge me the moment I go over my 10% allowance.
In any case, I've worked out that the interest I'll pay in the next two years (when my term ends) is £2,900. As the repayment charge is £350 less, am I right in saying it still makes financial sense to make the overpayment and pay the charge?
Is there anything else I need to consider? Thanks.
The ERC stated on your mortgage offer will be assuming you are redeeming the mortgage in full. Most ERC's are a percentage meaning that you pay a percentage of the amount overpaid (not the whole balance) once you get over your 10% overpayment limit.I don't know if this assumes I am paying off my entire mortgage, or if it's what they will charge me the moment I go over my 10% allowance.
In any case, I've worked out that the interest I'll pay in the next two years (when my term ends) is £2,900. As the repayment charge is £350 less, am I right in saying it still makes financial sense to make the overpayment and pay the charge?
Is there anything else I need to consider? Thanks.
So, assuming you've not made any other over payments yet, you should be able to overpay circa £8,500 without issue......and then the ERC charge would be against the remaining £41.5k that you........so for example, if the ERC is 3% then you pay £1,245.....
Sarnie said:
The ERC stated on your mortgage offer will be assuming you are redeeming the mortgage in full. Most ERC's are a percentage meaning that you pay a percentage of the amount overpaid (not the whole balance) once you get over your 10% overpayment limit.
So, assuming you've not made any other over payments yet, you should be able to overpay circa £8,500 without issue......and then the ERC charge would be against the remaining £41.5k that you........so for example, if the ERC is 3% then you pay £1,245.....
Cheers.So, assuming you've not made any other over payments yet, you should be able to overpay circa £8,500 without issue......and then the ERC charge would be against the remaining £41.5k that you........so for example, if the ERC is 3% then you pay £1,245.....
I rang Santander today, they told me I'd be charged £1200 if I paid off £50k. That means I'd make a saving of £1700 in interest payments compared to waiting until my fixed term ends before paying it off.
Seems like a no brainer to me?
The only question now is do I go the whole hog and sell my car to raise the remaining £35k and pay it all off?! I love my car, but the idea of clearing my mortgage is very tempting.
Welshbeef said:
Question.
Given these unsure times with empowerment in question for many I’d be wanting £85k in my bank account to give me cover of however many months lifestyle that would give you.
I've been told my role is secure, and if my mortgage was paid off, it wouldn't really matter. My other outgoings are minimal, just utility bills and a bit of food shopping. Given these unsure times with empowerment in question for many I’d be wanting £85k in my bank account to give me cover of however many months lifestyle that would give you.
Jasmine1 said:
Welshbeef said:
Question.
Given these unsure times with empowerment in question for many I’d be wanting £85k in my bank account to give me cover of however many months lifestyle that would give you.
I've been told my role is secure, and if my mortgage was paid off, it wouldn't really matter. My other outgoings are minimal, just utility bills and a bit of food shopping. Given these unsure times with empowerment in question for many I’d be wanting £85k in my bank account to give me cover of however many months lifestyle that would give you.
I'm intending to do the same but leave a negligible amount in (£100 ish) so that I don't hit the early repayment clause, the monthly repayments will automatically recalculate over the remaining time period.
The bank have locked me into a 5% mortgage repayment rate for the remaining term so it seems logical to me to pay this off first bearing in mind they won't budge on the rate and it's currently the highest rate of borrowing I have.
rich888 said:
Am 100% with you on this, get rid of the bulk of the mortgage and that's one less major bill to worry about for the rest of your life.
I'm intending to do the same but leave a negligible amount in (£100 ish) so that I don't hit the early repayment clause, the monthly repayments will automatically recalculate over the remaining time period.
The bank have locked me into a 5% mortgage repayment rate for the remaining term so it seems logical to me to pay this off first bearing in mind they won't budge on the rate and it's currently the highest rate of borrowing I have.
Normally I’d say yes but now let it roll on for another 6 months or so virus could do so much damage to a scale we have no idea. I could be utterly incorrect on this but if I am I’d welcome it and happy days all round. I'm intending to do the same but leave a negligible amount in (£100 ish) so that I don't hit the early repayment clause, the monthly repayments will automatically recalculate over the remaining time period.
The bank have locked me into a 5% mortgage repayment rate for the remaining term so it seems logical to me to pay this off first bearing in mind they won't budge on the rate and it's currently the highest rate of borrowing I have.
rich888 said:
Am 100% with you on this, get rid of the bulk of the mortgage and that's one less major bill to worry about for the rest of your life.
I'm intending to do the same but leave a negligible amount in (£100 ish) so that I don't hit the early repayment clause, the monthly repayments will automatically recalculate over the remaining time period.
The bank have locked me into a 5% mortgage repayment rate for the remaining term so it seems logical to me to pay this off first bearing in mind they won't budge on the rate and it's currently the highest rate of borrowing I have.
It sounds like you would pay penalties long before your balance hit £100I'm intending to do the same but leave a negligible amount in (£100 ish) so that I don't hit the early repayment clause, the monthly repayments will automatically recalculate over the remaining time period.
The bank have locked me into a 5% mortgage repayment rate for the remaining term so it seems logical to me to pay this off first bearing in mind they won't budge on the rate and it's currently the highest rate of borrowing I have.
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