Early Repayment Charges - Pay 1.5pc to save 1.14pc.

[BikeBikeBIke]

My 3yr fix mortgage ERC are:

Year 1: 2pc
Year 2: 1.5pc
Year 3: 0.75pc

I'm just starting year 2.

Rate is 1.14pc fixed.

The remaining term is 7 years but is irrelevant - I plan/hope to pay it all off during year 4 after the discount period is over.

I've currently maxed out overpayments which are 10pc.

Assuming 0pc on savings am I better off making overpayments, or holding off until the ERC ends?

It feels like I'd be worse off by about 0.4pc but I'm confused by the fact the 1.14pc is yearly over the life of the mortgage and obvs I'd be paying half way through the year at times whereas the 1.5pc is a one off.

So is a one of cost of 1.5pc better than 1.14 over the remainder of the fix period?

I appreciate I'm asking a simple maths question, so apologies. I'm feeling dense today.

(Yes, I know I can get a savings account that pays over 1.14pc.)

Edited by BikeBikeBIke on Tuesday 5th July 09:30

[ChrisSMorris]

Is it better to pay 1.5% once now, or 1.14% per year for two years?

Massively simplified but assuming 0% on any savings, and no other payments to mortgage then 1.5% now is better
For two years compounded, 1.14% => 2.29% (1.0114^2 = 1.0229).

(But in the real world, better to put that money elsewhere, then pay off once ERC are 0)

[BikeBikeBIke]

ChrisSMorris said:

Is it better to pay 1.5% once now, or 1.14% per year for two years?

Massively simplified but assuming 0% on any savings, and no other payments to mortgage then 1.5% now is better
For two years compounded, 1.14% => 2.29% (1.0114^2 = 1.0229).

(But in the real world, better to put that money elsewhere, then pay off once ERC are 0)

Thanks, that's the clarity I was looking for. Much appreciated.

[tjl]

Some 90 day notice savings accounts are now offering 1.6%.