In February this year I moved to a two-year fixed rate mortgage of 5.54 per cent with Nationwide. There is £41,000 left to pay.
My dad actually gave me £20,000 to pay off part of the mortgage to keep my costs down.
I know I have to pay some fees for that, since I can pay 10 percent of the balance every year before the early payment comes in.
Would it be better to pay the £20,000, pay off the loan and continue with the current mortgage? Or is it better to remortgage early, find a new lender, and maybe pay a better interest rate for the rest of the term?
There may be better options that I haven’t thought of but any advice would be greatly appreciated.
Mortgage help: Our weekly Navigating the Mortgage Maze finds speaker David Hollingworth answering your questions
David Hollingworth replied: Many borrowers like to think about a fixed rate so they know where they stand on their monthly payments. The downside is that the lender will expect you to close in on the deal.
Lenders charge their rates based on market rates and the cost of money at that time.
To protect their interests, they therefore offer an early payment discount. That’s a penalty for those who pay early, and the lender covers the cost.
Paying more than your mortgage
Lenders know that borrowers want flexibility in paying and cutting down on the mortgage balance as quickly as possible.
As a result, most fixed rates allow for higher payments each year without penalty.
Most lenders offer up to 10 percent per annum without paying ERC, and some lenders offer more than that.
Most lenders charge 10 percent on the balance at the time of your payment, but your Nationwide lender will charge 10 percent on the first balance at start of rental period – you can pay less than 10 per cent of £41,000.
You must reset your annual budget in February, and you have the opportunity to withdraw another 10 percent of the original balance within two months.
You may want to clarify the exact times that apply to the Nation.
What about early payment fees?
There are a few options to compare before you decide which way to go. The first thing is to check what the ERC is for your specific job.
Depending on when you took the job, this will affect the level of pay you are entitled to.
The country reduced some of the ERCs it applied on its mortgages at the end of 2023, which may have prepared you for the contract before the end of your contract.
The country lowers the percentage it pays each year after the fixed rate is exceeded.
It is expected that the level of the penalty will fall in February, which may save the equivalent of 0.5-1 percent of the penalty – depending on the conditions of the operation.
Waiting two months will help reduce the penalty to a minimum, if you decide you want to pay the full amount.
Early bird penalty: Most real estate mortgages come with an early payment penalty
Do you have to pay an early payment fee?
When deciding whether to receive an ERC, the usual approach is to see if the reduction in monthly payments will cover the cost of the penalty for the remainder of the term.
If you change the balance of the mortgage to a better rate, it may help to reduce the cost that will be spent on the penalty for the rest of the fixed term.
However, your mortgage is limited, so you need to be careful when looking at a new job and work with those funds carefully.
Discounts should be avoided as they may result in more savings than you can get from a better rate.
Look across the market, however mortgage to a new lender you will be asked to get a minimum mortgage of £25,000.
It is worth noting that the National allows borrowers to switch to a new contract in the last three months of their current job without ERC, you can leave earlier from the higher current rates.
savings interest
In addition to determining how much money you can save on mortgage interest, you should also consider how much money you can earn on savings – if that’s enough. pay off your salary with a non-ERC premium fund and keep the rest of the money abroad. instead.
One-year rate bonds can pay 4.8 percent at this time. That’s less than the mortgage rates but it’s not worth it.
You should also consider whether you need to pay tax on the savings interest, if you receive a personal savings account.
Even though the ERC is in the hundreds, not the thousands, I still think it’s a close call to pay, once you’ve taken advantage of the two big annual payouts, current savings rates – and the fact that You can switch to a lower rate early, too.
Navigate the maze package
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