Which option is better?

I have a 3000 lump sum that I want to pay off my mortgage. I have a flexible mortgage that allows me to overpay every month up to 500 (Nationwide) which I already do. I am wondering if I would save more by overpaying with the lump sum now and paying the 309 early repayment charge than I would be by waiting until July 2006 when my fixed rate deal ends and I could pay the 3000 off with no repayment charge.

Basically assuming I go for the same fixed term rate in July, am I going to save more than 309 in the long run by paying it now and accepting the charge or should I wait until July?

Reply to
<nospam
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I prefix this by saying that every time I do some maths here I screw up, but here goes!

Wait. No doubt about it. Easy to see why. 309 is roughly 10% of 3000. So thats 10% you'd pay over 6 months = annual interest rate of 20%. Unless your interest rate is higher than 20% (to calculate what you'd save on the

3000), therefore you should wait!
Reply to
Tumbleweed

I think it's safe to say that, on this occasion at least, you haven't screwed up. Keep up the good work.

Here's another way to look at it. Let's postulate, for illustration purposes only, that his fixed rate is 0.25% a month, or a bit over 3% per year. It being a special rate, it ought to be pretty low, and this seems a reasonable estimate.

He has a lump sum of £3309 (enough to invest the £3k *and* to pay the penalty). If he pays that now, his £309 would be lost, and his £3k will "grow" to be worth about £3045 in July in terms of a reduced loan balance.

So he'd actually have £264 *less* than if he'd kept the £3309 under a mattress not earning interest, and then paid the £3309 off the loan in July. But he would presumably invest the money in a decent IPA (that's "interest paying account" - I'm not talking beer), and ought to be able to net about £50 interest in 6 months. This makes waiting worth £314 more than not.

Which is about 101.5% of £309, which is what you should probably expect.

Reply to
Ronald Raygun

In message , snipped-for-privacy@nospam.com writes

Is it a repayment mortgage? What is the fixed rate of interest? How long has the mortgage to go? How much do you owe today?

Reply to
john boyle

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