Owning your own home

Also option 1 out of those two. Mortgage debt gone sooner would be the positive for me.

Feels risky to me to play the "will I get more from a pension than I can save by paying off debt and avoiding interest" game.

This windfall is not my only contribution to retirement, I'm sure there will be others.

I've already determined to focus on the debt, the question is more the form in which I do that.

will I get more from a pension than I can save by paying off debt and avoiding interest…?

may be of interest: https://youtu.be/9MfCVkRvjQs?si=5tn2WlA5MeuNyWCr

I would wait and save the early repayment charge and do it at remortgage time, will gain some interest and pay for something nice/holiday etc with what you save, you can probably put 10% down fee free depending on mortgage

Definitely #1. Being mortgage free sooner will be a huge deal, and as you've shown in your workings, saves you what is a really significant amount of money for most people.

Option 1.

You’ll have another chance to decide anyway when the mortgage deal expires and you get a new deal.

Unless you totally hate your current job and want to move to something lower paid/lower stress then keep the high payments and clear it.

If it was me, I’d do 1 personally. Thank fuck I don’t have a 3 grand a month mortgage though, that’s brutal

Thank fuck I don’t have a 3 grand a month mortgage though, that’s brutal

mortgaged late in life, couldn't get a mortgage beyond 65, had a very high LTV... so this was very brutal, and the Liz Truss budget meant I went from a mortgage that was hurting, to a mortgage that I really struggled with.

thankfully got pay rises, and it's now quite affordable... but damn.

also... I lived in a tower block that had cladding on it, 19th floor... moving out was the best thing for my mental health post-Grenfell.

I do figure option 1 too.

Further I actually plan option 1 + 2...

Pay off and shorten the period, continue to hurt a little for 30 months, but should anything happen in that 30 months (company fails, lost job, whatever)... then take whatever is remaining at that time and remortgage into a long term at far lower rate.

How long until your mortgage fixed rate ends? Why not wait till then and avoid the early repayment fee?

You should be able to get better than 4% in interest on it in the mean time

mid-2028 for the fixed period to end.

I dont see why you'd voluntarily pay the early repayment fee, you can probably pay 10% a year without a fee then make a long term decision at the end of the fixed rate.

Max out your ISA every year between now and then

What stappard said.

Assuming you're in the additional rate tax bracket, you'll be paying 50% on any savings interest that's not in an ISA. That means the best return you can get on cash savings will be sub-3%.

If you haven't maxed out your cash ISA, do that. You can get over 5% instant access on £20k. Look at fixed term ones too since you probably don't really need the cash until 2028.

Check your mortgage provider to see what you can overpay without a penalty - probably 10%. May as well pay that now - your mortgage rate is higher than you can get for your cash elsewhere. Often you can underpay by what you overpaid so in theory you can claw the overpayment back over time if you need it.

Overpaying has the same effect as reducing the mortgage term except it doesn't tie you to a contract with a new minimum payment.

I'd probably take financial advice for what to do with the remaining windfall tbh - assume a low fee index tracker or similar would be sensible? Good chance of it outperforming your mortgage and leaving you in a fun position in 4 years time.

To answer your original question, if those were your only choices I'd do both. Reduce the monthly payment to £550 or so, then overpay by 10% a year which would take your monthly payments to something like £1200. This will shave a chunk of those 17 years off, penalty-free.
Then, in 2028 decide what you want to do during remortgaging - you could pay a big chunk off then.

I dont see why you'd voluntarily pay the early repayment fee, you can probably pay 10% a year without a fee then make a long term decision at the end of the fixed rate.

Because £11k in ERC fees is about 5 months of the interest payments of those mortgage payments. That's a lot cheaper than waiting 4 years to be able to pay it off without ERC, even with paying 10% a year ERC-free.

The only time to consider delaying a lump sum payment is if it is about to fall across the boundary of some ERC-free payments. e.g. if you wanted to pay off a lump in December and your new ERC-free overpayment window opened in January then you'd look at paying as much as you could ERC-free in December, and then paying the rest in January - using the following year's ERC-free allowance.

(Any bulk payment you make to the mortgage company will have the current year ERC-free allowances taken into account.)

I've done the calcs on paying my own mortgage off (I owe £200k but my existing mortgage only has 4.5 years left on it, luckily it is interest-only.) It's cheaper to just throw money at our 2% ERC even after I've used up the 10% ERC-free allowance I have each year.

(I'm not going to repay all £200k in the next 4.5 years without some windfalls of my own, but I'll be a lot lot closer to paying it off and I'll be able to remortgage for another 10 years or so when the current mortgage is up. Repaying it faster will depend on how much I and Mrs GB earn and how long she continues to work as she's hoping to retire in the next 10 years - I'm 9 years younger so I can go on a bit longer.)

Back to the OP, the only reason for not going for #1 is if you think there's a risk to your health/employment/etc that may stop you being able to pay it off quickly in the next 2.5 years.

Otherwise:

To answer your original question, if those were your only choices I'd do both. Reduce the monthly payment to £550 or so, then overpay by 10% a year which would take your monthly payments to something like £1200. This will shave a chunk of those 17 years off, penalty-free.
Then, in 2028 decide what you want to do during remortgaging - you could pay a big chunk off then.

is a succinct way of putting the "if you think there's a risk..." part. Gives you a bit of flexibility (in case life happens) as you can drop to £550/mo mortgage payments and the sums involved aren't as eye-watering. More than likely you'll have saved enough way before 2028 to pay the lot off.

Investing money to try and beat mortgage rates is still a bit risky and is time consuming and stress inducing. Any windfalls I get will be going straight to my mortgage as I know it'll be much easier that way.

IANAFA, etc.

Offset mortgage and overpayment at the standard rate.

Offset mortgage

Would be nice but unlikely you could transfer to one without paying the ERC on the whole lot when you remortgage (even with the same provider).

Any useful FTB guides out there besides the stuff on MSE?

Myself and OH finally having that conversation after both saving with LISAs for the past 5/6 years - suffice to say we probably won’t be buying in Bow and need to start sounding out other option either East or South

I know it wasn't in what you asked but have you got an IFA? I started using one a couple of years ago and I found it really helpful. I don't disagree with what folks have said about your question but it's not the whole view. Anyway thought I'd raise it.

The other thing you can do is call your mortgage company and see if they'll do anything for you like move you to offset waiving any ERC etc

I know it wasn't in what you asked but have you got an IFA?

No, I tried... spoke to several and auditioned them all... and largely, they concluded that without children and a desire to leave a legacy, with no stocks or existing wealth, with no massive pensions... that they don't have much to play with and can't do much for me.

They also all conceded in their own way that if I legit do have shares worth multiple significant windfalls, then just doing what I'm doing to earn that is wiser and better than to try and do something else... two of them found what I'm doing to be a "non-conventional" and "high risk" approach... but it's not like people have answers when you don't have family support, inheritance, children to think of, and it's all really just a single large income that is being burnt on a fairly high monthly mortgage cost.

Last time I tried was only a few months ago, anticipating exactly this scenario, and asking roughly this question (but less specificity on amounts involved).

Missed the comment earlier…..I’d wait until you don’t need to pay the repayment charge.

At a factor of 10x less than what you're talking about I took the tax hit and overpaid my mortgage. The interest savings were about what the tax was so it seemed like a no brainer, given I wasn't using the cash for stockpiling midgets at the time.

If you overpay I think you can also get some of that back or at least use it towards the mortgage normally if you run into trouble later, but don't quote me on that. I'd also check closely what your overpayment rules are. If you are out of the fixed term, they often have no overpayment fees which is when I waited to to pay the lump sum off.

Being risk averse I'd not spunk all my cash on the overpayment, I'd leave some for the midget dungeon.

OK, fair enough but thought I'd ask the question/provide the nudge

Being risk averse I'd not spunk all my cash on the overpayment

I figure that I'm OK... in that the only big expense in my life is the mortgage and it doesn't exceed more than a national average % of take home pay at the moment, so even without much in the way of a safety net I have a lot of flexibility. Should the roof fall in and that need £30K to be spent on it, I could put that on Amex and afford the repayments without needing to adjust the mortgage.

The huge risk is if I cannot work and the income is threatened, but getting the mortgage paid off sooner is the way to mitigate that, savings would be burned through in no time at all even if I held it back, but having the option to later reduce the mortgage, or to not need to worry about it, is the best way to bet on a no income scenario.

If I get the mortgage paid off in a few years, then it should be smooth sailing from then on, future income things cannot be relied upon but the big debt in my life would be gone.

I bought well within my means and had the advantage of already lowest ever rates. So my repayments could basically be made if I just didn't go to the pub two nights a week. Smashing the fuck out of the whole mortgage 20 years early is pretty good feeling though. I know some people say there's good debt and all that, but I'm old school and boring and in my feeble brain debt is bad. Paying it off sooner allows you to quickly build up cash reserves again for that midget dungeon or whatever you come up with next (we want to redo the kitchen now - 10k not 70k :P).