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Mortgage or Savings

  • 09-07-2015 4:09pm
    #1
    tdiman
    Registered Users Posts: 37 ✭


    Hi,

    Recently received a small lump sum payment. Wanted to get advice on whether its better to pay it off the mortgage or save it? Interest rates for savings account seem terrible, and the mortgage is STDV (not a tracker), so expect it is better going there? Any feedback welcome. Thank you.


Comments

  • #2
    OU812
    Registered Users Posts: 6,034 ✭✭✭OU812


    Currently have an overpayment in my mortgage account of €2,200 (built up), That's two mortgage payments approx. I called my bank yesterday to figure out what to do with it & they advised taking it off the principle would give me a "worth" of €6,900 six months shortening of the mortgage term, so that's what I'm gonna do.


  • #3
    tdiman
    Registered Users Posts: 37 ✭tdiman


    Good to know, thanks. I had meant to add to ask in the original post if someone has a small lump sum, would the banks be willing to 'deal' somehow? I would not be in a position to clear the mortgage outright, but wonder if they would make some sort of gesture on their side. Anyone have experience of that as well please?


  • #4
    homer911
    Registered Users Posts: 5,112 ✭✭✭homer911


    Not a chance, this is not an unusual occurence

    A third option would be to directly or indirectly put it into your pension. If you have a private pension, place it directly, and get the tax relief. If you are a member of a company scheme, arrange for the equivalent of the grossed up value to be deducted from your salary as an AVC, and live off the lump sum temporarily in lieu of salary (all within the appropriate annual thresholds of course).


  • #5
    FISMA.
    Registered Users Posts: 451 ✭✭FISMA.


    tdiman wrote: »
    Hi,

    Recently received a small lump sum payment. Wanted to get advice on whether its better to pay it off the mortgage or save it? Interest rates for savings account seem terrible, and the mortgage is STDV (not a tracker), so expect it is better going there? Any feedback welcome. Thank you.

    Have you a rainy day fund? If you lost your job, would you be able to live for 6 months without income and still pay the mortgage? If not, make this sum at least part of your fund.

    If your mortgage has a low interest rate, why pay off cheap money sooner?

    Can you beat the mortgage rate by investing or at least come close?


  • #6
    Trish56
    Registered Users Posts: 1,256 ✭✭✭Trish56


    If you're paying the standard variable rate on your mortgage you are paying somewhere between 3.90% and 4.50% depending on who your lender is. You will not get a savings rate to match this and will have to pay 41% dirt tax on any interest you earn so in my opinion you should after allowing for rainy day money pay a lump sum off your mortgage and reduce the term thereby reducing the interest you will pay and clear your mortgage early.

    If by any chance that you have other borrowings at a higher interest rate such as a credit union or car loan or an outstanding balance on a credit card
    then it makes sense to pay them off first.

    tdiman wrote: »
    Hi,

    Recently received a small lump sum payment. Wanted to get advice on whether its better to pay it off the mortgage or save it? Interest rates for savings account seem terrible, and the mortgage is STDV (not a tracker), so expect it is better going there? Any feedback welcome. Thank you.


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