Paying lump off mortgage

Travellerinterp

Moving into a place in the not too distant future and I want to pay a lump off my mortgage pretty soon after. Does this really make financial sense or hype by banks?
Secondly, how do I go about it? Go to broker and let them do the donkey work or should I call the financial institutions myself?
How quickly/easy is it for this whole process to take place? I’ve been told there can be penalties for paying off mortgage early, surely this can’t be correct.

Victor

Travellerinterp wrote:

I’ve been told there can be penalties for paying off mortgage early, surely this can’t be correct.

This can happen, especially if you have a fixed rate mortgage.

You best option is to obtain professional advice on the matter. Pay that person for the advice rather than have them paid a commission by the lender, so as to ensure that advice in 100% impartial.

You might be able to do something like 100,000 euro @ X% for Y years and 30,000 euro at A% over B years.

Take your tax credits into account.

Lex Luthor

have you got a fixed rate or variable rate?

RainyDay

If you can earn a higher rate of return on your investments than you are paying on your mortgage, then it makes sense to leave the mortgage and invest the money instead.

antoinolachtnai

Just ring your bank and explain what you want to do. They will give you a quote if it's a fixed rate. If not, they will tell you how to pay the money in. It's no big deal for them.

Travellerinterp

Thanks for the replies,
What difference does it make if its variable or not?
Its actually variable.
What difference do tax credits make? How should they affect my decision?

antoinolachtnai

variable = no problem.

fixed = you must stay in the contract until the end of the fixed period or pay a penalty. It's to do with the way the bank finances the fixed rate in the background.

tax credits might make a difference if you have a mortgage where you are paying less than a few thousand a year in interest. Check the interest statement you get from the lender every year.

If you pay off too much, you won't have enough interest payable to claim the full allowance.

K_P

I paid a lump sum off my mortgage at the end of last year. My lender gave me whatever advice I needed. I don't think there's any real need to contact a broker. Just make sure you get the full facts from your lender. Make sure they confirm that you will not be charged any penalties for paying a lunp sum. Keep copies of all correspondence with them.

While I'm glad I paid off a chunk of my mortgage due to the incompetence of my lender the process itself was needlessly tortuous. Initially they didn't recognise the payment as a partial redemption of the mortgage and the money was just sitting in the account for a few months until I queried it and they did something about it. Then when that was sorted out I fixed my interest rate. Apparently making this change to the account undid the partial redemption and the money sort of "disappeared" again! :mad:

Sorry, venting here. The process isn't difficult really and make sure you get everything in writing from them. My situation was eventually sorted out and it ended up cutting my mortgage term in half. So I say go for it!

RainyDay

antoinolachtnai wrote:

tax credits might make a difference if you have a mortgage where you are paying less than a few thousand a year in interest. Check the interest statement you get from the lender every year.

If you pay off too much, you won't have enough interest payable to claim the full allowance.

You make it sound like the interest relief is a benefit on its own. It isn't - it just lessens the pain of the interest you have had to pay out. If you are able to avoid paying interest altogether, you will be in an altogether better position.

Don't keep money outstanding just to get interest relief.

radioactiveman

Hi does anyone know if you just pay off a grand or two, will you actually reduce your mortgage by any significant amount?
i.e. if the cost of borrowing is 5 or 6 euros per thousand (in interest each month) then will your mortgage payment go down by 10 or 11 euros?

The_Conductor

radioactiveman wrote:

Hi does anyone know if you just pay off a grand or two, will you actually reduce your mortgage by any significant amount?
i.e. if the cost of borrowing is 5 or 6 euros per thousand (in interest each month) then will your mortgage payment go down by 10 or 11 euros?

Yes. Normally when making additional payments, or paying off a lumpsum on your mortgage- the lender will give you two options- to either lessen the monthly payments, or shorten the term of the mortgage (and conversely if you top up your mortgage the reverse happens).

S.

SarahMc

This calculator lets you see how much overpaying your mortgage will save you. http://www.jeacle.ie/mortgage/

You don't need a broker to pay off a lump sum. Just post in a cheque or drop it into your local branch. Make sure to send a letter with the cheque saying you want x amount paid off the capitalof the mortgage.