Quick question on a mortgage being paid back quickly - normal charge?

joconnell

Hi Folks,

Quick one hopefully - I understand that if you take a mortgage out the bank expects to make a certain amount of money on it and if you pay back the loan before a certain time you have to pay extra to cover their expected profits - does anyone have an idea of how much this is as in 1% / 2% or how it's calculated?

Cheers!

John

namloc1980

joconnell wrote: »

Hi Folks,

Quick one hopefully - I understand that if you take a mortgage out the bank expects to make a certain amount of money on it and if you pay back the loan before a certain time you have to pay extra to cover their expected profits - does anyone have an idea of how much this is as in 1% / 2% or how it's calculated?

Cheers!

John

It depends on your rate structure. If you are on a variable rate then you should have no problem paying back early.....the Bank can't charge you anymore (I know mine can't anyway). A fixed rate is different though. There can be quite hefty breakage costs etc with those. However the best way to find out is ring your own mortgage provider directly.

joconnell

Getcha - initially it was fixed since interest was around 2.8% at the time - cheers for the info, I'll give them a shout in the morning!

pavb2

I was going to ask a similar question have a lump sum of €10K is now the time to put into mortgage (mine is variable) or in deposit account.

I know years ago advice was not to pay off mortgage.

Thanks

Priapus

pavb2 wrote: »

I was going to ask a similar question have a lump sum of €10K is now the time to put into mortgage (mine is variable) or in deposit account.

I know years ago advice was not to pay off mortgage.

Thanks

Always hard to know the best solution without knowing personal situation, but assuming you're financially healthy, not stretched, safe employment etc I would vote to put the 10k against your mortgage. It will safe you a considerable amount in interest over the life of the mortgage. Plus if you were to put it on deposit, you would have to pay DIRT on the interest.

If on the other hand, you had credit card debt or your work situation wasn't guaranteed etc I'd say hold onto the cash or at least a portion of it.

pavb2

Thanks for reply I run a small business & really don't know how things will go this year so am tempted keep money handy.

However I'm looking to reduce overall debt 15 -20 years till retirement & don't want to get caught out by another recession.

I really feel for people who have worked hard all their life to have their pensions,retirement fund etc wiped out at the last minute.

So is it better to put a lump sum into mortgage when interest rates are low and if you put a sum in when intrerest rates are high are you really only paying off the interest?

Thanks for reply

Priapus

pavb2 wrote: »

So is it better to put a lump sum into mortgage when interest rates are low and if you put a sum in when intrerest rates are high are you really only paying off the interest?

I think you have a couple of ideas confused.

Just to be clear, when you make your monthly repayments a portion is going to pay off the principal and a portion is going to service the interest. When you make a partial repayment (i.e. put a lump sum against the loan) you are reducing the principal, so no you are not "really only paying the interest". You are saving yourself from future interest on the lump sum amount that would otherwise be charged over the life of the loan....regardless of whether interest rates are high or not.

Feel free to ask more questions if this doesnt clear things up!

amen

if you have a lump sum it may actually be better to take the lump sum and increase your monthly payments rather than make one large payment

pavb2

So if I understand correctly a lump some pays off part of the capital amount so it's irrelevant if interest rates are high or low?

Also yes it is a good idea to try and increase monthly payments if possible

Thanks for all replies

Priapus

pavb2 wrote: »

So if I understand correctly a lump some pays off part of the capital amount so it's irrelevant if interest rates are high or low?

Also yes it is a good idea to try and increase monthly payments if possible

Thanks for all replies

Correct - irrelevant if interest rates are high or low.

It's a good idea to increase monthly repayments only if you can afford it and want to speed up the repayment of your mortgage. But when you do this you have to make 100% sure the bank knows you are doing this, cause sometimes additional payments that were not expected do not get applied to the balance, and end up sitting in a sort of limbo account.