Best way to pay off a mortgage early?

population

Mods feel free to move if this should be in finance or some other forum but I thought I would start here.

I am living in Italy and currently chasing what would be a relatively well paid 2 yr EU contract which if it come in for me (fingers crossed) should enable me to save about 8000 euro this year and hopefully a similar amount the next. Now here is where I am in need of advice.

Basically I am fortunate enough that my house is my only debt back home and my remaining mortgage amount is not (in relative terms) too bad. I have about 165k to go on it and I am also very lucky to have my house in Ireland rented out though I do make up a shortfall of about 150 euro each month to keep it serviced.

I am however looking to unload my mortgage debt off me as soon as I physically can, and though I know that is a long way off I would like to try hasten the process by overpaying, particularly while I (hopefully) will be in a position to do so. I have been sort of half told by people that if you overpay by a couple of hundred a month you can knock quite a few years off or indeed if you put down an occassional lump sum, and I also heard if you pay bi weekly instead of monthly this helps too.

Is this bi weekly thing true? How much could one realistically hope to knock off if they paid bi weekly, and would a saving of 16k be better served in a savings account rather than sinking it without potentially much impact into mortgage debt?

Again mods feel free to move and thanks for any and all advice:)

noxqs

This is hard to calculate without exact figures. Especially if your mortgage is variable rate - which introduces several unknowns and estimates.

Luckily, Wolfram Alpha will show you a nice graph that shows you how much you reduce the principal by adding payments.

http://www.wolframalpha.com/input/?i=mortgage+calculator

You can play with the values here

population

noxqs wrote: »

This is hard to calculate without exact figures. Especially if your mortgage is variable rate - which introduces several unknowns and estimates.

Luckily, Wolfram Alpha will show you a nice graph that shows you how much you reduce the principal by adding payments.

http://www.wolframalpha.com/input/?i=mortgage+calculator

You can play with the values here

Dear god the amount of interest you pay really is shocking:eek:
I understand it is hard to calculate with only rough figures and it is indeed a variable rate mortgage, however I suppose i am wondering if it is best just to save any potential lump sum or if it would make a meaningful impact on a mortgage. Looking at that chart though, I dont think it would

irishguy

Well if you can get a deposit account for the same or more than your mortgage rate your better off putting it into that. Also try out this calculator www.drcalculator.com/mortgage/

Also dont forget the the less interest you pay the less mortgage interest relief you get, assuming this applies to you.

Mr. Loverman

What interest rate are you paying on your mortgage? If it's less than what you can get in a deposit account it makes sense to save the money rather than overpay your mortgage.

Saying all that, I can understand the psychological reasons for wanting to just pay off the mortgage, and I can't blame you for wanting to do that!

wench

population wrote: »

would make a meaningful impact on a mortgage?

I suppose that depends on your threshold for meaningful.

The calculator IrishGuy linked to is very good for playing "what if" with overpayment, etc.
Since we don't have the rate or how long is left, I've assumed 4% interest over 25 years. That results in 3.5 years knocked off the mortgage, and a saving of €22,000 in interest.

If the rate or duration are higher, then that saving will be greater too.

Victor

First off, keep control of your own finances. Cash that you have access to can be much more useful than a paid off mortgage that you can't. You also don't knwo what your situation will be afte rthe 2 year contract. Will you be unemployed? So don't jump just yet.

Also, talk to your bank and see what their procedures are. Just adding money to the repayment every month will do nothing, you need to tell them to take the money off the principal.

population

Thanks to all for the replies and sorry for taking so long to update on this as my internet was down for a bit. I guess I am wanting to get rid of the mortgage quickly more out of psychological reasons than anything. I hate being in debt. And taking the general advice on the threads here it may well be better to find a decent rate of return on a savings account somewhere as has been pointed out, nobody knows what the future will bring and rainy day money is always a plus. For the record my rate of repayment is 3.75% currently but looks like the only way is up:rolleyes:

population

irishguy wrote: »

Well if you can get a deposit account for the same or more than your mortgage rate your better off putting it into that. Also try out this calculator www.drcalculator.com/mortgage/

Also dont forget the the less interest you pay the less mortgage interest relief you get, assuming this applies to you.

No interest relief for me as it is not my ppr