Mortgage- Is it worth paying extra monthly?

Jess11

Hi. Our mortgage repayment is €800 per month. We can afford to pay about €1,400 per month.

We hope to be in a position to clear our mortgage in about a years time. Should we pay the extra €600 monthly off our mortgage, or is it better to save the extra €600 per month and use it to pay off a lump sum at the end. We are on a variable rate mortgage and I have confirmed with the bank that there will be no penalty for paying a lump sum off our mortgage. Would really appreciate some advice.

Drumpot

Jess11 wrote: »

Hi. Our mortgage repayment is €800 per month. We can afford to pay about €1,400 per month.

We hope to be in a position to clear our mortgage in about a years time. Should we pay the extra €600 monthly off our mortgage, or is it better to save the extra €600 per month and use it to pay off a lump sum at the end. We are on a variable rate mortgage and I have confirmed with the bank that there will be no penalty for paying a lump sum off our mortgage. Would really appreciate some advice.

You say that you should be in a position to clear your mortgage in about a years time. I presume this could be some sort of inheritance or lump sum that you are due ?

If you are on a low variable rate and your mortgage isnt that high and little/no life savings, I would think as a rule of thumb that it would be more prudent to save the money. The key is access to the funds if something unplanned should happen. What if you lose your job or suffer some sort of unforeseen financial penalty (car repairs etc).

Might also be a good time to review whatever Life cover protection you have. You may have too much (or too little) depending on your circumstances, particularly as they seem like they might change dramatically over the next year or so.

Formal shorts

Jess11 wrote: »

Hi. Our mortgage repayment is €800 per month. We can afford to pay about €1,400 per month.

We hope to be in a position to clear our mortgage in about a years time. Should we pay the extra €600 monthly off our mortgage, or is it better to save the extra €600 per month and use it to pay off a lump sum at the end. We are on a variable rate mortgage and I have confirmed with the bank that there will be no penalty for paying a lump sum off our mortgage. Would really appreciate some advice.

It depends on what rate you are on and how much you owe currently. If you can throw up those figures I can bash out the exact comparison.

EG: Say you currently owe 100k on your mortgage and your rate is 3.5%. In twelve payments time, you will owe €93815 ish.

Now, you can save your €600 a month and get a a regular savings rate of 3.5-4% and after 12 months you have around 7300 (after DIRT). 93815 - 7300 = balance on your mortgage to clear it at 86515.

Alternatively, pay 1400 per month for twelve months and after 12 months you will owe €86444.

So in that example, you would save 60 odd quid by overpaying the mortgage.

As I said, if you wish to post the exact info I'd be happy to have a look at it.

Jess11

Thanks so much for your advice. It's been very helpful. The figures are more or less the same as your example, so that's very helpful. Probably should do as Drumpot says and save it in case I need it for a rainy day! Thanks again.