Pay lump sum and/or overpayment into mortgage?

tandcapply

Hi, I need advice please, I`m about to come off a fixed term mortgage into PTSBS SVR of 4.34% (currently) and I`ve saved a large sum as well as saw an increase to my income. I spoke with Permanent tsb and discussed options as well as use some online calculators but I`d like your opinion.
I`d like to ask for your advice on the following:
I`ve 20k to spare as well as be able to overpay each month by 600 Euro over my current payment of circa 900 Euro (It`ll still leave me with 6 months contingency fund and will keep it like that).
1. Should I overpay in the form of a single lump sum of 20k and increase the monthly payment by 600 Euro (what I mean is that I`ll ask for the sum to reduce the term of the mortgage so that the monthly payment is the same and overpay by 600.
2. Will the lump sum reduce the term straight away or will they treat it as a balance and will only reduce the term once there`s enough money there?
3. Will the overpay be taken into account when they calculate TRS?
4. Am I better off just overpaying by say 1000 each month (interest on savings is low as you know and DIRT takes third of any gain anyway.

Thanks.

riclad

You are only allowed to get x amount per year, credit trs, deductions per year ,so ,it,ll make no difference ,re trs..
SAY Loan is 100k, if i pay lump sum 20k, the interest in total i pay will be reduced,and the time to pay mortgage will be reduced,length,
of years ,by 1 fifth.
It might be better hold on to 20k as an emergency fund,
put in a long term deposit account.
The overpay ,reduces the duration of mortgage, and thus the total interest
you pay on the loan.
Each year the bank sends you a letter,interest paid,capital paid,
after year 9 in my experience the capital is reduced.
Capital is the actual money you borrowed,
eg 200k.
i think trs now is 7 years max.

hfallada

Whats your LTV? Would take the lump sum off and refinance with bank with cheapest rate with a fixed mortgage until the mortgage term is over. There is a very strong possibility that the ECB will the rate in may to .5%. I would get a very cheap fixed mortgage and save whatever money you have left from your mortgage for retirement.

SBWife

Do you have any other debt?

If you have personal, car or credit card debts you should look into paying the, off first as they'll most likely be at a higher rate.

tandcapply

Thanks for your replies, I probably should have put more info, but I didn't wanted to make it too long.

SBWife,
No, I've no other debts.

hfallada,
LTV is about 40% of current house value.
As I'm just came out of 3.1% (2yr fixed), they offered me 7.5% (2yr fixed) or 8.5ish (5yr fixed), or the standard variable of 4.34.

riclad,
I think that I understand what you're saying. In your opinion, am I better off simply overpaying by say 1000 a month and hold on to 20k? (I've actually no better need for it as I want to be mortgage free as soon as possible so that I can defer future savings towards some sort of a pension, probably buy a second property once I know that I own my house).

riclad

Overpay by 1000, per month, put 20k, into high interest account.

IF you buy a property in future, you can use 20k as a deposit, legal fees etc
The overpayment , reduces the capital you owe, and reduces the total interest paid, and shortens the actual duration of the mortgage.
MY friend on standard mortgage, first 9 years, most of the payments went on interest , loan is now 12 years old.
BE aware in 3 years interest rates could rise .

its alot easier to get a loan,
IN future, if you have 20k savings,
rather than going for a 100 per cent loan ,
you,ll go for 80,or 90 per cent loan.
i see no point in worrying about tax on interest .

I think a single person gets around 1500 max trs per year ,
around 20 per cent of interest paid on a mortgage.

tandcapply

riclad wrote: »

Overpay by 1000, per month, put 20k, into high interest account.

IF you buy a property in future, you can use 20k as a deposit, legal fees etc
The overpayment , reduces the capital you owe, and reduces the total interest paid, and shortens the actual duration of the mortgage.
MY friend on standard mortgage, first 9 years, most of the payments went on interest , loan is now 12 years old.
BE aware in 3 years interest rates could rise .

its alot easier to get a loan,
IN future, if you have 20k savings,
rather than going for a 100 per cent loan ,
you,ll go for 80,or 90 per cent loan.
i see no point in worrying about tax on interest .

I think a single person gets around 1500 max trs per year ,
around 20 per cent of interest paid on a mortgage.

Cheers, I would have accumulated about 35K in savings in total up to next month.
We've 8 years left on the mortgage (it was a 10yr mortgage for 90k taken while keeping 10k in savings).
My plan is to be mortgage free as soon as possible whilst paying as little back in interest.
I like your idea about leaving the 20k in a savings account (my wife thinks the same), I'm just not sure if any savings account (minus dirt) is better than reducing the principal (I couldn't find a calculator that will cover both options combined).
You see, to date I've been a good saver who's never owed anyone anything. the mortgage was my first ever loan of any kind, I've saved like mad for many years and still am.

BTW, I'm married so I get the up to 20000k in total (I've just looked it up after you've mentioned it). Link: http://www.revenue.ie/en/tax/it/leaflets/it1.html#section8
I wonder if I overpay by 1000Euro a month, will my 22.5% TRS be based on that?

Pawwed Rig

tandcapply wrote: »

I like your idea about leaving the 20k in a savings account (my wife thinks the same), I'm just not sure if any savings account (minus dirt) is better than reducing the principal (I couldn't find a calculator that will cover both options combined).

Putting the money into savings will be more expensive than paying off the principal as you will not find a deposit account at much more than 3-3.5% (if you do please post here) therefore you will lose money by putting it on deposit. Having said that there is alot to be said for having a cash available to you to deal with what life can sometimes throw.

tandcapply

I just found a calculator (I've Google searched for overpay and lump sum calc):
http://www.moneysavingexpert.com/mortgages/mortgage-overpayment-calculator#result

Ignoring the Currency:
20,000 once off + 600 monthly overpayment = Overpaying would save you
£9,807 in interest alone, and mean you pay it off in full 4 years and 10 months earlier.

1000 monthly overpayment = Overpaying would save you £8,026 in interest alone, and mean you pay it off in full 4 years and 7 months earlier.


In other words, you're right (taking into account net interest on savings account for 3 years plus). I'm probably better off holding on to the 20000 and overpaying - if only for the piece of mind alone.
Unless I'm missing something (I'd like to prove my wife wrong).
EDIT: Pawwed Rig, just saw your reply. and I agree.

I think that I've made up my mind and will hold on to the savings (hoping that they won't go Cyprus on us)

StillWaters

I'm with your wife, keep the liquidity. Perhaps look at State savings or some blue chip stocks.

tandcapply

StillWaters wrote: »

I'm with your wife, keep the liquidity. Perhaps look at State savings or some blue chip stocks.

Yes, I was looking at the solidarity bond lat year.
I'll check tomorrow what's the best savings account.
Cheers.

Pawwed Rig

tandcapply wrote: »

I'll check tomorrow what's the best savings account.
Cheers.

Please post what you come up with. The best I have seen was with KBC but I haven't researched in a while

wing52

tandcapply wrote: »

Yes, I was looking at the solidarity bond lat year.
I'll check tomorrow what's the best savings account.
Cheers.

Same here!

Will keep an eye on this thread,methinks;)

riclad

IF you are on the max trs right now,
overpaying ,will have no effect on it.
TRS is 20 per cent of interest paid, up to a cap,
per year,

going by memory,its 3k euro max per annum, for a married couple.
The point of overpaying, is to shorten the mortgage,
reduce the capital owed, year by year,
which in the long term , reduces the amount of interest you pay on the loan.
versus the total, interest that would be normally charged over 25- 30 years
on the mortgage.
i think its worth it to have liquidity,
i know the interest you,ll get on 20k, will be small, after dirt tax.

tandcapply

I`ve just used the NCAs (as an indication at least)

http://compare.nca.ie/LumpSumSavingsAccount
And
http://compare.nca.ie/RegularSavingsAccount


If I`m to put the 20k into a lump sum account with EBS for 2 years Fixed I`ll be getting 2.41 AER, which is lower that the interest on the mortgage but at least I can gain access to it if needed as opposed to a non refundable Lump sum into mortgage.

Pawwed Rig

These beat that EBS rate

http://www.kbc.ie/personal/saving/savingsinterestrate

tandcapply

Pawwed Rig wrote: »

These beat that EBS rate

http://www.kbc.ie/personal/saving/savingsinterestrate

Yes, although the smart access 3% will reduce to 2.6 (from the link you provided):
"Rate will reduce to 2.60% Gross/AER effective 1st May 2013"
Still best thus far.

Chris_5339762

Don't forget DIRT at 33% on savings....

I'd chuck the extra cash into the mortgage, even if you'd be slightly better off by putting it into savings. You'll clear the mortgage earlier. There will always be fixed rate savings accounts, but mortgage interest rates are far more likely to increase and far more damaging if they do.

amen

We've 8 years left on the mortgage (it was a 10yr mortgage for 90k taken while keeping 10k in savings).

how much do you actually owe at this point in time?

tandcapply

amen wrote: »

how much do you actually owe at this point in time?

74,800