Reduce 30-year mortgage to 20-25 years?

Mink

This is a somewhat hypothetical question as we will not be ready to buy until later in the year at the earliest.

If we initially take out a 30 year mortgage, can we then reduce it to 20yrs (for example) after a year or two?

The reason I ask this is that when we do buy, we are going for a house that we could comfortably afford the repayments over 30yrs with just one of us working. However, we would hope to have the other person working again within a year or two and thus be able to afford repayments over 20yrs.

padd b1975

Mink wrote: »

This is a somewhat hypothetical question as we will not be ready to buy until later in the year at the earliest.

If we initially take out a 30 year mortgage, can we then reduce it to 20yrs (for example) after a year or two?

The reason I ask this is that when we do buy, we are going for a house that we could comfortably afford the repayments over 30yrs with just one of us working. However, we would hope to have the other person working again within a year or two and thus be able to afford repayments over 20yrs.

I don't think you can renegotiate the actual terms of the original mortgage.

The only way you could reduce the term of the loan is by overpayments.

SteM

Mink wrote: »

This is a somewhat hypothetical question as we will not be ready to buy until later in the year at the earliest.

If we initially take out a 30 year mortgage, can we then reduce it to 20yrs (for example) after a year or two?

The reason I ask this is that when we do buy, we are going for a house that we could comfortably afford the repayments over 30yrs with just one of us working. However, we would hope to have the other person working again within a year or two and thus be able to afford repayments over 20yrs.

Even if the bank won't let you bring down the term from 30 to 20 years you could always overpay every month which is what we do with KBC. The end result would be the same.

Francie Barrett

This is easily enough done provided you have the means to pay and that you are on a variable rate (fixed rate mortgages will generally have clauses with this).

by the seaside

Agree with the overpayment advice - what does your mortgage allow for overpayments.

There's a neat calculator here: http://www.moneysavingexpert.com/mortgages/mortgage-overpayment-calculator

It's UK based, but just ignore the £ sign.

NewCorkLad

Just over pay instead of renegotiating, as if your circumstances change again 5 years down the line its easier to just reduce over payments than having to renegotiate a longer term again with the bank

seamus

You can, because I have done it in the past. Took out a 35 year mortgage with the first two years fixed. As soon as the fixed period was up, I asked to be reduced to 25 years. Because I had a tracker rate, the 25 year term actually worked out 10% cheaper still than the 2-year fixed repayment on a 35 year mortgage.

That was however back when banks were a little more flexible. It should still be possible, but they'll likely do a full credit check on you again. If one person has only been working for a couple of months that that stage, they may deny the request.

Moonbeam

We save up some money then pay it off the principal,it will save us money in the long run.

karenalot

I pay €250 extra per month on my tracker mortgage. According to calculators this will take about 7 years off the remaining term.

Woshy

We just got a variable rate and overpay. I worked out even an extra payment as low as €25 a month takes 2 years off our mortgage.

NIMAN

You might be better overpaying on a 30yr rather than taking out a 20yr, as if you start to struggle with repayments for whatever reason, it might be hard to get the bank to extend your 20yr mortgage.

At least overpayments don't tie you to making regular payments, you can just do it when you have a bit of spare cash about you. But as mentioned, you can only do it if on a variable rate, not a fixed rate, so be careful what you take out.

I myself have been making regular overpayments on a mortgage I took out in 2010. It was originally meant to finish in 2025, but currently is due to be paid off in 2018 due to me making a handful of overpayemnts. With any luck I might get that down to 2017 with another overpayment or two.

I also changed my payments from monthly to fortnightly as I had heard this helped too as you are making more payments each year, and I also stuck €50 per fortnight on to the repayment amount as we can currently afford to do it.

Every little helps, as they say.

murphaph

Are there ANY fixed rate products on the Irish market that allow any form of over payment? This is the norm here in Germany, They usually allow you to pay up to 5% of the original sum once in each calendar year as an over payment.

quadrifoglio verde

murphaph wrote: »

Are there ANY fixed rate products on the Irish market that allow any form of over payment? This is the norm here in Germany, They usually allow you to pay up to 5% of the original sum once in each calendar year as an over payment.

Not that I know of, sometimes I wish Angela was in charge here.

by the seaside

murphaph wrote: »

Are there ANY fixed rate products on the Irish market that allow any form of over payment? This is the norm here in Germany, They usually allow you to pay up to 5% of the original sum once in each calendar year as an over payment.

I have a fixed rate offset in the UK, so can make unlimited over payments.

aido79

As everyone else has advised the best way to do is to make overpayments rather than increase minimum repayments which you may not be able to afford if circumstances change.

I live in Australia and I have set up my mortgage so 50% is fixed and 50% is variable. I cannot make overpayments to the fixed part or charges will be applied. The variable part of my mortgage has an offset account linked to it. Any money that I put in the offset account comes off the mortgage so I don't pay interest on it. I can however withdraw money from this offset account at any time if I need it. Are they any similar types of mortgages in Ireland as it is by far the most popular type here?

NIMAN

Offsets were available before the crash, as I nearly signed up for one.

Don't think they are available any more though. Anyone?

Woshy

I'm with ebs and can do something similar. I pay money into the mortgage account and they subtract that amount when doing interest calculations. You have to tell them to apply the money to the capital on your mortgage, or you can withdraw it if you need it. Ebs said lots of people use it as a form of savings account as it's not super easy to get at and reduces the interest on your mortgage. I'll be putting it on the mortgage though unless absolutely necessary.

I'm not sure if you can split between variable and fixed though. 100% of our mortgage is variable

Mrs OBumble

aido79 wrote: »

The variable part of my mortgage has an offset account linked to it. Any money that I put in the offset account comes off the mortgage so I don't pay interest on it. I can however withdraw money from this offset account at any time if I need it. Are they any similar types of mortgages in Ireland as it is by far the most popular type here?

That's a type of product called revolving credit. At its most extreme, you only have one bank account (the mortgage account) all transactions (salary, bills, daily spending go through it and the interest is calculated on the daily balance. I don't believe that any Irish banks offer it.

It takes a certain type of situation and personality to really make it work. But if you do have these, the difference can be huge, eg I paid off a 25 year mortgage in 7 years, and was then able to draw down on it again to go travelling. Another 7 years later, and it's practically paid off again.

aido79

Mrs OBumble wrote: »

That's a type of product called revolving credit. At its most extreme, you only have one bank account (the mortgage account) all transactions (salary, bills, daily spending go through it and the interest is calculated on the daily balance. I don't believe that any Irish banks offer it.

It takes a certain type of situation and personality to really make it work. But if you do have these, the difference can be huge, eg I paid off a 25 year mortgage in 7 years, and was then able to draw down on it again to go travelling. Another 7 years later, and it's practically paid off again.

It works well for me. I don't find it that difficult. I just put any money I have saved into the offset account knowing that if I need it I can just do an online transfer and access it. Fair play to you for paying the mortgage off so quickly. I don't think I'll be able to pay it off that quickly but I don't plan on doing the full 25 years either. I also like to keep my eggs in different baskets by splitting it into variable and fixed.

missanxious

Saw this in Irish Independent
"With KBC Bank, for example, you can overpay up to 10pc of the outstanding balance on a fixed-rate mortgage through a lump-sum payment or monthly over-repayments - without incurring a penalty."

wuffly

Agree with the other posters regarding over paying. Best way to do this is to make a payment off the term at the end of the year, they should be able to tell you exactly how much time it will take off your term. EBS still has the facility to allow you to leave money on the mortgage that you have access to but has not gone against the capital to reduce the term or the payment. This means while that money is sitting there you don't owe interest on that amount. I used to work there years ago and we were instructed not to take these payments and if you pay by direct debit only the owing amount is called. Someone nice in the branch could do it for you though. You also need to be careful if its a large sum that you leave sitting there if it comes to the point where the loan amount and the amount sitting on it match the loan will automatically close and the money will be gone as such. A lot of people put their SSIA's on their mortgages while the figured out what to do with it. PTSB used to have it and called it a current account mortgage.

aido79

missanxious wrote: »

Saw this in Irish Independent
"With KBC Bank, for example, you can overpay up to 10pc of the outstanding balance on a fixed-rate mortgage through a lump-sum payment or monthly over-repayments - without incurring a penalty."

Same but different. With my mortgage I could in theory pay 90% of the variable part in a lump payment thus only having to pay interest on 10% of that part and still having access to the money I have in the offset account.

Mink

Thank you everyone for the replies.

It seems to be fairly unanimous, just overpay where possible to bring the term down.

ronan45

karenalot wrote: »

I pay €250 extra per month on my tracker mortgage. According to calculators this will take about 7 years off the remaining term.

€250 a month Overpaid on a tracker could shave about 7 Years off the remaining term??? You sure about that??? Seems amazing. :eek:
Are you sure about that?? That's Only €3000.00 a year overpayment

missanxious

Seems to be true alright. Using the PTSB overpayments calculator it states overpaying 250 a month on a 120K 25yr mortgage at 4.5% will shave off 9 years an 11 months!!!

I need to get overpaying!

Lenny

Paying an extra 775 per month off mine, went from 33 years to 10.5years

ronan45

Lenny wrote: »

Paying an extra 775 per month off mine, went from 33 years to 10.5years

You are talking savings of what 100K or so, Jesus is this because the Tracker rates are so low at the moment?

Mrs OBumble

ronan45 wrote: »

€250 a month Overpaid on a tracker could shave about 7 Years off the remaining term??? You sure about that??? Seems amazing. :eek:
Are you sure about that?? That's Only €3000.00 a year overpayment

That's the magic of compounding interest for ya.

'Tis why I think the 30 year terms here are mad ... unless you're a bank!

Woshy

missanxious wrote: »

Seems to be true alright. Using the PTSB overpayments calculator it states overpaying 250 a month on a 120K 25yr mortgage at 4.5% will shave off 9 years an 11 months!!!

I need to get overpaying!

250 extra a month would take 12 years off our mortgage. It's madness! It's not a huge amount of money at all to find if you put your mind to budgeting etc so we're trying to do that every month.

murphaph

We've just received a formal offer of a loan of 270k to build a house of a total value (including site) of 370k (so 100k deposit essentially) and it works like this:

8 years 6 months interest only @ 0.92% APR (€191 per month interest) and simultaneously we must save (at a poor 0.25% APR) €1177 for the full 8 years 6 months. At the end of this 8 years 6 months, the 270k loan is cleared with the proceeds of the savings account plus a NEW fixed rate loan that will run for a further 8 years 8 months (so total running time will be 17 years 2 months) and will have a MAX fixed interest rate of 2.25% APR for those 8 years 8 months. This loan is a repayment mortgage with interest and capital.

The complicated nature of the product makes it difficult to compare with regular repayment mortgages because you are losing money due to the low interest rate on the compulsory saving account. Luckily the consumer agencies here have online calculators that cut through the mist and spit out a simpe APR that covers the entire lifetime of the product.

We will pay 1.46% APR fixed for 17 years 2 months. The total cost of the credit will be a maximum of €36,319. It could be lower if the market interest rate is lower than 2.25% after the initial 8 years 6 months. If it is lower, that lower rate will then be the new fixed rate for the remainder of the term. Over-payments are limited to 5% of original principal during the interest only period and after that there is no restriction. It cannot be higher than the 36k though.

To be honest, making over payments on that is silly. The money is too cheap to bother over paying and can be used better elsewhere.

Lenny

ronan45 wrote: »

You are talking savings of what 100K or so, Jesus is this because the Tracker rates are so low at the moment?

I'm on a variable rate, think its 4.25% at the moment(aib)?
If we stick to what we're paying at the moment, it would work out a saving of about 150-160k on interest

Heisenberg1

Lenny wrote: »

I'm on a variable rate, think its 4.25% at the moment(aib)?
If we stick to what we're paying at the moment, it would work out a saving of about 150-160k on interest

Are your figures correct? I'm on that VR with AIB myself when inputting figures use the APR on the interest rate which is 4.32% on AIB's >80% LTV variable rate. The amount of interest you say you would be saving seems very high with what you are overpaying by. Based on a mortgage of €300k left by overpaying by €775pm you get the figures below on this I would check your figures again.


Current Repayment: €1,407.87 New payment: €2,182.87

Mortgage Term: 33 Years New term 15 Years and 8 Months

Cost of Credit: €257,516.52 New cost of credit:€110,379.56

Saving you €147,139.96 on interest payments.

Crumbs868

murphaph wrote: »

Are there ANY fixed rate products on the Irish market that allow any form of over payment? This is the norm here in Germany, They usually allow you to pay up to 5% of the original sum once in each calendar year as an over payment.

It's a myth in Ireland that you can't overpay a fixed rate mortgage(see all the replies on this thread) when you can once you don't overpay by a certain amount. Talk to your mortgage provider as each mortgage is different but by and large you can overpay by a couple of hundred(using a typical mortgage as an example) each month without penalty

wuffly

Crumbs868 wrote: »

It's a myth in Ireland that you can't overpay a fixed rate mortgage(see all the replies on this thread) when you can once you don't overpay by a certain amount. Talk to your mortgage provider as each mortgage is different but by and large you can overpay by a couple of hundred(using a typical mortgage as an example) each month without penalty

Its not a myth with EBS, there is physically no way to pay. You can let money sit on the account but it won't reduce what you owe as the interest is fixed. To reduce the term or the payment you need to break the fix which will incur charges and penalties based on how much of the term remains.

ronan45

Does the same prinicipal apply to One off yearly Payment (instead of once a month a lump sum at the end of the year) Or does it have to be an increased payment over the 12 months and not a lump sum once off payment?

missanxious

Sorry for butting in here but you guys seem to know a lot more than me so you might help with this query I have.

We are about to draw down our mortgage. We searched around and PTSB were offering the best rates for our LTV.
These are our mortgage rate options:

Variable 3.7%
1 yr fixed 3.49%
2 yr fixed 3.7%
3 yr fixed 3.7%
4 yr fixed 3.9%
5 yr fixed 3.9%

Which would you choose?

by the seaside

missanxious wrote: »

Sorry for butting in here but you guys seem to know a lot more than me so you might help with this query I have.

We are about to draw down our mortgage. We searched around and PTSB were offering the best rates for our LTV.
These are our mortgage rate options:

Variable 3.7%
1 yr fixed 3.49%
2 yr fixed 3.7%
3 yr fixed 3.7%
4 yr fixed 3.9%
5 yr fixed 3.9%

Which would you choose?

5 year fix. ECB base rates are very low by historic standards, so how could you cope if they were 4% higher in three years time?

missanxious

Good point. But then why not fix in a year's time when they might be lower. ECB not likely to increase this year?

Head wrecked with the decision making. Will probably go with 5yr fixed though, thank you

by the seaside

missanxious wrote: »

Good point. But then why not fix in a year's time when they might be lower. ECB not likely to increase this year?

Head wrecked with the decision making. Will probably go with 5yr fixed though, thank you

They may be lower, but in theory the current fix price should price in market expectations.

What you are doing when you fix now is removing uncertainty.

What would happen if Greece falls out of the Eurozone and contagion spreads to Spain, Italy and Portugal? Would ECB rates go up (to defend the Euro) or down. I have no idea and it may not be very likely, but can you afford it?

However, you do need to mentally prepare yourself not to be annoyed if you find that you could have got a better deal through another strategy. I fixed four years ago and have paid thousands more than I would have otherwise, but I don't care any more than I care about not backing the winner at the Grand National.

air

Woshy wrote: »

You have to tell them to apply the money to the capital on your mortgage, or you can withdraw it if you need it. Ebs said lots of people use it as a form of savings account as it's not super easy to get at and reduces the interest on your mortgage. I'll be putting it on the mortgage though unless absolutely necessary.

Do you have a normal variable rate mortgage with EBS as opposed to an offset current account mortgage?
If so how do you go about withdrawing money you have paid into the mortgage account?

Woshy

air wrote: »

Do you have a normal variable rate mortgage with EBS as opposed to an offset current account mortgage?
If so how do you go about withdrawing money you have paid into the mortgage account?

As far as I'm aware it's a normal variable rate mortgage. We only signed up recently so haven't withdrawn any money yet but the mortgage consultant said you request a cheque either in branch or over the phone.

W haven't had a statement yet either but the mortgafevsaud the balance etc does appear on your statement.

wuffly

air wrote: »

Do you have a normal variable rate mortgage with EBS as opposed to an offset current account mortgage?
If so how do you go about withdrawing money you have paid into the mortgage account?

Any branch can issue you a cheque once you have ID, if you call before you go in they should be able to tell you. If there are two names on the mortgage the cheque will automatically be made out to you both, there is no way around this, its a system thing. So you will need a joint account to cash it. They can't give balance's out over the phone but they can tell you if you are right or wrong once you confirm some details on the account. Depending on the branch you might need someone mid-level or senior but they can do it at the counter. Branch staff are quiet restricted in what they can do in many banks and get a world of abuse for it, if you're friendly and patient they will generally do their best for you.

ronan45

Woshy wrote: »

250 extra a month would take 12 years off our mortgage. It's madness! It's not a huge amount of money at all to find if you put your mind to budgeting etc so we're trying to do that every month.

Woshy does that still apply if that Interest rates (god forbid) go back up to the normal levels 4% or so?

SteM

ronan45 wrote: »

Woshy does that still apply if that Interest rates (god forbid) go back up to the normal levels 4% or so?

No, the amount of years reduced depends on the rate you pay. Take a look at karls mortgage calculator in the link below, you can easily see how much overpayments can save you and how a rate increase would effect it.

https://www.drcalculator.com/mortgage/

Woshy

It would change if the interest rates changed, yes. You need to input the interest rate when doing the calculations - as said above

Rackstar

murphaph wrote: »

We've just received a formal offer of a loan of 270k to build a house of a total value (including site) of 370k (so 100k deposit essentially)

Can I ask what type of mortgage this is and who supplies it? Is it available in Ireland?

murphaph

Rackstar wrote: »

Can I ask what type of mortgage this is and who supplies it? Is it available in Ireland?

Sorry no. It's from a German building society.