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