Mortgage overpayments

slowjoe17 · 18-10-2015 4:54pm #1

I'm thinking of buying a house, and obviously because of the "stress tests", my mortgage payment is currently less than what I can afford to pay. In fact, I may be able to afford to pay e800/month more than the mortgage payment.

Because of this, I'm currently thinking of paying as much as I can each month, and therefore getting a variable rate mortgage in order to allow this. Coupled with this, I intend to maintain the fiction of a 20 year mortgage term (even though I intend to clear it significantly more quickly) because this allows me to pay minimum payments as a semi-mortgage holiday.

So, my questions are:

1. Are there any banks that cause problems with my plans?
2. Is there any legal terminology I need to be on the lookout for?

Archaeoliz · 18-10-2015 5:39pm

We have done this in the past. There shouldn't be any problems but be wary of the terms and conditions as some do state that you can only repay a certain percentage of the mortgage debt per annum before you need to pay a repayment charge. I can't remember what it was on our last mortgage, but if it were me, I'd be up front with the bank/mortgage broker who would be able to tell you.

simdan · 18-10-2015 5:48pm

I plan on doing something like this as I'm in a similar situation. I would like to know how many years I could reduce the mortgage by paying an extra 5-800 euro extra each month. Is there a calculator for this?

slowjoe17 · 18-10-2015 5:55pm

simdan wrote: »

I plan on doing something like this as I'm in a similar situation. I would like to know how many years I could reduce the mortgage by paying an extra 5-800 euro extra each month. Is there a calculator for this?

There is a spreadsheet function (in Excel, Openoffice, Google Sheets) called PMT

From the Google Sheets help:

<quote>
PMT(rate, number_of_periods, present_value, [future_value], [end_or_beginning])

Example
PMT(0.05/12, 30*12, 100000, D2, 0)
</quote>

http://www.themoneycalculator.com/loans/calculators/loan-overpayment-calculator/#!/dealfinder/loans/ looks like a useful website.

April 73 · 18-10-2015 6:36pm

Try this site for mortgage calculations.
https://m.drcalculator.com/mortgage/ie/

runawaybishop · 18-10-2015 6:40pm

simdan wrote: »

I plan on doing something like this as I'm in a similar situation. I would like to know how many years I could reduce the mortgage by paying an extra 5-800 euro extra each month. Is there a calculator for this?

http://www.moneysavingexpert.com/mortgages/mortgage-overpayment-calculator

^^ that will let you see the reduction after a lump payment or a recurring one.

maynooth_rules · 18-10-2015 7:39pm

if one has a lump sum is it better to pay it off the mortgage straight away if possible or should you just rise the monthly payments. Would one work out better than the other?

slowjoe17 · 18-10-2015 7:52pm

maynooth_rules wrote: »

if one has a lump sum is it better to pay it off the mortgage straight away if possible or should you just rise the monthly payments. Would one work out better than the other?

If you pay the lump sum straight away, you save eliminate the interest on the principal that would be charged while you were dribbling it in.

This assumes your mortgage allows you to do this, and that the bank calculates interest in a fair way.

Gumbo · 18-10-2015 8:04pm

I'm with Bank of Scotland on a tracker since 2006.
I have been over paying my mortgage to the tune of about €100ish per month. Not a lot but it will take some time off towards the end. They have never said anything about it and I believe once you are on a variable rate you can lodge money off the capital at any time.

Villa05 · 18-10-2015 10:33pm

Would it be better to put this money into a pension rather than overpaying a mortgage from a return on investment perspective.
What are posters thoughts?

OfflerCrocGod · 19-10-2015 6:32am

In general it would seem better to invest money and delay paying off a cheap loan, but I think that's not something most people would be comfortable with and returns on investments can be highly variable.

Nichard Dixon · 19-10-2015 6:43am

It may be worth checking whether capital payments reduce interest immediately or whether this is a once a year calculation, in the latter case there would be a time of year to make your extra payment while using a regular savings account to build up this payment.

jonnybravo · 19-10-2015 8:49am

Villa05 wrote: »

Would it be better to put this money into a pension rather than overpaying a mortgage from a return on investment perspective.
What are posters thoughts?

There's tax relief on pension payments which make it probably more attractive.

I'm trying to balance both. Pension payments and paying a little extra off mortgage.

ghostdancer · 19-10-2015 9:39am

Villa05 wrote: »

Would it be better to put this money into a pension rather than overpaying a mortgage from a return on investment perspective.
What are posters thoughts?

I'm in the same boat and am just splitting it 50/50. there's pros and cons to both imo.

19-10-2015 9:59am

Personally I'd see getting a mortgage paid off asap and being mortgage free as much more attractive than putting the extra money into my pension.

allibastor · 19-10-2015 10:48am

I worked with a chap once who over the course of his 30 year mortgage payed off an extra payment a year and reduced his overall term by sometime like 7-8 years!

Many mortgages are like 90% more just due to interest.

MayBea · 30-10-2015 12:15pm

It is more beneficial to reduce the amount of monthly repayments rather than the overall term (mainly due to inflation, money tend to lose value over time).

jonnybravo · 30-10-2015 2:18pm

MayBea wrote: »

It is more beneficial to reduce the amount of monthly repayments rather than the overall term (mainly due to inflation, money tend to lose value over time).

Only if Inflation is greater than the interest rate you are paying (which I would think is very rare). Otherwise reducing the term will be more beneficial.

mel123 · 30-10-2015 3:24pm

I am interested in doing this also.
How does it work or does it depend on the bank? I thought if u over pay, your payments stay the same every month, but your term would be shorter. How do you get the monthly payments down also, do they recalculate?

jonnybravo · 30-10-2015 3:55pm

mel123 wrote: »

I am interested in doing this also.
How does it work or does it depend on the bank? I thought if u over pay, your payments stay the same every month, but your term would be shorter. How do you get the monthly payments down also, do they recalculate?

As far as I know all banks will do it either way but you need to direct them to do it the way you want. For example when I paid off a lump sum from our mortgage my bank reduced our monthly payments but then I directed them to increase it back up and then they sent out a letter with the reduced term.

30-10-2015 4:16pm

The point of over paying in my eyes is to reduce the term i.e. get your mortgage paid of asap (which also reduced the amount of interest paid).

I think getting the longest term mortgage you can (thus lowest compulsory repayment) and overpaying like mad on it is how I will approach it when I get a mortgage. In this way you can always fall back to a low monthly repayment at some point if you need to for a period of time rather than going for a shorter term mortgage from the start and having high compulsory monthly repayment.

Mortgage overpayments

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