Paying off section of mortgage

mrcheez

I want to pay off a chunk of my mortgage, do I make sure to ask the bank to "deduct it from the principal" (so that they don't use the payment toward the remaining interest) ?

Anything else I need to be aware of?

smelly sock

mrcheez wrote: »

I want to pay off a chunk of my mortgage, do I make sure to ask the bank to "deduct it from the principal" (so that they don't use the payment toward the remaining interest) ?

Anything else I need to be aware of?

Get some sound financial advice from an independent source.

What you need to be aware of is the back will screw you if possible.

NinjaTruncs

I think you need to tell them if you want the period changed. Do you want lower repayments or to pay back in a quicker time. You'd be best off ringing up your bank and explaining to them what you want to do and they should advise accordingly.

Bandana boy

What rate are you paying on your mortgage , most folks who bought in the days of the tracker are paying little interest and you can often get more value for your money in investing the cash.

One_Of_Shanks

I'm with BOI and when you transfer a fairly large sum (over several thousand) online they always lowered my repayments.
i.e. the term of the mortgage is NOT shortened, just the monthly repayments reduce.

It is set up this way, so if you would rather shorten the term by a few years and keep the repayments the same then you need to notify them that this is your intention in advance.

However, if you do it online with a fairly small sum (let's say 1,000 or lower) then they just take it off the term rather than bother working out new repayments.

Doesn't make much sense but I'm speaking from experience with them as I've had some "fun" dealing with them on this exact matter.

This is BOI I'm talking about so it could be different with other banks.

But transfer say 10,000 online and it reduces the repayment NOT the term of the mortgage, is the bottom line.
Be sure to notify them in advance if you want it the other way around.

Lumen

Bandana boy wrote: »

What rate are you paying on your mortgage , most folks who bought in the days of the tracker are paying little interest and you can often get more value for your money in investing the cash.

10 year state savings bonds are only returning 1.50% and AFAIK there's no risk-free return available greater than that.

CruelCoin

mrcheez wrote: »

I want to pay off a chunk of my mortgage, do I make sure to ask the bank to "deduct it from the principal" (so that they don't use the payment toward the remaining interest) ?

Anything else I need to be aware of?

Do it.

If you pay off 20k early, then your interest charges (and thus monthly repayments) will also drop.

I paid 5k (approx 10 months payments) and 21 months came off the length of my mortgage.

I then paid another 8k (then 17 months repayments) and around 26 months came off the mortgage.

Trust me, it pays really handsomely to pay early, if you can. Future you will buy you a beer.

Bandana boy

Lumen wrote: »

10 year state savings bonds are only returning 1.50% and AFAIK there's no risk-free return available greater than that.

Depending how much you have to deposit you can get up to 3% on a regular saver account with KBC afaik .
Think it craps out at 50K but shop around and look at the other institutes as well you can likely beat a tracker mortgage and keep the cash available for emergencies and a juicier investment opportunity.

rameire

mrcheez wrote: »

I want to pay off a chunk of my mortgage, do I make sure to ask the bank to "deduct it from the principal" (so that they don't use the payment toward the remaining interest) ?

Anything else I need to be aware of?

your mortgage is not front loaded with interest.

so saying take it off the capital and not the interest will do nothing for you.

you have two simple options really.
lodge lump sum.
keep repayments the same thus reducing the term.
or
reduce repayments and keep term the same.

Lumen

Bandana boy wrote: »

Depending how much you have to deposit you can get up to 3% on a regular saver account with KBC afaik .

Yes, but you can't deposit a lump sum in a regular saver account. The KBC deposit accounts top out at 0.6% gross.

You're right about the usefulness of savings in an emergency. AFAIK there aren't any offset mortgages available in Ireland.

stimpson

Deposit interest is subject to DIRT @ 39%

mrcheez

CruelCoin wrote: »

Do it.

If you pay off 20k early, then your interest charges (and thus monthly repayments) will also drop.

I paid 5k (approx 10 months payments) and 21 months came off the length of my mortgage.

I then paid another 8k (then 17 months repayments) and around 26 months came off the mortgage.

Trust me, it pays really handsomely to pay early, if you can. Future you will buy you a beer.

Did you lower the monthly repayments, or lower the term of the mortgage as a result of the payments?

mick121

If your on a variable rate with aib and not fixed you can pay off the principal without penalty.you must write a letter to the mortgage section telling them what to do eg take 10,000 off the principal and keep paying the same therefore reducing your term by x amount of time or take off principal and keep same duration and reduced monthly payment. I chose the first option and reduced my term by about 2.5 years happy days

mrcheez

I'm guessing lowering the monthly payment works out better in the long run as it means I have more cash to put into investments/pension etc?

Or to put toward a 2nd mortgage obviously, tho judging by the state of buying property now I think I'll hold off on that one!

One_Of_Shanks

mrcheez wrote: »

I'm guessing lowering the monthly payment works out better in the long run as it means I have more cash to put into investments/pension etc?

See most people will say invest in this and that and it could work out better than paying off the mortgage faster.
And they're right.

But just personally I try to put every cent I have towards overpaying the mortgage before I would look at other investments.
That's just me. My situation could be different to yours but I worry about loss of income in the future due to ill-health or whatever and I would like the peace of mind that comes with knowing I own my own house, not the bank.

So top priority for me would be clearing your mortgage first, invest second.

Probably bad business advise in the grand scheme of things but wouldn't it be nice to know that you/your family properly own the house you live in?
Just the way I look at it.

Best of luck with whatever you decide to do and I'll move out of the way now before I get in the way of advice from people who know more about this subject than I do.

DubCount

Before paying a lump sum into your mortgage, consider that it is easier to pay money off your mortgage, than to get it back from the bank if you ever need it for some other reason. When you pay 20k into your mortgage, the bank will not be quick to give it back to you if you were to become unemployed for example. Would it be better to keep the money as a rainy day fund?

Once you are happy that the money is going to go off the mortgage, you need to decide if you want to use that payment to reduce your repayments (to improve your standard of living) or reduce the term (maybe to retire earlier or to have more money when kids are in college etc.)

athtrasna

Mod note

Duplicate threads are not permitted on boards. As you have another thread with the exact same question on another forum I'm closing this one.