Mortgage Overpayment tactics to save the most in interest

Sunrise_Sunset

I've been overpaying on my tracker mortgage for the past year or so. I also overpay on the fixed part of my mortgage (borrowed extra money when I bought a new house last year), but this just sits on the account as credit until the fixed term is up and I can pay this down off the mortgage.
I owe about 215k at a rate of 2.1% (it went up from 1.1% when I moved last year), and about 38k at a rate of 3%. I have been mainly focusing on overpaying on the tracker, as it's just an easier process.
But my question is, should I focus more on overpaying the fixed mortgage and get this cleared a lot earlier, then move onto focusing on overpaying the tracker. Would I save more money on interest in the long term if I did it that way?
It has been quite motivating to see the tracker decrease whereas I wouldn't really see this on the fixed. But my main focus is to save as much money as possible in interest over the years.

AnRothar

The magic of compound interest.

Usually the best benefit in overpaying will come from the loan with the longest term remaining.

T & C's apply (interest rates, loan value etc)

Sunrise_Sunset

AnRothar wrote: »

The magic of compound interest.

Usually the best benefit in overpaying will come from the loan with the longest term remaining.

T & C's apply (interest rates, loan value etc)

There's 22 years left on the fixed and about 21.5 years left on the tracker as I've made a couple of overpayments on it.
Paying about 370 interest a month on the tracker and 95 on the fixed.
Am I best to continue overpaying on the tracker?

Doodah7

Overpay the loan that is costing you more.

moans3536

Whichever loan/mortgage is charging you the highest interest rate - is the one to overpay.

AnRothar

There's 22 years left on the fixed and about 21.5 years left on the tracker as I've made a couple of overpayments on it.
Paying about 370 interest a month on the tracker and 95 on the fixed.

Both timescales are almost equivalent.
So now you need to look at amounts and interest rates.

Ordinarily this is they best path.

moans3536 wrote: »

Whichever loan/mortgage is charging you the highest interest rate - is the one to overpay.

However always be cautious basing financial decisions based on advice from random strangers on the internet.

We are not privy to your personal circumstances an may inadvertently give you perfectly sound advice which may not in fact apply for you.

Sunrise_Sunset

Thank you. I appreciate the advice thus far.
I have been focusing on the tracker as it's easier, the interest rate is higher but the amount of the interest per month is a lot higher. 370 compared to 95.
I figure I could probably get the fixed part of the mortgage cleared in about 7 years. It's fixed at 3% for the next 5 years at which point I wouldn't lock it in again for more than 2 years, so that I could clear it.
And then focus on the tracker.
I'm not making huge overpayments as I have other savings goals but so far I'm managing 200-300 extra per month.

AnRothar

There are 2 schools of thought in repayment of debts.

Simply put.
Tackle your biggest one first.
Or.
Tackle the smallest one first.

The first will save you The most overall.
The second will give you the greatest flexibility. As once you have eliminated the smallest you now have 2 extra amounts to use. The repayment amount of the smaller loan and the overpayment amount.

While there is usually a lot of similarities most people's financial circumstances are not exactly the same.

for example we locked our mortgage in for 5 years. Then set about eliminating all other loans.
This is the best strategy for our circumstances.

Cyrus

Is there any restriction on how much you can overpay the fixed portion ?

Amirani

If you want to maximise your interest savings, then the following will always be the best option in mathematical terms:

1. Pay off highest interest debt first
2. After above is done, switch to repaying next highest interest debt (including using the amounts saved in interest by completing step 1).
3. Repeat...

Some people will prefer to pay off easily-clearable small debts, or focus on longer term debts. None of these strategies are wrong necessarily, they have certain benefits. But to maximise your savings, then it should be tackling the debt that is costing you most in interest first.

Trish56

You can't overpay on a fixed rate mortgage without penalty unless you're with KBC where you can repay up to 10% off the principal during the fixed term so paying if off the tracker which is variable makes more sense and will reduce both your term and interest.

You can save x amount per month until the fixed term expires, pay the lump sum off then and fix for a further term with the aim to have the mortgage cleared within this fixed period.

Cyrus

Trish56 wrote: »

You can't overpay on a fixed rate mortgage without penalty unless you're with KBC where you can repay up to 10% off the principal during the fixed term so paying if off the tracker which is variable makes more sense and will reduce both your term and interest.

You can save x amount per month until the fixed term expires, pay the lump sum off then and fix for a further term with the aim to have the mortgage cleared within this fixed period.

ulster bank allow the same.

Sunrise_Sunset

Trish56 wrote: »

You can't overpay on a fixed rate mortgage without penalty unless you're with KBC where you can repay up to 10% off the principal during the fixed term so paying if off the tracker which is variable makes more sense and will reduce both your term and interest.

You can save x amount per month until the fixed term expires, pay the lump sum off then and fix for a further term with the aim to have the mortgage cleared within this fixed period.

Decided to overpay the fixed portion. It has the highest interest rate. I overpay and it sits on the mortgage account as credit, until the fixed term expires, when I will make a lump sum payment. It expires in 5 years and I aim to have it paid off in that time. Realistically I think it could be more like 7 years, but I'm going to aim for 5. If I have to lock in another year or two of a fixed rate, I won't mind too much but would love to have it cleared in 5 years.
Then I'll move onto the tracker portion.

Cavan_King

Cyrus wrote: »

ulster bank allow the same.

I overpaid on AIB and there was no penalty. Knocked a large fixed sum off my mortgage after redundancy.

Mongfinder General

Sunrise_Sunset wrote: »

Decided to overpay the fixed portion. It has the highest interest rate. I overpay and it sits on the mortgage account as credit, until the fixed term expires, when I will make a lump sum payment. It expires in 5 years and I aim to have it paid off in that time. Realistically I think it could be more like 7 years, but I'm going to aim for 5. If I have to lock in another year or two of a fixed rate, I won't mind too much but would love to have it cleared in 5 years.
Then I'll move onto the tracker portion.

Are you married?

Q&A

You want to maximise your bang for your buck when overpaying. Generally that's overpaying the highest rate first and working through the loans in that order. An important caveat is when you have to factor in a break fee. If the break fee is large enough it might be more economical to pay off the second, third or subsequent highest rate element.

All banks charge a break fee. However, depending on your circumstances the cost could actually zero. But be careful you can't generalise based on other posters experiences.

There are rules on how break fees are calculated. The fee will depend on the cost of funds faced by the lender on the day you fixed your mortgage and the prevailing rate. So the cost will vary day to day. Other people's experiences are only relevant if they fixed and broke out of their mortgage on the same days as you and with the same institution.

There is no break free on variable rate/tracker mortgages.

Most banks allow some form of overpayment on fixed mortgages without triggering a break fee calculation. From my casual observations:

Ulster Bank are the most generous - 10% of the outstanding BALANCE each year.
KBC - 10% of the ORIGINAL FIXED amount over the term.
Most others 10% of the monthly repayments.

To find out what your break cost is just phone your bank and ask. They will either tell you over the phone or calculate the cost and send you a letter. Either way there will be a small window during which the break fee will be valid. After that the process will need to be repeated.

kippy

I find people get hung up on whether you are allowed to overpay your mortgage or not.
If you are not or you can only pay a limited percentage it's usually because you are in a fixed term/rate contract for a few years.
This shouldn't really come into your thinking however if you still want to put more money towards the mortgage. Stick what additional money you want to put into the mortgage but can't into another account. Once the fixed term is up transfer to mortgage.

I know that's not your question but I see the type of thing come up a lot and I know it is easier said than done!

As for general info on what to pay off first, as others have said look at what is costing you more and attack that. There's an app called simple mortgage calculator that is brilliant for playing around with figures and overpayments and the like which could help you make some decisions.

tom1ie

Trish56 wrote: »

You can't overpay on a fixed rate mortgage without penalty unless you're with KBC where you can repay up to 10% off the principal during the fixed term so paying if off the tracker which is variable makes more sense and will reduce both your term and interest.

You can save x amount per month until the fixed term expires, pay the lump sum off then and fix for a further term with the aim to have the mortgage cleared within this fixed period.

Ulster bank allow you to overpay 20% of the outstanding balance of the loan when the loan is fixed.

Also every time you throw extra off your principle, this reduces your monthly repayment amount.
So if in January your monthly repayment was €1000 and you pay €2000, in February the repayment will be €990 so now you still repay €2000, so that €1010 goes off the principle, which reduces march’s repayment to €980, so that the €2000 you throw off in March, €1020 goes off principle, thus reducing April’s repayment etc etc.

TP_CM

Q&A wrote: »

KBC - 10% of the ORIGINAL FIXED amount over the life.

When you say 'life', you mean 'term' right? As in, if I have a 100k mortgage on a 2 year fixed term, I can over-pay by 10k in those 2 years, and if I take out another 2 year term after that, I can again over pay by 10 per cent of whatever the balance is at the start of that 2nd 2 year term.

'Life' to me means the whole 20 or 30 year mortgage so I'm just double checking..

3DataModem

AnRothar wrote: »

The magic of compound interest.

Usually the best benefit in overpaying will come from the loan with the longest term remaining.

T & C's apply (interest rates, loan value etc)

The best benefit in overpaying will ALWAYS come from the loan with the highest interest. Term irrelevant.

(as long as the overpayment can be applied to the capital, which is sometimes not the case for fixed loans, but always the case for tracker or variable mortgages)

Q&A

tom1ie wrote: »

Ulster bank allow you to overpay 20% of the outstanding balance of the loan when the loan is fixed.

10% not 20%

https://digital.ulsterbank.ie/personal/mortgages/fixed-rate-mortgages.html

TP_CM

Just leaving this handy over-payments calculator here for people as well. It has been very useful to me over the years:

https://www.ccpc.ie/consumers/money-tools/extra-mortgage-payments-calculator/

Best for savings is to pay off highest interest (assuming it can be applied to capital) loan first. But, also keep in mind that a lump sum payment can bring down your loan to value % and you might qualify for a lower mortgage rate.

But applying the snowball effect has its benefits also.

tom1ie

Q&A wrote: »

10% not 20%

https://digital.ulsterbank.ie/personal/mortgages/fixed-rate-mortgages.html

We were told 20% when we switched.

Q&A

tom1ie wrote: »

We were told 20% when we switched.

Based on their website, what they told me and what others have said on here it's 10% but if you have documentation saying 20% lucky you.

kippy

Q&A wrote: »

Based on their website, what they told me and what others have said on here it's 10% but if you have documentation saying 20% lucky you.

Does it really matter though?
If you just throw whatever you were going to put into the mortgage into a savings account for the fixed term....then once fixed it up, put that money into the mortgage?
(Granted not all contracts may allow this but I don't really see the fuss)

Q&A

kippy wrote: »

Does it really matter though?
If you just throw whatever you were going to put into the mortgage into a savings account for the fixed term....then once fixed it up, put that money into the mortgage?
(Granted not all contracts may allow this but I don't really see the fuss)

Yes, it can. You could be paying over 2% on the mortgage and getting close to zero on savings.

Granted your mortgage won't disappear overnight but paying down high debt (when you can) before savings is the most efficient approach to reducing the cost of your mortgage.

kippy

Q&A wrote: »

Yes, it can. You could be paying over 2% on the mortgage and getting close to zero on savings.

Granted your mortgage won't disappear overnight but paying down high debt (when you can) before savings is the most efficient approach to reducing the cost of your mortgage.

I don't think I've explained myself well enough.
If you are limited to overpaying your mortgage while in a fixed rate to 10 percent but you have the ability to overpay by 40 percent (but cannot because of the fixed term) why not put that additional 30 percent ANYWHERE you won't lose it, then once your fixed term is finished but that 30 percent that you've been 'saving' into your mortgage......
People get completely caught up in the terms of these fixed terms without looking at the other alternatives.

Great for anyone to be in a position to over pay.



As for the general concept of the relative value of Saving versus paying your mortgage down, that would depend on any number of individual circumstances.

Q&A

kippy wrote: »

I don't think I've explained myself well enough.
If you are limited to overpaying your mortgage while in a fixed rate to 10 percent but you have the ability to overpay by 40 percent (but cannot because of the fixed term) why not put that additional 30 percent ANYWHERE you won't lose it, then once your fixed term is finished but that 30 percent that you've been 'saving' into your mortgage......
People get completely caught up in the terms of these fixed terms without looking at the other alternatives.

Great for anyone to be in a position to over pay.

Agreed, great position to be in. I'd broadly agree with what you say. In such a situation I'd periodically review the cost of breaking to see if it was economical to pay down the debt.

The break free could be less than the interest savings. Its fairly black and white when the break fee is zero. Its a little more grey when there is a cost. Given the break fee varies day to day is hard to be definitive that today is a better day to pay than tomorrow.

An assessment of where cost of funds could be going might be worth considering.

AnRothar

3DataModem wrote: »

The best benefit in overpaying will ALWAYS come from the loan with the highest interest. Term irrelevant.

(as long as the overpayment can be applied to the capital, which is sometimes not the case for fixed loans, but always the case for tracker or variable mortgages)

In the purest sense you are correct.

However I will slightly disagree with you but it has to do with your use of the word "ALWAYS".
Terms and Conditions aka the small print must be considered too.

3DataModem

AnRothar wrote: »

In the purest sense you are correct.

However I will slightly disagree with you but it has to do with your use of the word "ALWAYS".
Terms and Conditions aka the small print must be considered too.

Fair comment. I guess I was responding to the person who asserted it was better to pay the longest term off first, which is incorrect.

AnRothar

3DataModem wrote: »

Fair comment. I guess I was responding to the person who asserted it was better to pay the longest term off first, which is incorrect.

That was probably me in post 2.
But I had the first word "usually" emphasized in bold and mentioned T & C's.

In a former role i have seen people thinking that the small print does not apply to them.