Do you overpay your mortgage?

Cyrus

https://www.boards.ie/discussion/comment/118926103#Comment_118926103

10% of the principal? or an extra 10% in what you repay every month?

If the former you would pay off the mortgage in 10 years cant see how the impact is negligible, if the latter i get it.

L1011

https://www.boards.ie/discussion/comment/118926328#Comment_118926328

10% of the payment. Max the bank would allow.

Its a small mortgage with only 8 years left anyway (reduced to 7 and a few months by that payment).

AndyBoBandy

I'm sure I posted it before, but CCPC have a great overpayment calculator where you can see how much potential interest savings there are as well as the term reduction benefit of overpayments, however small they are;

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

Paul_Mc1988

https://www.boards.ie/discussion/comment/118926103#Comment_118926103

Who are you with?. Avant allow a 10% overpayment per year of what's left on the balance at the start of the year.

Say you owe 200k at the start of January, you can throw 20k of it.

Next year you have 175k left you can throw off 17.5k etc.

Edit: seen your answer up above. This is the reason I don't go with a lot of banks

Paul_Mc1988

https://www.boards.ie/discussion/comment/118926498#Comment_118926498

I use Karl's mortgage calculator. It's an app you can download. It's very good

Amirani

https://www.boards.ie/discussion/comment/118922201#Comment_118922201

Look at it this way - for every €100 you spend paying off the 100k@3%, you will save €3. Whereas for every €100 you spend paying off the 20k@6.9%, you will save €6.90. So you will save more than double. If the loans were the same length, this would be all there is too it, but there is a compounding aspect over time, so for example, let's say you have 20k sitting in a savings account and you want to decide what it do with it. Is it better to pay it off the low interest big loan of the high interest smaller loan?

Scenario 0 - No overpayment:

Loan 1 cost = 48,926, monthly repayment = 829

Loan 2 cost = 2,944, monthly repayment = 478

Saving = 0

Scenario 1 - Pay 20k off 20 year 150k loan @ 3%

Loan 1 cost = 42,404

Loan 2 cost = 2,944

Saving = 6,422

Scenario 2 - - Pay 20k off 4 year 20k loan @ 6.9%

Loan 1 cost = 35,388

Loan 2 cost = 0

Total saving = 17,211

The main thing you need to notice here mathematically, is that if you pay 20k off the 20k high interest loan, you free up €478 per month in repayments that can be used to overpay the longer term loan for the next 4 years. And hence you will save more than double.

Ray Palmer

https://www.boards.ie/discussion/comment/118926815#Comment_118926815

All very good points people don't seem to understand. It is generally better to put the extra money into a pension as you get tax back straight away of over 20% then put that against your mortgage. It really doesn't sound like some of these over payments are not coming off the principle which defeats the whole point.

CPTM

Mathematically I would probably be better off investing in a low risk market fund. But I pour everything into the mortgage because it reduces the life from 30 years to 6 and in 6 years I will feel more free to spend my money on fancy holidays and trips and maybe even a career change. I might have more money with investing but money quantity and fund size isn't my actual goal. My actual goal is freedom to relax a bit sooner rather than later. With a fund, capital gains tax, potential dips in the market, I could have more assets but I wouldn't feel as comfortable actually spending it. I would always be thinking of gains I'd lose by taking money out of the market, or I'd think what if I need the money later to pay the mortgage.

I've maxed out my pension and the rest goes into the mortgage so that when the kids hit 7/8ish years old, I can reward myself with nice flight times and taxis and better holiday accommodation instead of counting the pennies left after the mortgage repayments.

AndyBoBandy

https://www.boards.ie/discussion/comment/118926982#Comment_118926982

Pretty much the same as us.

Want the freedom of owning the house outright, and then our money every week/month is ours to spend how we see fit.. Our jobs pay well but we can't see ourselves in them forever, so we've also been paying up front for long term cost saving measures like an EV & Solar PV. The idea being to have our future outgoings as low as possible. We bought in the dip for €250k (borrowed €165k) and houses either side of us are going for €400k+ again, so that was a bit of a stroke of luck too. 20 year term will be finished after 8yrs 11 months.

We are 11 months away from mortgage paid off and then we will max out our pension contributions (currently 5% + 10% employer), and just keep going with work for as long as we can stick it!! We're also in the process of buying a holiday home in Lithuania (80km from the Russian border which will be fun) which we'll borrow around €100k for, but the idea is after the Irish house is fully owned in a year, to just overpay on the Lithuanian house to have it cleared in 4-5 years.

jaykay2

Overpaying by 20 - 25% the last few years which reduced the length of the mortgage by 8 years. Currently in the process of switching which will save us significant money as the rate is going to be a good bit lower than what we could get with our initial mortgage holder, plus going to throw on another small bit while we are at it. Hopefully those two changes will take some time off it too.

Probably going to lock ourselves into a 10 year fixed now as rates are likely to rise very soon. Hopefully then we can then pay off the remainder at the end of that 10 years.

Might be willing to lock into a 7 year either if the rate is better, just worried rates could get significantly higher in the coming years with inflation such as it is.

CPTM

The only downside to 10 year fixed term mortgage is that you usually can overpay by just 10 per cent of the balance for the entire fixed term and 10 years is a long time to spread 10 per cent across. If inflation really is going to be around, wages might go up but you'll be locked into your 10 year agreement. I'd prefer 5-7 year max for that reason.

AndyBoBandy

What about fixing some of the balance, and going variable on another portion (means a higher interest rate, but no penalty for overpaying on the variable side)

and I was of the understanding that the 10% allowed overpay on a fixed rate was per annum. So 10% per year without penalty!

CPTM

10 per cent per annum definitely exists in some cases but I know that any fixed terms I've had allowed 10 per cent overpayment for the entire term only. It's just worth triple checking before locking yourself into a 10 year, especially if you're someone who has over paid until now. And I'd make sure I get it in writing.

The split could be a good option alright. Not sure what sort of deals are available there though.. I might look into that with Perm TSB, I'm switching to them next for the 2 per cent cashback perk. I'm with KBC at the moment so looking to move soon.

jaykay2

https://www.boards.ie/discussion/comment/118957588#Comment_118957588

Yeah, that is why I am thinking maybe 7 is a better option, but we are building the additional money we are already paying into the baseline cost this time, along with another little bit, so we'll have a further 10% to pay off on top of those if we wanted.

Even with all the extra we will be paying off, we are paying less than houses around us for rent for so we are in a very good position thankfully, and we can afford to do it which is the most important part.

jaykay2

https://www.boards.ie/discussion/comment/118958008#Comment_118958008

Yeah, I think we can pay the additional 10% per year without penalty so with that in addition to the extra we are locking ourselves into, I think we will have a serious dent in it by the end of the fixed period, whether we lock it for 7 or 10 years.

Is your name a Trailer Park Boys reference Andy by the way?

AndyBoBandy

"Is your name a Trailer Park Boys reference Andy by the way?"

I am partial to the odd cheeseburger picnic alright!!

JimmyVik

This is discussed where I work quite often.

The place is full of financial people who know their stuff.

And it varies what they all think is best.

1 - There are some who took the extra payments and put the money into investments every month. These guys are doing the best from it out of anyone, and could if they wanted cash in any day and pay the mortgage off with the proceeds. They are making far more than they would save in over payments. Also they get to use up about €2500 CGT alloowance by harvesting the gains every year and reinvesting (some use that for a holiday instead).

2 - There are some who overpayed their mortgage to get rid of it. These are very happy that their mortgage has come down.

3 - Now most of them have decided to upgrade their houses during high inflation and have put the overpayments on hold to make the most of their money. Also they have fixed long term at low rates now.

4 - But what every single one of them said is that they max out both theirs and their other halfs pension contributions before any over payments.

Myself, I think i would max out pension and then get rid of a mortgage as quickly as possible. I hate debt.

Wanderer78

fair play to the folks that can afford to overpay, its a great idea if you can afford it, you never know what the future holds, causing you issues to be able to afford to pay your mortgage

CPTM

Does anyone have opinions about a balance figure below which overpaying is not really as effective? In other words, at what point will you start relaxing on the overpayments?

I'm thinking that once my mortgage dips below 90/100k, the interest calculated on it is so small that, while I will still continue to overpay, I might relax a bit or reduce the overpayments.

Take a mortgage of 80k for example. Just 550 euro accrues on that per quarter if my calculations are correct. Whereas a mortgage of 350k would see approximately 2,400 euro accruing on it per quarter.

I know it's subjective but just wondering if anyone else is targeting a figure which is not necessarily 0.00 euro.

retalivity

https://www.boards.ie/discussion/comment/118959639#Comment_118959639

I'm coming up to circa 50% left on my mortgage, Iv been overpaying since I got it 7 years ago, going to overpay a bit more when switching to Avant to bring it under 100k then fix for 3 years. Its always been said that a mortgage is the cheapest loan you will ever get, I think under 100k the benefits of continually overpaying a loan of under 100k at 1.95% are negligible, so keeping the cash to spend elsewhere.

AndyBoBandy

We're down to €22k now, and with current overpayments it'll be clear in 11 months. If we stop overpaying, and revert to standard payments (€714), it'll be clear in about 2.5 years. If we re-calculated our payments based on remaining term (12 years) the monthly payments would go down to about €150

We've just decided to keep cracking on and be done with it by this time next year!!

raxy

https://www.boards.ie/discussion/comment/118926815#Comment_118926815

How have you come up with these figures for savings? Is it saving on the interest payments? They don't look right to me. If you pay 20k off a 20yr 150k mortgage the savings in interest would be ~14k.

In your calcs how long are you overpaying the mortgage after clearing the loan? Once the short term loan is up you should be adding that overpayment to the mortgage if that's what you have done with your loan Scenario & then savings in interest paying the mortgage is ~23k

jaykay2

https://www.boards.ie/discussion/comment/118959521#Comment_118959521

We both have Government pensionable jobs so are covered along those lines. Some small investments in crypto and stocks but will likely increase those as time goes on. The thoughts of living mortgage free though is super appealing.

Bass Reeves

https://www.boards.ie/discussion/comment/118960092#Comment_118960092

No the total interest on 20 K @ a mortgage interest rate if 2.5% over 20 years is 5k.

In the first 6-7years you will pay 50% of that interest. As years go on capital repayments increase and interest rates increase.

Any financial advisor will tell you to avoid personnel lending of at all.pisdible. if the only loan you ever have is a mortgage you should never worry.

What do you do when you repay your mortgage. Money in the bank depreciates in value. It's WL be 3-5 years before you have a lump that you can personally invest other than in investment funds.

By saving and paying a mortgage you can gaurantee never having personnel lending whether for a car, a once in a decade holiday( we went with the children to Orlando in 2008 holiday cost 5-6k) or savings for kids education.

raxy

https://www.boards.ie/discussion/comment/118960416#Comment_118960416

I'm not sure what your getting at here. I queried how savings were calculated on a a €150k mortgage over 20 years. If you pay 20k off that mortgage in month 6 the savings in interest would be ~14k.

What people do once it is paid off it their own business. I only wanted to understand how the other poster calculated his savings.

Bass Reeves

https://www.boards.ie/discussion/comment/118960630#Comment_118960630

You are incorrect. The total interest you will pay on 20K at a mortgage rate of 2.5% ( most present rates are lower than that) is 5 k over 20 years.

How can you save 14 k in interest. On a 150 k mortgage over 20 years you total interest bill on such a loan is 37.5k.

You are probably assuming that the same repayments are continued to be made at the same rate as if the loan was a 150k loan as opposed to a loan that is now 20k lower. You are still making separate over payments.

Banks generally after you pay a lump sum off readjust your repayments so as that you have the same final repayment date.

raxy

https://www.boards.ie/discussion/comment/118961659#Comment_118961659

I must owe the bank money so if I am wrong. Thanks for enlightening me!

JimmyVik

This will tell you all you need to know

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

jaykay2

https://www.boards.ie/discussion/comment/118959445#Comment_118959445

Thought so. Did you ever go and see them for their live shows in Dublin? I went twice or three times I think. I was at the special on Netflix filmed here too. Friend sent me a picture of me in the audience when he was watching it while in the states!

RIP Jim.