Any advice on paying lump sum off Mortgage please

twoinfinities

We have a lump sum that we have decided to use to pay off a lot of our remaining (very good rate tracker) mortgage. Is there anything we need to know - is there any haggling or any tricks/traps involved? Do we just ring the bank and lodge the money?

Thoie

Check with the bank first that there aren't any "penalties" involved with paying some off, though with a tracker you should be OK. I did something similar a few years ago and sorted it out over the phone. The main thing to decide in advance is do you want to reduce the term, or the payments?

E.g. if you're currently paying €1,000 a month, with 10 years left, do you want to:

a) continue paying €1,000 a month, but only for the next 12 months (reducing the term) OR

b) keep the mortgage for the next 10 years, but only pay €100 a month (reducing the payment)

Personally I'd go for a, purely on the basis I'd prefer to have the mortgage gone faster, but depending on interest rates etc that may not always be good financial advice (and I'm not a financial advisor).

Q&A

No penalties for overpaying a tracker

Of the 2 options I'd go with b and overpay the difference each month. A locks you into permanently higher repayments compared to option b. That's fine if all stays good but if circumstances change you may appreciate the greater flexibility option b affords.

More broadly i wouldn't overpay your mortgage until you've looked at your pension. Looking at the long game if your pension is underfunded it is probably better to channel the money there. Especially if the opportunity cost is so low (I'm assuming you're on a low margin tracker)