What are the disadvantages to a monthly overpayment on a bank of ireland mortgage?

AoifeD1988

We have just moved our mortgage from KBC to BOI.

We have about 25 years to go on the mortgage. With the BOI mortgage viewer, I can see for example if we paid an extra 500 a month, we'd take 9 years off our mortgage.

What is the catch to this? Examples....

If I overpay and then lose my job, can I remove the overpayment?

Is there extra fees for monthly overpayment?

Can I do this while on a fixed rate or have to wait until I move to variable?

....just generally wondering how the bank would make money from me finishing my loan early.

Thanks

thegame983

Can't speak for BOI, but I have worked in AIB albeit a few years ago.

There is no 'catch' to lodging money to your mortgage account. The term would stay the same unless you specifically requested otherwise (and if they would facilitate that - and that could get messy, what if want to skip an overpayment for say Christmas)

you are only obliged to pay your mortgage every month, not your mortgage + €500 so if you lose your job you can go back to the original amount.

No fees and I don't think being on a fixed would be a problem, but not entirely sure on that

Give the mortgage department a call. Different banks have different rules

MrMusician18

You can only overpay a boi fixed mortgage by an additional 10% without penalty.

Q&A

https://www.boards.ie/discussion/comment/120303946#Comment_120303946

At a minimum it's 10% (of the monthly mortgage amount). There may or may not be a penalty (break fee) for additional payments. That will depend how interbank/swap rates compare on the day you want to overpay and the day you initially fixed.

OP the bank will be able to tell you if there is a break fee.

If you fixed any time before the middle of last year it's almost certain rates will have moved favourably for you.

AoifeD1988

Thanks a mil for the replies, I appreciate it. Can I ask, I guess say if my fixed rate is 5 years - I can only do this overpayment for 5 years and then when the rate goes to variable after that, I can't do the overpayment anymore?

coylemj

https://www.boards.ie/discussion/comment/120305000#Comment_120305000

Typically, there are only restrictions (like that 10% rule) for fixed mortgages and loans. If you're on a variable loan of any kind, you can overpay as much as you like.

Q&A

https://www.boards.ie/discussion/comment/120305000#Comment_120305000

When your fixed rate expires your mortgage will revert to the prevailing variable rate. You can then decide to do nothing and leave it variable or fix again.

You can overpay any mortgage fixed or variable. There may be a break fee for overpaying a fixed rate but there are no such fees associated with a variable rate mortgage.

evanjmg

I just got off the phone with bank of Ireland mortgage team. You can still pay your 10% of the mortgage without penalty til the end of term if you are on a kbc mortgage that has been migrated to bank of Ireland ( haven’t switched to a BoI product) . They are honoring all terms in the fixed rate. To reduce the term of mortgage, overpay by going to bills and pay mortgage and put your BoI mortgage account number in then mail a signed letter to their POBOX instructing them to reduce the term . Note this is contrary to the brochure we were given.

Snugbugrug28

I would advise placing the spare cash in equities. They will rise more over than the interest rate on your mortgage will lose you plus you earn dividends of at least 3.5% at the same time.

Furthermore you have relatively instant access to your cash which you don't with the mortgage.

Padre_Pio

The only disadvantage to overpaying a mortgage is that it's the cheapest loan you'll ever get.

You MAY make more money investing in a fund than what you save by reducing your loan term.

For example, my mortgage rate is 2.5%. If I can get a return of 4.5% from a fund then, after tax, then I'm better off investing than overpaying. So that's what I've done. 500 a month into the S&P. Then when I come off the fixed term I'll decide whether to lump sum this into the mortgage or keep going, depending on the variable rates available.

However, there is risk involved.

Snugbugrug28

https://www.boards.ie/discussion/comment/120503987#Comment_120503987

My goal is to invest more while the markets are down and then when they are way up focus on overpaying mortgage

Padre_Pio

https://www.boards.ie/discussion/comment/120504706#Comment_120504706

Time in the market is better than timing the market.

Guildenstern

The best advice I ever received back in the day was, apart from entering into a private pension as soon as possible, if you can, pay off a little each month off your mortgage. 25 year mortgage ended up being paid off in 20 years. Good luck.

Wanderer78

https://www.boards.ie/discussion/comment/120503955#Comment_120503955

https://www.boards.ie/discussion/comment/120503987#Comment_120503987

...or maybe the op wants to be debt free as fast as possible, without it worrying them later in life, as health issues tend to become more common and frequent at rising age, which in turn can lead to increasing job precarity.....

...op, pay off your debts as fast as possible, and live a happy and healthy life, best of luck....

cython

https://www.boards.ie/discussion/comment/120503955#Comment_120503955

This advice is somewhat paradoxical - while both points may be superficially true, should you need access to the cash in a hurry, you may be forced to dispose of the equities at time when they are worth less than the price you paid for them. Further, depending on the terms of a mortgage, the customer may have the facility to withdraw overpaid funds within the fixed term relatively instantly, e.g. KBC allowed (and BOI now on mortgages acquired from KBC) overpayment of up to 10% of the principal without penalty, but they also allow the customer to take those overpayments back out within that term if they need to. I'm not sure how interest is recalculated in that eventuality, admittedly, but there are nuances to both options that your post glosses over.

Padre_Pio

https://www.boards.ie/discussion/comment/120507396#Comment_120507396

I would double check that you can take your repayments back. I know some banks keep overpayments in a "reserve" but do BoI still honour this and what are the T&Cs?

Snugbugrug28

https://www.boards.ie/discussion/comment/120507396#Comment_120507396

It sounds like equity release which normally requires a remortgage?

G_R

https://www.boards.ie/discussion/comment/120510904#Comment_120510904

KBC mortgages held overpayments as a separate credit balance, they werent capitalised. Each month you received credit interest at the same rate as the mortgage for the amount held as a credit balance, so it had the same effect as reducing the capital balance, but your monthly repayment didn't change as it was calculated on the capital balance. This led to an increasing amount being overpaid each month.

This credit balance could be withdrawn, and then you simply stopped getting credit interest on this amount.

You could also ask for the credit balance to be capitalised which would reduce the balance of the mortgage but would mean that the amount is no longer available for withdrawal.

OO7FITZY

Found this thread which is interesting so want to ask the question again

Interest rates have jumped significantly since last year

Even tracker rates are high now with each monthly ECB hike

Do people believe better to pay lumb sum now compared to earlier last year?

Q&A

https://www.boards.ie/discussion/comment/121704924#Comment_121704924

A higher mortgage rate only strengthens the argument for overpaying.

Unless:

you've locked in at a super low mortgage rate that is now below the deposit rates on offer,

or

You've a large expense upcoming where the cost of borrowing is above your mortgage rate

It's hard to suggest anything else.

OO7FITZY

thx

and TBH, that is where I am leaning at the moment

don't know anything about equaties a poster mentioned in previous posts so would be grateful if anyone could share thoughts and/or links to point me in right direction