Mortgage calcs

MacDanger

Hi

We have a mortgage where we're paying 4.2% with 30 months left of a 5 year fixed term. There's ~10.5 years left overall on the mortgage

We can switch to 3.2% with the same lender or a 3% with a different lender, both 4 year fixed - a side question I have is what people's opinions are on whether it's worth the hassle switching lender for that 0.2% difference (~€22/month I think)?

The monthly savings are ~120/month for switching with the same lender - equating to ~3600 over the remaining 30 months of the fixed term. We'd aim to keep the mortgage repayments similar to what we currently have and just reduce the term by whatever the savings are - from what I can see, this would reduce the term from ~10.5 to ~10 years

However, the breakage fee is 4400 so it's a decent amount - an alternative option would be remain on the current 4.2% rate and to overpay (assuming this is an option) by €145 (4400/30 months) each month. This is my main question - I can't find a calculator which will tell me how much time this overpayment would reduce the overall term by, anyone know how I can do this to see how it would compare with the ~0.5 year reduction in the other option?

Obviously, one of the risks is that I don't know what the mortgage rates will be in 30 months time but that's a different consideration.

Hope all that makes sense, thanks in advance for any opinions

Edit: I've tried a lot of the online calculators but none of them appear to cover the overpayment scenario

MacDanger

Actually, when I wrote that last line I thought about searching specifically for a mortgage overpayment calculator and the AIB one seems to do what I want:

Mortgage Overpayment Calculator Ireland | AIB

From what I can see, overpaying by 145/month will reduce the term by 9 months which is better than switching but leaves me with the uncertainty over what the rates will be in 30 months time

the_amazing_raisin

There's also this one

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

So what we did was make an annual overpayment and reduce the monthly payments but kept the term the same

The longer term objective was to use the reduced payments to save more and make a bigger overpayment the following year

We could have kept the payment the same and reduced the term, but we decided it was better to have the money available in case there was some added expenses (car broke down or damage to house, etc)

It does require some level of discipline since you're effectively looking at money you can't spend for most of the year

We also made an overpayment to the maximum amount allowed in the fixed term, this was 10% in our case but it differs per lender so you'll need to contact them

Also depending on when you fixed interest rates could be higher now, in which case there's no breakage fee (again, double check this)

If you're wondering whether it's worth it, well we've been mortgage free for over a year now (I'm 38 for context) after 7 years of overpayments. I can say honestly that it's 100% worth it even if it's a big hill to climb

Rock Steady Edy

That breakage fee is high and means (if my calcs are right), your outstanding mortgage needs to be over about €200k to make it worthwhile.

If you move providers you will also need to pay for valuation and solicitor's fees, which could be another €2,000.

I'd second over-paying the mortgage. Paying off an extra (for example) €500 pm will reduce the term a bit quicker than paying off €6000pa, because you reduce the interest on the interest.

It's hard to see where interest rates will be in 30 months time, so I'd assume they will be where they are now until there's a consistent message they are heading in a different direction. Maybe reassess every 6 months. Banks don't usually react until the ECB rate actually changes and in combination with analysts forecasts of future interest rates. So you can usually act quicker than the banks if you stay alert as to what's happening in the economy.

the_amazing_raisin

https://www.boards.ie/discussion/comment/124006100#Comment_124006100

Yeah I'd kind of agree with switching provider, it's a bit debateable whether it's worth it

A lot of banks were offering cashback or to pay legal fees, not sure if that's still happening but it should cover it if they do

It is a fair bit of work, you basically have to do a whole new mortgage application

I hear you on the monthly overpayment versus annual one, but I'll still argue there's an opportunity cost to it. At the time we didn't have a lot of savings beyond emergency funds so it made sense to let the savings build up for the year just in case something came up.

The logic was that if one of the cars packed in it was better to pay it from the overpayment fund than take on a short term loan

I'll be honest, I never did the math on it, but "more loans" has never seemed like a smart move

However, if you have a decent savings cushion then I absolutely agree that monthly overpayments are the better option