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Overpaying mortgage

VonLuck

This may seem like a basic question, but would appreciate some guidance.

Hypothetical scenario. If I have a €200k mortgage, say 5 year fixed at 2.65%, repayments €805 approx. I've estimated the interest payments would be maybe around €450 to start and decreasing as the years go on.

Bank states that 10% overpayment of the mortgage balance is permitted. Let's say that I increase the repayments to €1000 (which would be less than 10% of the mortgage balance over 5 years). Does this have any effect on the interest paid initially seeing as you are reducing the capital to be paid off by an additional €195 every month?

I hope I'm making sense. Just trying to figure out if it's best to overpay a mortgage earlier and reduce interest payments at the initial stages or else invest the money I would have used for overpaying into something else.

If it is the case that interest payments would reduce, how would I calculate what they would be?

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um7y1h83ge06nx

I'm with Ulster Bank on fixed as well and had to send the mortgage group a letter to instruct that I wanted the lump sum to reduce the mortgage term. They sent a letter back confirming this and it all went through fine.

By default it reduces the monthly payments.

antix80

NoviGlitzko wrote: »

Find an accountant who your family or extended family trusts - ask them for advice mate.

:rolleyes:

drunkmonkey

Move it to a bit weekly payment rather than a monthly one.. your slightly overpaying the mortgage but attacking the interst quicker. You won't really notice it for a few years.

Amirani

awec wrote: »

This is not true. The saving is exactly the same, but reducing the mandatory payment vs reducing the term is much safer.

I cannot think of a single advantage to reducing the term when overpaying a mortgage.

If you're with Bank of Ireland for example, and limited to only overpaying 10% of the mortgage repayment, then reducing the mandatory payment means your limited in what you can repay.

For example, your mortgage is €1000 p/m. You want to regularly overpay by 10%, so paying €1100 p/m. If you reduce the term, you can continue paying €1100 p/m for the entirety of the mortgage. If you reduce the payment, then you can't, because you'll only be allowed to pay new payment amount + 10%

In this case, reducing the term results in finishing the mortgage sooner, and paying less interest over the life of the mortgage.

JJJackal

If you have a 30 year mortgage at interest rate of 2.65% and you pay of an extra euro in month 1 it will save you approximately 1.19 euro in interest.

It will also allow you to use the money (i.e. the 1.19 euro over 30 euro) that you are no longer using to pay the interest to pay down principle thus further saving.

Sunrise_Sunset

My mortgage with PTSB is split. The majority of it is tracker + 1% (2.1%), and I've another 40k on a fixed rate of 3.2% for 5 years.
I know that I can make overpayments on my tracker without any penalties.
Today I enquired with them if the same can be done with the fixed portion. They told me I can transfer money to the mortgage account until the fixed term is up, then I can make the overpayment, before starting my new term.
I don't know if this is worth my while, or whether I should just increase the overpayments I have recently started making on the tracker portion. The fixed portion monthly repayment is 205, and could only afford to "overpay" by 25 per month. Over 5 years this would be 1500.
I want to avoid any penalties and hope that the information they gave me is correct.
I started overpaying the tracker by 150 per month. Although the interest rate is lower, at least I know there won't be any penalties for overpaying, and I hope to knock about 5 years off the term.