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Pay money off mortgage term?

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  • 18-09-2015 12:51pm
    #1
    tommythecat
    Registered Users Posts: 671 ✭✭✭


    Hi,

    We are looking for a bit of advice as to if it is worthwhile to pay some money off the capital of our home?
    We can pay off somewhere between 20k to 35k.
    Our original mortage was for 380k on a house costing 425k IN 2009. The prices are back up around there again. It was a 30 year mortgage so we are on year 6. Still a lot of interest being paid. A.I.B are our lender.

    So basically do people think it would be worth paying off some money and bringing the term down? It could take a few years off the mortgage which would be great. I don't just want to bring payments down that is of no interest to us at the moment.
    If we thought we might move in five or ten years (bigger house) would this change your opinion?
    My feeling is its a good idea.

    Any thoughts would be greatly appreciated!

    Thanks

    Garret

    4kwp South East facing PV System. 5.3kwh Weco battery. South Dublin City.



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    #2
    MrDerp
    Registered Users Posts: 990 ✭✭✭MrDerp


    tommythecat wrote: »
    Hi,

    We are looking for a bit of advice as to if it is worthwhile to pay some money off the capital of our home?
    We can pay off somewhere between 20k to 35k.
    Our original mortage was for 380k on a house costing 425k IN 2009. The prices are back up around there again. It was a 30 year mortgage so we are on year 6. Still a lot of interest being paid. A.I.B are our lender.

    So basically do people think it would be worth paying off some money and bringing the term down? It could take a few years off the mortgage which would be great. I don't just want to bring payments down that is of no interest to us at the moment.
    If we thought we might move in five or ten years (bigger house) would this change your opinion?
    My feeling is its a good idea.

    Any thoughts would be greatly appreciated!

    Thanks

    Garret

    Have you considered an overpayment? If you're able to put aside 25-30K then you might consider overpaying the mortgage on a monthly basis. Even 150/month would probably take 5-6 years off your mortgage (I haven't run it through the calculator, but I've looked into similar for ourselves from time to time).

    You never know when the cash pile might come in handy, and you'll never borrow cheaper money than your mortgage. On the face of it, of course it reduces the term, and will save you more mortgage interest than you can gain in low-risk storage/investment.

    I would consider it a flexibility V cost question.


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    #3
    F412
    Closed Accounts Posts: 43 ✭F412


    tommythecat wrote: »

    So basically do people think it would be worth paying off some money and bringing the term down? It could take a few years off the mortgage which would be great. I don't just want to bring payments down that is of no interest to us at the moment.
    If we thought we might move in five or ten years (bigger house) would this change your opinion?

    If you will be looking to move down the line then you will need a deposit and probably a 20% one if things stay as they are so it might not be the best idea to spend a big amount of savings like this.

    As the other poster suggested, over paying every month and saving a little less from now may be a better idea. You can always go back to your normal repayment if you want to increase savings again and you wont lose your lump sum of savings.


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    #4
    tommythecat
    Registered Users Posts: 671 ✭✭✭tommythecat


    Thanks Guys. The problem with A.I.B is they don't allow regular overpayments. You can only overpay by request with a letter so its not easy to do monthly.

    4kwp South East facing PV System. 5.3kwh Weco battery. South Dublin City.



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    #5
    iainBB
    Registered Users Posts: 460 ✭✭iainBB


    tommythecat wrote: »
    Thanks Guys. The problem with A.I.B is they don't allow regular overpayments. You can only overpay by request with a letter so its not easy to do monthly.

    We have a similar issue so we put monthly overpayments in to savings account and over pay on mortgage once a year .


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    #6
    jonnybravo
    Registered Users Posts: 569 ✭✭✭jonnybravo


    iainBB wrote: »
    We have a similar issue so we put monthly overpayments in to savings account and over pay on mortgage once a year .

    I just sent AIB mortgages an email with a signed letter asking them to increase my monthly payments to €x,xxx from 1 xxx 2015 and they did it straight away.


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    #7
    ted1
    Registered Users Posts: 23,276 ✭✭✭✭ted1


    F412 wrote: »
    If you will be looking to move down the line then you will need a deposit and probably a 20% one if things stay as they are so it might not be the best idea to spend a big amount of savings like this.

    As the other poster suggested, over paying every month and saving a little less from now may be a better idea. You can always go back to your normal repayment if you want to increase savings again and you wont lose your lump sum of savings.

    the collateral in the house will cover the deposit.


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    #8
    Arbiter of Good Taste
    Registered Users Posts: 2,200 ✭✭✭Arbiter of Good Taste


    tommythecat wrote: »
    Thanks Guys. The problem with A.I.B is they don't allow regular overpayments. You can only overpay by request with a letter so its not easy to do monthly.

    Yes they do if you are on a variable rate mortgage. Just send them a letter instructing them to increase your monthly repayments to X and they will do it automatically.

    If you are on a fixed rate, obviously you will have to wait until the end of the fixed term.


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    #9
    iainBB
    Registered Users Posts: 460 ✭✭iainBB


    The truth is most people are bad with investments and 40k sitting in a savings acc earns very very little with taxes and inflation taking into account. High interest rate mortgage maybe cheap credit but over many years it is still a lot of money.

    I'm basic terms
    If your mortgage interest rate is worse then your savings rate and your a bad investor. Put it towards mortgage. It will stop you spending it and wasting it.


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    #10
    JuliusCaesar
    Registered Users Posts: 4,882 ✭✭✭JuliusCaesar


    MrDerp wrote: »
    Even 150/month would probably take 5-6 years off your mortgage (I haven't run it through the calculator, but I've looked into similar for ourselves from time to time).

    An extra 200pm on mine reduced the term by .............








    11 months.


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    #11
    Greyian
    Registered Users Posts: 963 ✭✭✭Greyian


    JuliusCaesar wrote: »
    An extra 200pm on mine reduced the term by .............








    11 months.

    You must have had a very large mortgage in that case, or only started overpaying towards the end.

    If you have a €300,000 mortgage at 4% on a 30 year term, increasing your monthly repayments by €200 from month 1 would knock over 6 years off the mortgage.
    Even on a €500,000 mortgage, you would knock over 4 years off the mortgage, if you started overpaying by €200/month from the very beginning.


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    #12
    Uriel.
    Registered Users Posts: 8,061 ✭✭✭Uriel.


    Just so you know AIB have now introduced the ability to make payments to your mortgage account via their Internet and mobile banking system. You can't set up an automatic overpayment on a regular basis but you can pay into the mortgage account on a manual basis. I use the facility on a regular basis when I've some free cash... It's good for avoiding temptation and buying stuff I really don't need.


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    #13
    4ensic15
    Banned (with Prison Access) Posts: 4,691 ✭✭✭4ensic15


    tommythecat wrote: »
    Thanks Guys. The problem with A.I.B is they don't allow regular overpayments. You can only overpay by request with a letter so its not easy to do monthly.


    I had a mortgage and over paid. I just lodged money to the mortgage account by making a transfer from a current account. All that happens is that a letter comes out bringing down the repayments. I never requested permission by letter. The interest charge drops on the next quarter giving more scope to bring the outstanding balance down. It is probably a better idea to do this every few months when you are sure that you don't need the money. Once paid off the loan there is no borrowing it back.


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    #14
    ronan45
    Registered Users Posts: 1,584 ✭✭✭ronan45


    Would it not depend on the type of Mortgage it was?
    Tracker?
    variable?
    If tracker might be better to invest extra money! Better return!


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    #15
    tommythecat
    Registered Users Posts: 671 ✭✭✭tommythecat


    Thanks guys. A lot of food for thought. We will have to mull this over and see what's the best option. Perhaps pay off half the money we have and hold onto the rest for a rainy day. I'll have to look into the ability to over pay with A.I.B. On a regular basis. Thanks again

    4kwp South East facing PV System. 5.3kwh Weco battery. South Dublin City.



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    #16
    Moonbeam
    Moderators, Education Moderators, Society & Culture Moderators Posts: 18,953 Mod ✭✭✭✭Moonbeam


    It normally saves the most money to pay it off the principal as it saves you money long term.


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    #17
    padjo5
    Registered Users Posts: 536 ✭✭✭padjo5


    Once you lodge it to the mortgage account that money is gone gone gone!
    If you can invest the funds and make a reasonable rate of return you will be in the same position financially in say 5-10 years, BUT you will still have the funds available, offering you the choice then to either invest/reduce mortgage at that point/deposit for next home/purchase other items etc etc........!
    People's gut reaction is to throw money at their biggest financial burden (usually mortgage) but that is not always the most appropriate action if your mortgage rate is in the 3-5% range. Each to their own but it is definitely worth mulling it over and considering all options first.
    Paddy


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    #18
    AlmightyCushion
    Moderators, Education Moderators, Technology & Internet Moderators Posts: 35,049 Mod ✭✭✭✭AlmightyCushion


    padjo5 wrote: »
    Once you lodge it to the mortgage account that money is gone gone gone!
    If you can invest the funds and make a reasonable rate of return you will be in the same position financially in say 5-10 years, BUT you will still have the funds available, offering you the choice then to either invest/reduce mortgage at that point/deposit for next home/purchase other items etc etc........!
    People's gut reaction is to throw money at their biggest financial burden (usually mortgage) but that is not always the most appropriate action if your mortgage rate is in the 3-5% range. Each to their own but it is definitely worth mulling it over and considering all options first.
    Paddy

    It's difficult to make a low risk 3-5% after taxes and expenses.


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    #19
    padjo5
    Registered Users Posts: 536 ✭✭✭padjo5


    Yep it sure can be, which is a separate decision. The concept I'm putting forward as an option to consider is about retaining the liquid asset, gaining some level of return and keeping options open, instead of firing all disposable cash at one's long term, low rate debt.

    Mathematics may well favour the debt clearing but that may have disadvantages in other ways in future.


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    #20
    ixus
    Registered Users Posts: 2,436 ✭✭✭ixus


    Are you variable or fixed? Term left if fixed?
    Current rate paid?
    LTV on property?I'd guess you were 10% deposit but now have 25% ratio. If you switched whate rate could you get with or without the extra cash? UB offering 3.5% fixed 7yrs if 40%.

    Thoughts would be to switch to better rate if one first then pay down some.


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    #21
    NIMAN
    Registered Users Posts: 33,028 ✭✭✭✭NIMAN


    Does it not have to be a variable only that allows you to make overpayments?
    I always thought overpayments weren't allowed against a tracker. Not sure about fixed?

    I think we have made 7 or 8 overpayments now in 5 years - makes a big difference when you take a lump of the capital. I always did it by sending an overpayment form from the website along with a cheque, didnt ever use the electronic banking route as I was afraid it might keep term the same and reduce the monthly payments, which I don't want.


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    #22
    AlmightyCushion
    Moderators, Education Moderators, Technology & Internet Moderators Posts: 35,049 Mod ✭✭✭✭AlmightyCushion


    padjo5 wrote: »
    Yep it sure can be, which is a separate decision. The concept I'm putting forward as an option to consider is about retaining the liquid asset, gaining some level of return and keeping options open, instead of firing all disposable cash at one's long term, low rate debt.

    Mathematics may well favour the debt clearing but that may have disadvantages in other ways in future.

    Ah right, I get you now. I definitely wouldn't recommend putting 100% of savings into paying down the mortgage. I agree, it makes sense to keep so money or something that can be easily converted into money in case of emergencies.


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    #23
    pasquale83
    Registered Users Posts: 477 ✭✭pasquale83


    Hello folks. Just a quick question to let me understand better how monthly overpayments/lump sum payment work.

    In both cases the additional money will reduce the residual debt amount only? I mean, they will not be used to pay any interests, correct?

    I am trying to simulate different scenarios and this thing is not really clear to me. Thanks!


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    #24
    AlmightyCushion
    Moderators, Education Moderators, Technology & Internet Moderators Posts: 35,049 Mod ✭✭✭✭AlmightyCushion


    pasquale83 wrote: »
    Hello folks. Just a quick question to let me understand better how monthly overpayments/lump sum payment work.

    In both cases the additional money will reduce the residual debt amount only? I mean, they will not be used to pay any interests, correct?

    I am trying to simulate different scenarios and this thing is not really clear to me. Thanks!

    Yeah, it will all come off the capital and none of it goes towards interest. If you owe €100,000 on your mortgage and you put €10,000 towards it, you know only owe €90,000 and will pay interest on the €90,000. So, not only does it reduce the amount you owe, it reduces the amount of interest you'll pay over the life of the mortgage.


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    #25
    aido79
    Moderators, Regional Abroad Moderators Posts: 5,374 Mod ✭✭✭✭aido79


    Are there any mortgage providers that have offset or redraw accounts in Ireland? I live in Australia and it is common practice to have this option. For example if I had 10k to spare I would put it in the offset account which is linked to the mortgage. It effectively knocks 10k off my mortgage as I don't have to pay interest on it and I still earn interest on the money in that account. The money can be redrawn from the account at any time so there is no problems with having the money tied up as would be the case if you actually paid the money off the capital.


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    #26
    pasquale83
    Registered Users Posts: 477 ✭✭pasquale83


    AlmightyCushion wrote: »
    Yeah, it will all come off the capital and none of it goes towards interest. If you owe €100,000 on your mortgage and you put €10,000 towards it, you know only owe €90,000 and will pay interest on the €90,000. So, not only does it reduce the amount you owe, it reduces the amount of interest you'll pay over the life of the mortgage.

    Thanks AlmightyCushion. After doing an overpayment or in general during the mortgage life, is it possible to request a mortgage statement (I am not sure if that is the proper name...)?

    I just want a statement summarizing the payments I have done and the capital I still need to pay.


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    #27
    themink
    Registered Users Posts: 44 ✭themink


    People like the idea of being debt free as soon as possible but its not necessarily the best decision from a purely financial perspective. You should consider things like tax relief on mortgage interest & effects of inflation on future payments also


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    #28
    pasquale83
    Registered Users Posts: 477 ✭✭pasquale83


    themink wrote: »
    People like the idea of being debt free as soon as possible but its not necessarily the best decision from a purely financial perspective. You should consider things like tax relief on mortgage interest & effects of inflation on future payments also

    Yeah, you are absolutely right, especially on inflation. Unfortunately there is no mortgage interest relief in Ireland since 2012 and I bought this year.


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    #29
    cart man
    Registered Users Posts: 286 ✭✭cart man


    My experience is with EBS so you would need to verify with your own bank that it operates the same. But there is a difference between an overpayment and paying down your mortgage. The first option reduces the amount that interest is charged on, the payments remain the same (the remaining years of the term reduces) and you have full access to the money to withdraw it again - this is a very liquid, low risk and tax efficient option. The second option reduces the amount owed but the the length of term stays the same. Therefore the amount paid each month is reduced the money in this case is tied up and can't be accessed again ( you would need to draw down a top up mortgage).


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    #30
    NIMAN
    Registered Users Posts: 33,028 ✭✭✭✭NIMAN


    cart man wrote: »
    My experience is with EBS so you would need to verify with your own bank that it operates the same. But there is a difference between an overpayment and paying down your mortgage. The first option reduces the amount that interest is charged on, the payments remain the same (the remaining years of the term reduces) and you have full access to the money to withdraw it again - this is a very liquid, low risk and tax efficient option. The second option reduces the amount owed but the the length of term stays the same. Therefore the amount paid each month is reduced the money in this case is tied up and can't be accessed again ( you would need to draw down a top up mortgage).

    Sounds wrong to me.

    When I make overpayments, your Option 1 (the money comes off the total capital but monthly repayments remain the same) - this doesn't allow you to access that money again. You can't put it back on your capital and get it back from the bank should you need it.


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    #31
    pasquale83
    Registered Users Posts: 477 ✭✭pasquale83


    cart man wrote: »
    My experience is with EBS so you would need to verify with your own bank that it operates the same. But there is a difference between an overpayment and paying down your mortgage. The first option reduces the amount that interest is charged on, the payments remain the same (the remaining years of the term reduces) and you have full access to the money to withdraw it again - this is a very liquid, low risk and tax efficient option. The second option reduces the amount owed but the the length of term stays the same. Therefore the amount paid each month is reduced the money in this case is tied up and can't be accessed again ( you would need to draw down a top up mortgage).

    What do you mean when saying: "you have full access to the money to withdraw it again"? You really can take the money back when doing overpayments?


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