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Why do people say the mortgage is the cheapest money you'll get?

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Comments

  • #32
    Salary Negotiator
    Closed Accounts Posts: 1,148 ✭✭✭Salary Negotiator


    witnessmenow wrote: »
    Some stir I've caused :pac:

    Fair enough points. For completeness i decided to work it out

    According to the calculator:

    Mortgage Value after a year (no overpayments): €244,780

    After a year of overpaying €870: €234,196

    Difference: €10,584

    Total payments over the year: €10,440

    Interest saved in first year: €144

    But that isn't the end of it as with this method you have less of a mortgage left at the end of year 1 than taking the 10k and putting it in. It's €234,502 left after the lump sum.


    OK, so I've sat down and worked out the figures. Lets assume there are 3 options here,

    Option 1 - Do nothing and just pay off the loans each month

    Option 2 - Pay €10K into the mortgage and reduce it to €240,000 @ 3% for 30 years

    Option 3 - Clear the personal loan, make 12 overpayments to the mortgage of €872.20 and then continue the original payment of €1,054.01 for the duration of the mortgage.

    The total interest payable for:

    Option 1 is €129,910 (Mortgage interest of €129,443 and loan interest of €466)
    Option 2 is €124,732 (Mortgage interest of €124,265 and loan interest of €466)
    Option 3 is €115,308 (Only mortgage interest as loan fully paid off)

    It's worth noting that in option 3 not only is there a monthly over payment in Year 1, because the capital has been reduced by these 12 over payments from Year 2 on by maintaining the original repayment of €1,054.01 this now includes a smaller over payment of €45.69


  • #33
    witnessmenow
    Registered Users Posts: 6,996 ✭✭✭witnessmenow


    Salary Negotiator wrote: »
    OK, so I've sat down and worked out the figures. Lets assume there are 3 options here,

    Option 1 - Do nothing and just pay off the loans each month

    Option 2 - Pay €10K into the mortgage and reduce it to €240,000 @ 3% for 30 years

    Option 3 - Clear the personal loan, make 12 overpayments to the mortgage of €872.20 and then continue the original payment of €1,054.01 for the duration of the mortgage.

    The total interest payable for:

    Option 1 is €129,910 (Mortgage interest of €129,443 and loan interest of €466)
    Option 2 is €124,732 (Mortgage interest of €124,265 and loan interest of €466)
    Option 3 is €115,308 (Only mortgage interest as loan fully paid off)

    It's worth noting that in option 3 not only is there a monthly over payment in Year 1, because the capital has been reduced by these 12 over payments from Year 2 on by maintaining the original repayment of €1,054.01 this now includes a smaller over payment of €45.69

    According to halifax calculator your numbers for option 2 are wrong, they say a 10k lump sum pay off would save €13,849 over option 1. I think the difference is you made it 240k @ 30 years you changed the monthly payments to be lower, which you wouldn't normally do when overpaying


  • #34
    Salary Negotiator
    Closed Accounts Posts: 1,148 ✭✭✭Salary Negotiator


    witnessmenow wrote: »
    According to halifax calculator your numbers for option 2 are wrong, they say a 10k lump sum pay off would save €13,849 over option 1. I think the difference is you made it 240k @ 30 years you changed the monthly payments to be lower, which you wouldn't normally do when overpaying

    Yes, I should have added an additional monthly over payment to keep the repayment constant at €1,054.01. I did for option 3 but not 2. Thanks for checking.

    So, now my figures are

    Option 1 - is €129,910 (Mortgage interest of €129,443 and loan interest of €466)
    Option 2 - is €116,001 (Mortgage interest of €115,534 and loan interest of €466)
    Option 3 - is €115,308 (Only mortgage interest as loan fully paid off)


  • #35
    awec
    Administrators Posts: 53,331 Admin ✭✭✭✭✭awec


    macplaxton wrote: »
    IME the cheapest money I ever borrowed was a UK Student Loan. Interest at RPI inflation rate, deferable in 12 month periods if earnings less than 80% average wage. If you never earn enough it got written off after 25 years.

    In the last year I was paying it, I got money off the balance - because the first batch of loans were tied to RPI inflation rate whatever happened, so the interest went negative.

    Yes, my UK student loan is my cheapest. Current interest rate is 1.75% I believe.


  • #36
    Sleeper12
    Registered Users Posts: 16,867 ✭✭✭✭Sleeper12


    Main reason is that the interest rate is the cheapest rate you'll ever get for a loan. Some credit cards are charging close to 20 percent interest. The other reason that this is the cheapest money you'll ever get is that you are buying a house /apartment. Within a few years you will be paying less in mortgage payments than you would paying rent. In a few decades you will be rent & mortgage free & you will own a valuable property.


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