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Overpaying mortgage

  • 12-09-2020 7:25pm
    #1
    VonLuck
    Registered Users Posts: 2,295 ✭✭✭


    I'm currently paying a mortgage and would like to make a lump sum overpayment but I'm not sure of the ins and outs of it. I understand that you're generally permitted to overypay up to 10% of the mortgage value over the term, but what effect does it have on your mortgage in the short term?

    Let's say I'm on a 5 year fixed term mortgage and the mortgage value is 300k (just choosing these figures as an example). I'd be allowed to make either monthly overpayments which total 30k over 5 years, or else a single lump sum of 30k, right? That will either reduce the overall term of the mortgage, or else reduce the monthly repayments.

    If I do that in year 1 of the 5 year period does that have an immediate effect on the repayments or does it only take effect once the fixed term is over? Basically is there any benefit in paying in year 1 over year 5 of the term?


Comments

  • #2
    jimmycrackcorm
    Registered Users, Registered Users 2 Posts: 14,346 ✭✭✭✭jimmycrackcorm


    You should be allowed to pay off 10% annually, not just over the whole term. You can use it to either reduce the ongoing monthly payments or the term.

    Basically you're always paying varying amounts of interest on the outstanding amount, so by overpaying you are reducing how much interest is due. So the sooner you overpay, the more you benefit.


  • #3
    niallers1
    Registered Users, Registered Users 2 Posts: 800 ✭✭✭niallers1


    Ask the bank directly. Some banks allow overpayment on a fixed rate mortgage and other banks don't.


  • #4
    cython
    Registered Users, Registered Users 2 Posts: 4,773 ✭✭✭cython


    niallers1 wrote: »
    Ask the bank directly. Some banks allow overpayment on a fixed rate mortgage and other banks don't.

    This. KBC and BOI, for example, have radically different policies. The former will allow you to pay off up to 10% of the value of the mortgage within the fixed period without penalty, and you can do so either regularly, in lump sum(s), or a combination.

    In contrast, BOI only allow you to overpay by 10% of the repayments, and must be done on a regular basis.

    There is no consistent or uniform approach to this that anyone can advise here based on the information you've provided.


  • #5
    wassie
    Registered Users, Registered Users 2 Posts: 3,623 ✭✭✭wassie


    Should also be stated in your mortgage contract what you can and cannot do. But best you speak with the bank as noted above.

    Once you know what is permitted, you can try a few scenarios for yourself on the CPCC Extra mortgage payments calculator: https://www.ccpc.ie/consumers/money-tools/extra-mortgage-payments-calculator/


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