To clear mortgage or not

The J Stands for Jay · 09-01-2019 1:33pm

Seve OB wrote: »

probably cant pay off the mortgage as you are locked into a 5 year fixed and only a few months in
could be severe penalties to get out of that
think and get advice before you jump to quick

Banks are only allowed to charge a penalty based on their costs for breaking the fix. I've heard of people having very small or no penalties for breaking these days. No idea of their exact circumstances though.

Best to ask the bank how much it would cost.

witchgirl26 · 09-01-2019 1:40pm

I'd completely pay off the mortgage first and then look at doing the extension afterwards. You'll be saving €800 a month on what is coming out now and could pay off the mortgage and get a much smaller loan to do the extension that would cost less than that a month if you want to do it now.

I think being mortgage free gives you a freedom that you otherwise can't achieve. I know in work if we're discussing lotto wins or something, the most common thing people say is that if they won enough to pay off their mortgage and just be able to work without that expense, it would be amazing.

Seve OB · 09-01-2019 1:41pm

McGaggs wrote: »

Banks are only allowed to charge a penalty based on their costs for breaking the fix. I've heard of people having very small or no penalties for breaking these days. No idea of their exact circumstances though.

Best to ask the bank how much it would cost.

and their costs could be so much that it is just not worth it.

anyway, I did say they need to seek advice

also, OP, do you still have insurance in place? will it pay out again if something happens?

Seve OB · 09-01-2019 1:43pm

witchgirl26 wrote: »

I'd completely pay off the mortgage first and then look at doing the extension afterwards. You'll be saving €800 a month on what is coming out now and could pay off the mortgage and get a much smaller loan to do the extension that would cost less than that a month if you want to do it now.

I think being mortgage free gives you a freedom that you otherwise can't achieve. I know in work if we're discussing lotto wins or something, the most common thing people say is that if they won enough to pay off their mortgage and just be able to work without that expense, it would be amazing.

having to apply for a loan at possibly up to 10% to do renovations which you may or may not get based on personal health and other unknown circumstances

against a mortgage currently in place at 2.8%

I know which I would choose

IJS84 · 09-01-2019 1:48pm

For your own sake speak an advisor and make your own mind up for whats best for you & your family.

My parents a few years back took redundancy when offered it, paid off their mortgage against advice they got from ''the lads down the pub''.
Seeing them now, it was the best decision for them at the time. My dad is semi retired working part time & only have the day to day bills over them and not stressing about a mortgage repayment aswell. My mother now has the flexibility to work when she wants on agency contract work when she wants to or if they have something coming up and works part time as something regular.

Im in the process of getting my own mortgage and if it was me that came into money Id be paying off a mortgage too. Thats an extra €800 a month in your pocket that you can spend as you like. Build the extension, take a holiday and have all that worry gone. My own 2 cents is that there is huge peace of mind without that monthly bill coming out of my account each month.

The papers when it comes to mortgages doesnt make for great reading lately either.

Best of luck whatever you decide.

JustMe,K · 09-01-2019 1:53pm

I have always felt that not having the concern of housing costs would make me feel rich as I can then do what I like with my income - I would pay the mortgage in a heartbeat.

A relative had a similar payout years ago, paid down the mortgage and the knowledge that even if there was a health relapse, the family home would always be secure was a huge weight lifted. A different relative had a compensation claim, blew the money and went against at the advice to pay off their mortgage... a real regret now.

theteal · 09-01-2019 2:01pm

Much of a penalty for overpaying with in the fixed term, OP?
I know we are able to overpay by up to 10% pa without penalty, I must admit I don't remember what that penalty rate would be.

I've got to be honest, apart from a few small bits and bobs, the only thing I'd be doing with that is paying the mortgage in the most inexpensive way possible even if I had to sit on the money until the fixed term was over. How class would it be to not fork out a chunk of your wages on accommodation? You'd save up for an extension in no time.

TheAsYLuMkeY · 09-01-2019 2:06pm

I know without a shadow of a doubt, i would clear mortgage, i checked to best i could with this online assessor for paying off a lump sum of that size,

https://www.ccpc.ie/consumers/tools-and-calculators/mortgage-calculators/mortgage-rate-change-calculator/

Figure i got was it saves you €€66,575.99 less over term of mortgage.

It really is a no brainer.

witchgirl26 · 09-01-2019 2:07pm

Seve OB wrote: »

having to apply for a loan at possibly up to 10% to do renovations which you may or may not get based on personal health and other unknown circumstances

against a mortgage currently in place at 2.8%

I know which I would choose

I just meant that they could potentially look for another mortgage to do renovations for a much smaller amount and shorter term if they didn't want to wait to do the extension. Otherwise they could save up and do it.

I wasn't suggesting a personal loan which is mad unless the amount they're looking for is one that they could pay off relatively quickly.

mick malones mauser · 09-01-2019 2:09pm

CLEAR THE MORTGAGE
CLEAR THE MORTGAGE
CLEAR THE MORTGAGE
CLEAR THE MORTGAGE

Best move you could ever make.....

Gwanoman · 09-01-2019 2:13pm

ELM327 wrote: »

2 - the radical option. Use the 170k as collateral for a 1:5 leveraged investment in commercial rental property CFD. I'd love to have the balls to do this if I were in that scenario but I don't think I would.

Would you be so kind as to explain this to me?

eviltimeban · 09-01-2019 2:14pm

Yeah, paying it off seems like the way to go. You could end up "wasting" the money if in years to come you looked back and wondered where it all went.

Plus you might have family / friends coming out of the woodwork looking for a hand out if they get wind of it. If it's all gone into the mortgage, you'll have nothing to give them.

ELM327 · 09-01-2019 2:17pm

Gwanoman wrote: »

Would you be so kind as to explain this to me?

Sorry it was somewhat of a sarcastic comment.
I was suggesting the alternative high risk approach which would be to use the cash as collateral and borrow 5 times what they have and invest it in commercial property.

podge018 · 09-01-2019 2:34pm

a lot to reply to here and I'm very grateful for all the comments and questions, I am going to sit down with my wife tonight and go through them again.

Couple of things that I might have said in OP that would have helped. We're a civil servant and a teacher so job security is there (illness permitting) and good pensions.

I own an apartment which is rented out, pays for itself, but banks were iffy about it when we were looking for the mortgage for our house five years ago. Some wouldn't touch me. This would make me wary of clearing our mortgage and then looking for a loan for an extension. The extension we'd want would be to do it properly and could be looking at about 80k+ I've been told. It's not so much the extra empty space we'd like, but extra facilities like down stairs toilet/shower, utility room, knocking a kitchen/dining room together. Costly.

The 5 year fixed is a stinger, our provider were offering new customers this low rate, we jumped on it too as was our entitlement as an existing customer. Thought it was a no-brainer at the time. I will have to look into that closely, and the costs that may be incurred.

As far as the payment being assigned to the provider, we gold plated our mortgage protection with serious illness cover, so that was built into it too, as a requirement for the mortgage. Our mortgage broker was astonished it wasn't assigned to the provider. He's a financial adviser too, and is mad for us to make more money on this. He's talking bonds and kids college fees down the line that will need paying etc.

podge018 · 09-01-2019 2:48pm

Another thing somebody said to me, which I think of when I read comments about saving for the extension.... you'll never save as much as you currently have to pay. So if we're mortgage free, I don't think we'd be strict about saving the 800 (or more) we'd need to build something in the next 3-4 years. To have 80k saved in 4 years means saving 1666 a month. 800 should be easily done if we're strict with ourselves, but where's the rest gonna come from?

podge018 · 09-01-2019 2:49pm

the credit union would give us money but that's expensive, and a shorter term repayment.

Seve OB · 09-01-2019 3:13pm

witchgirl26 wrote: »

I just meant that they could potentially look for another mortgage to do renovations for a much smaller amount and shorter term if they didn't want to wait to do the extension. Otherwise they could save up and do it.

I wasn't suggesting a personal loan which is mad unless the amount they're looking for is one that they could pay off relatively quickly.

Why go to all that hassle and expense?
Just part pay the existing mortgage and pay cash for the extension. ..... Once terms allow of course.
Then continue to pay mortgage at current rate and the repayment time will drop.

Gwanoman · 09-01-2019 3:24pm

ELM327 wrote: »

Sorry it was somewhat of a sarcastic comment.
I was suggesting the alternative high risk approach which would be to use the cash as collateral and borrow 5 times what they have and invest it in commercial property.

Lol.. No problem at all...

StupidLikeAFox · 09-01-2019 4:00pm

I wouldnt see clearing the mortgage as a no brainer. I would pay for the extension in cash and maybe change the car if you need one, then put the rest off the mortgage. It's a bad idea to clear a loan with a cheap interest rate if you see yourself needing to borrow (at what will be a higher interest rate) in the short term. I would also prefer to get the extension done now and enjoy it for the next 5 years while keeping the mortgage ticking over, instead of paying off the mortgage, then having to start saving and only commmencing the extension in 5 years time when you have enough saved

People are saying about the huge interest you will save over 25 years, but remember that inflation will eat up a lot of that too over that period of time. The 170k in your hand is worth more to you now than it would be in 10/15/25 years time

Bandana boy · 09-01-2019 4:59pm

I would do your extension and invest the balance.
this is a windfall , if you blew it your no worse than you were before it , you could use it to significantly increase your quality of life (the extension ) and your pension ( a good investment strategy )

bernard0368 · 09-01-2019 5:38pm

I was in the same position as yourself a couple of years ago.

I paid off the mortgage which I have to say was the best move ever.
The security in knowing no matter what happens your house is yours and always will be is amazing.
I have been able to reduce my working hours leading to a quality of life I never thought i would have.

I left the Mortgage direct debit continue into a savings account and this has quietly and painlessly become a tidy sum.

Henry Ford III · 09-01-2019 5:58pm

StupidLikeAFox wrote: »

I wouldnt see clearing the mortgage as a no brainer. I would pay for the extension in cash and maybe change the car if you need one, then put the rest off the mortgage. It's a bad idea to clear a loan with a cheap interest rate if you see yourself needing to borrow (at what will be a higher interest rate) in the short term. I would also prefer to get the extension done now and enjoy it for the next 5 years while keeping the mortgage ticking over, instead of paying off the mortgage, then having to start saving and only commmencing the extension in 5 years time when you have enough saved

People are saying about the huge interest you will save over 25 years, but remember that inflation will eat up a lot of that too over that period of time. The 170k in your hand is worth more to you now than it would be in 10/15/25 years time

Spending a capital amount (mortgage redemption) on a short term wasting asset is folly.

Tomw86 · 09-01-2019 6:07pm

StupidLikeAFox wrote: »

I wouldnt see clearing the mortgage as a no brainer. I would pay for the extension in cash and maybe change the car if you need one, then put the rest off the mortgage. It's a bad idea to clear a loan with a cheap interest rate if you see yourself needing to borrow (at what will be a higher interest rate) in the short term. I would also prefer to get the extension done now and enjoy it for the next 5 years while keeping the mortgage ticking over, instead of paying off the mortgage, then having to start saving and only commmencing the extension in 5 years time when you have enough saved

People are saying about the huge interest you will save over 25 years, but remember that inflation will eat up a lot of that too over that period of time. The 170k in your hand is worth more to you now than it would be in 10/15/25 years time

I agree, splitting the cash makes financial sense if you are looking at an extension.

Either that, or pay off the mortgage, sell the house and see about potentially buying a bigger one - its a great time to sell.

Tombo2001 · 09-01-2019 6:17pm

podge018 wrote: »

Quick summation of what is happening in our life.

Married with 2 kids under 2 and a half.

My income appox 60k, wife 50k.

Mortgage outstanding of 170k, 25 years left, repayments 800p.m. fixed for 5 years @ 2.8% I think, since September.

Creche fees 600p.m, doubling soon when youngest starts but reducing a bit in September when eldest starts the ECCE pre-school scheme.

Mortgage protection (serious illness cover) recently paid out to us and not the mortgage provider. So we now have 170k and unsure what do with it. First thoughts were to clear the mortgage - what else, but most people we've talked to says that would be crazy. Health isn't a concern now, fingers crossed.

Spoke with somebody in financial services and he was talking about buying 5/10 year bonds, which I know little about, but that there's a risk involved. There's An Post too, which should be okay.

We would like to build an extension on the house now while kids are young and my wife would ideally like to take career break until youngest starts school proper in September 2022. One of us wouldn't get further mortgage approval for 5 years due to the serious illness diagnosis.

Finding this all very overwhelming and know it's going to be a decision we have to live with for the rest of our lives.

If this happened you what would your gut tell you? Have to say mine was to just clear the mortgage, but then I know we'll never have so much money at our disposal ever again in our lives.

You've missed a fairly important piece of information, which refers to the split in your mortgage payments between interest and capital. I know you mentioned 2.8% - but in terms of total repayments over the life of the mortgage; how much is capital obviously 170k, but how much interest would you be paying back. That's the return really, over the time period.

I am assuming you don't need to make this decision today or this month.

It may be an idea - if you want to do up the house - to cost out exactly what that will be. And I mean work out what you want to do and price it properly.

No point in paying back a loan today at 2.8%, and then borrowing 50k in a years time at 5%.

StupidLikeAFox · 09-01-2019 7:46pm

Henry Ford III wrote: »

Spending a capital amount (mortgage redemption) on a short term wasting asset is folly.

Assuming the OP has/needs a car, if he is planning on changing it he is better off doing it with the cash on hand rather than clearing a 2.8% loan and taking out a 5% loan later to buy the car

Seve OB · 09-01-2019 10:13pm

Henry Ford III wrote: »

Spending a capital amount (mortgage redemption) on a short term wasting asset is folly.

What?
You make no sense
He is talking about upgrading the car out of a windfall. Not getting a top up in the mortgage to pay for the new car!

Blackjack · 09-01-2019 10:20pm

Check with the mortgage provider on 3 things:
The max you can overpay the mortgage by monthly and annually, and what penalties you may pay for full payment of the mortgage now.

As it stands You’ll pay around 45k to pay the mortgage until the fixed period ends and you’ll still have around 150k left to pay after the 5 years.

Google Karl Jeacle Mortgage Calculator to see how the numbers work out and what you’ll have left after the fixed period is up to see what works best.

If you think the extension is a must then go for it, but 80 grand is quite the extension and a very good budget for that but you should stick to it rigidly. Try to put the rest away for the remainder of the fixed period if you decide to go down the extension route and use it to overpay the mortgage by the max possible and then pay down the mortgage by whatever you have left from your lump sum once the fixed period is up. You can then negotiate to either reduce the term of the mortgage or just pay a lower amount for the remaining 20 years. Again the Jeacle calculator will help you figure out what your outstanding mortgage will be at the end of the fixed period if you add overpayments.

Depending on how much childcare is costing you, by all means the wife can take the career break, the difference once it’s all costed out may not be that much but bear in mind that after 4-5 years at home the working environment may not seem so attractive to return to. Also the single salary might mean cutting out on a number of luxuries you currently enjoy, but you’re children will no doubt benefit from the additional time with a parent.

If it were me (and I know it’s not and our circumstances are different) I’d look to kill off the mortgage and top up my pension with at least part of the 800 a month you’ll no longer be paying towards the mortgage. Also if you are tied into a life insurance product for the mortgage (no doubt you will be) you should consider the additional saving of not having to pay for that anymore if you choose not too, should you pay off the mortgage in full.
That’s probably another 100 euros a month you’ll be better off by.

You’re certainly faced with some challenging decisions but decisions that many would love to be in a place to make!. Good luck.

Seve OB · 09-01-2019 10:25pm

Bandana boy wrote: »

I would do your extension and invest the balance.
this is a windfall , if you blew it your no worse than you were before it , you could use it to significantly increase your quality of life (the extension ) and your pension ( a good investment strategy )

I just see OP mention in his post this morning about investments.

Really if I was OP I am currently paying the mortgage and not struggling I would continue to do so. It's a cheap loan. You may need cash at some stage, so it's ways nice to have some savings.
Spend the few quid on the house upgrades.
Have a treat... New car, holiday etc.
And invest an damn decent chunk of it, some kind of plan with a broker aimed at least a 5 year plan.

To pay the mortgage off now.... Is probably not going to save any of the mortgage payments they would have been paying for a rainy day, or certainly not as much as they should. Could very easily just end up splashing cash on stupid unnecessary expenses. If the cash is gone or boxed off with investments and house upgrades, that in itself is planning for the future. If they have a mortgage payment to meet every month, well they will meet it with their income.

And if sh1t happens down the line, they have some sort of investment made already that they can fall back on, cash out and use to pay the mortgage.

Sarn · 09-01-2019 11:03pm

Is it not usually a condition of the mortgage to have mortgage protection or equivalent in place? As someone else mentioned above, the idea is for it to clear the mortgage in the event of something bad happening and not leaving those behind with financial worries.

In relation to the cost of the extension. Prices for work have sky rocketed lately, with builders not even coming back on tenders because the projects are too small.

Either way you are in a good position, whatever you do.

The J Stands for Jay · 09-01-2019 11:19pm

StupidLikeAFox wrote: »

Assuming the OP has/needs a car, if he is planning on changing it he is better off doing it with the cash on hand rather than clearing a 2.8% loan and taking out a 5% loan later to buy the car

Using the 2.8% loan over 20 odd years (which is in effect what using the cash for it is doing) would work out more costly than 5% over 5 years.

To clear mortgage or not

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