Considering paying for a lump of tracker mortgage

A tracker mortgage is the cheapest money out there .. so if you need home improvements or car..I'd use some of that 90k as opposed to getting a personal loan or car loan. Other than that , I'd keep the 90k in an account and not touch it, and continue paying off your mortgage .

If one or both of the following apply to you, then you should consider not putting the money towards the mortgage:

You can invest the €90k (or part thereof) in such a way that it will gain in excess of the 1.68% p/a (after tax).

It's worth it to you to, effectively, pay the 1.68% p/a (less any post-tax bank interest) on (part of) the €90k in order to have it available at no notice.

If neither applies to you, it would make sense to use it to reduce the mortgage.

famagusta wrote:

I would definitely agree with shortening the term instead of reducing payments if I was paying some off. However, with such a cheap mortgage I would be inclined to leave it as it is. Can you top up your pension fund? Invest it?

Never, ever shorten the term. Reducing the payment gives you cushion if anything goes wrong down the line, you can just pay the required rate. Otherwise you can simply overpay each month.

If you have a pension then put the maximum monthly amount from your salary each month into AVCs. Pay the difference of the deduction from your salary from the 90k.

There is no investment that will give you as high a benefit as the tax free contributions to your pension. E.g. if you pay 1000 per month into your salary, it will cost you only 500 nett from your wages. Making up that difference from your 90k is effectively turning that into an extra 180k in your pension.

listermint wrote: »

I don't really understand your point here?

The difference is reduce payment allow you the flexibility to overpay anytime you need whereas the other way around, you can't increase back your term that you had reduced.

It is about giving yourself options.

Earleybird wrote:

Very cheap, I'd be in no rush to pay it down. As a basic example you could invest €1,000 a month with KBC at 2.5%. When you can earn more than you pay on a risk free investment I can't see why you would redeem. As previously mentioned any additional finance you might consider would also be at substantially higher rates.

You'd have to pay DIRT tax on that bringing the net interest rate down to 1.57%. Also you can only add 1000 a month. You wouldn't get anywhere near 2.5% for a lump sum deposit anywhere

noel100 wrote: »

Why don't you ask the bank how much will they discount you to get rid of the tracker.
Take a variable mortgage out less 90k + discount. Discount could cover difference 1.68 and variable.

The banks won't do a deal for a 1.68% tracker.
They are currently borrowing much cheaper than that

You will never get money as cheap as your tracker. Invest the 90k, you should easily be able to generate a return that is higher than your tracker interest rate.

The bank made a huge mistake when they gave you that cheap tracker, because they are giving you money at a rate far below what is sensible. They are losing money every month on it. You should take advantage of their miscalculation, not back out of a deal that is enormously one sided in your favour.

Pension is a good idea, or just put it into an index fund that tracks a european stock exchange. Or buy an appartment and rent it out if you prefer.

noel100 wrote: »

I'm mortgage free 2yrs overpaid for many years, before mortgage was finished I tried to buy a holiday home in Kerry and release 70k from the my home. Bank wouldn't allow me to buy a second home with an equity release but would be allowed to build an extension or car or pay for children to go-to college.
Be careful with paying off the mortgage as you have a tracker at 1.68%. you won't get a loan anywhere for that type of interest. 90k would buy you a holiday home abroad. Buy you a new top of the range BMW. Holiday of a lifetime or a fine extension to the house. If you were to borrow that money cheapest loan is 3% on a remortgage nearly twice what you are paying.

Very very important point for people .

TeaBagMania wrote: »

you don't need to throw the whole 90K at the mortgage in one go, you could pay an extra 5K every 90 days or so over time. just make sure its applied to the "principle only"

Why principle only? It all has to be paid anyway ..

What else would you overpay against apart from principle?

TeaBagMania wrote: »

Exactly, but I wouldn't put it past any financial institution to apply your over payment toward interest unless you specifically specify principal only

But once you're paying your monthly mortgage repayment you're covering the interest charged that month surely?

SteM wrote: »

But once you're paying your monthly mortgage repayment you're covering the interest charged that month surely?

always separate your standard payment from an over payment, they should be two separate transactions

AlmightyCushion wrote: »

How can they put it against interest though?

its laughable but yes, I pay my mortgage online and there is an option to pay extra towards interest, why anyone would actually do that is beyond me

True, you don't "have" to but it protects me from any misunderstandings in the future as that separate overpayment was destine for principal only

SteM wrote: »

Sorry but you don't have to do this. The KBC overpayment form specifically says "The additional payments will be deducted from the capital balance and the overpayments can be redrawn at a later date...."

I overpay with KBC and it is one transaction with the overpayment coming off the principle.

All you have at any given time is a balance outstanding, there aren't separate capital and interest balances, endowment mortgages are a relic of a distant past.

The only context making a choice to set an additional payment against capital or interest for a run of the mill annuity mortgage would be an offset mortgage arrangement where the overpayment can be withdrawn again at a later date.

I'm on an Ulster Bank Tracker and can overpay what ever amount I want and for as long as I want. My thinking of overpaying now is that the interest rates will eventually rise and I'd rather pay off the mortgage sooner while I have the money and a job, incase I lose my job or circumstances change.
OP I would overpay if you can each month by whatever amount and you still have the rest of the money to do other things with it

If this were me, I'd use it to pay down the mortgage, but not immediately. The tracker rate you're on is advantageous to you and not the bank.

So if I had the 90k, I'd put in a relatively safe investment, bonds or the like and when the 90k is equal or below the amount you have outstanding, I would pay the mortgage off in full.
That way you'll still retain total control of your money should an emergency or need arise as well as retaining the option to be mortgage free early. Yes this option has a cost, but you're on a low rate so its not particularly high.

Hold onto the funds.....there was a guy on Joe Duffy and he was made redundant. He paid the lump sump off his mortgage from his redundancy payment and could not get a new job for even half of what he was getting. He had 30k left on the mortgage and living on job seekers.
The bank do not care you paid it off. The bank were in the process of repossessing the house.

Hold onto the funds if you worry you will spend it then put some away on long term (12months) and keep enough for you to live on for say a year or so. Once you are in stable employment you can the look at options for longer term saving or investment.
That rate you are on you will never get it again as others have said.

I also know someone do what you are thinking of doing and their tracker s near to the same as you. I told them not to do it. They now are struggling to get a loan to do work on their home. They are mortgage free but any loan they can get will be 12 % or more.