Overpaying your mortgage, which of these options should I pick?

TwoShedsJackson

I rang my mortgage provider recently and said I wanted to overpay my mortgage by 200 each month in order to save on interest and end the mortgage quicker. They told me to put it in writing and they'd sort it.

So I did that and then a 'Flexible Repayment Form' arrives asking me to pick one of these three options (despite them saying nothing else needed to be filled out etc. :rolleyes: ) - so which of these options would be best for me to pick to achieve the interest savings and shortened term.

A. We wish to make an additional monthly payment of €____ above our scheduled mortgage payment. The additional payments will be deducted from your capital balance. Although the scheduled term will not be reduced you will benefit from interest savings. The funds will be available for redraw at a later date if required. The overpayment instruction will be applied for the term of the mortgage. Please instruct us in writing if you wish to cancel or amend the overpayment amount.

B. We wish to increase out total monthly payment to €______ per month. The additional payments will be deducted from your capital balance and the overpayments can be redrawn at a later stage if required. We request you review the overpayment amount in the event of a rate change or additional drawdown. The overpayment instruction will need to be renewed in 12 months if you with to continue with it. Although the term of your mortgage will not be reduced, if left in place for the full term of the loan this credit will effectively redeem your mortgage at an earlier date. If the sole objective in making the overpayment is to reduce the term, refer to option C.

C. We wish to reduce the term of our entire mortgage from ___months to ___months (including subsequent topups).
Please be advised a term reduction will increase your monthly repayments. This option will allow you to pay your mortgage off at an earlier date and also result in an interest saving. The additional amounts paid will not be available for redraw at a later date.

So for anyone who slogged through that, thanks and can anyone describe the difference between option A and B?

spockety

A+B sound more like savings accounts where the money you have on deposit is offset against the outstanding capital on your mortgage in order to reduce interest payments.

C is the one you want if you just straight up want to reduce the term of your mortgage.

D3PO

the difference between A and B is easy

A is an increased payment for the full term of your mortgage

B is an increased payment for the next 12 months with the option to reduce / stop if there is an interest rate change.

For me B or C are the better option, check the small print though I mean last thing you want to find out is this change has moved your mortgage product from say a tracker to standard variable or something like that.

mathie

I requested the same from my bank (PTSB) and they automatically setup a seperate account which (accoring to them) would be used in the event of desire to 'take a break from payments' in the future.

This doesn't really sound like what I asked for.

noleafclover78

mathie wrote: »

I requested the same from my bank (PTSB) and they automatically setup a seperate account which (accoring to them) would be used in the event of desire to 'take a break from payments' in the future.

I suppose there's for and against that option:

For:
Unless you've got a nice safe civil servant job, there's always the possibility that you might be out of work for a period of time, during which those "savings" could be used to cover your mortgage and avoid arrears and black marks on your credit rating.

Against:
The interest you'll earn on the "savings" account, no matter how competitive, won't be as much as the interest charged on your mortgage.
Also, if you can still avail of mortgage interest relief, that's an extra benefit to paying off more of the mortgage interest now before the 7-yr limit expires.

Small Change

noleafclover78 wrote: »

The interest you'll earn on the "savings" account, no matter how competitive, won't be as much as the interest charged on your mortgage.
Also, if you can still avail of mortgage interest relief, that's an extra benefit to paying off more of the mortgage interest now before the 7-yr limit expires.

Would this not be an arguement for not paying down the mortgage?
Paying more into your mortgage >>> reduces capital amount >>> reduced interest charges >>> reduced interest relief?

If the "savings" account did actually pay the same rate as the mortgage interest, this could be a good option

noleafclover78

Small Change wrote: »

Would this not be an arguement for not paying down the mortgage?
Paying more into your mortgage >>> reduces capital amount >>> reduced interest charges >>> reduced interest relief?

During the first few years of your mortgage, the interest takes up a very high proportion of your monthly payments. Therefore, the tax relief you get is highest in these years. Therefore, paying more money in the earlier years makes the best use of your money as you are not paying tax on the interest you are paying.