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Interest only mortgage , a few questions

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  • 15-10-2009 4:14pm
    #1
    zenmonk
    Closed Accounts Posts: 413 ✭✭


    Hi there, I have an interest only, tracker mortgage with ULster Bank. Been paying it off for 3 years (original loan was for €225k over 25yrs) but don't really understand the mechanics of it. (Banks confuse me).
    Basically I started paying about €1000 a month now it's down to €400 ish. I realise this has to do with the low ECB rate and my mortgage is .25% above this.
    My question is this, as it is interest only, when do I start paying the principal back? Will the terms of the mortgage change?
    Should I aim to fix it in the future (ECB rates will probably hold at a low rate til late next year I know) or pay a lump sum off the principal? (I have €20k sitting in a deposit a/c)
    Any help would be appreciated.


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    #2
    daveyboy_1ie
    Closed Accounts Posts: 1,352 ✭✭✭daveyboy_1ie


    Hey, if i were you I would write to the bank saying you would like to increase your mortgage payments to what you can afford (say for example the original 1,000 you were paying). This way you are paying off what you can and the extra will come off the principal and you leave your 'rainy day' money aside. Stick this into a high earning account, each bank has their own special ones and they can be compared by searching them yourself. no point in getting rid of your PLAN B money as this gives you options for the future.

    What my partner and I did was instead of paying our monthly mortgage agreement we agreed with the bank to make payments every two weeks of of roughly what we would pay in a month as both myself and my partner are in situations were we are not entirely secure but the extra payments won't be that much of a burden, in fact we could probably give more but for the moment this will do fine.

    When it works out over the year its actually the equivalant of 13 months payments (e.g. instead of 12*1,000 payments totalling 12,000 you can pay €500*26 times=13,000) and over our original 27 year mortgage we have knocked two years off it if we keep this rate up. Now hopefully we will both be in a situation next year when we are more secure and can commit to paying more off the payments, but I don;t believe in overstretching, and obviosly higher amounts means more time off the original 27 year mortgage. Thats my advice anyway, I never believe in spending savings that took me a long time to save unless I have to.


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    #3
    Jet Black
    Registered Users Posts: 3,845 ✭✭✭Jet Black


    zenmonk wrote: »
    My question is this, as it is interest only, when do I start paying the principal back?

    Well if you are only paying the interest on the mortage thats all you will be paying, the principal wont be touched.
    zenmonk wrote: »
    Will the terms of the mortgage change?

    Yes. Unless you are going to increase your payments.
    zenmonk wrote: »
    Should I aim to fix it in the future (ECB rates will probably hold at a low rate til late next year I know) or pay a lump sum off the principal?

    Its really anybodys guess here, if you fix now and the rate stays low you would be paying more now than you would on a variable. But if the rate increases and you fixed now you would be saving money.


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