Reduce payments or reduce term?

shotcaller

Hello All,

I have a 300K tracker mortgage over 35 years with AIB (which I'm nearly 3 years in to). I have recently come in to a bit of money and would like to use some of it to pay in to the mortgage. I was thinking 10K.

My question is, would it be better to reduce the repayments or reduce the term? The guy in AIB said it would take about 2 years off the term or (approx!!) €40 p/m.

Does it all even out in the end making it much of a muchness?


Part 2: I have a second question but I don't think it needs a different thread. I was thinking about paying off my credit card and car loan with the lump sum too. Is this advised or would it negatively affect my credit rating? I've heard that I should have at least one loan going out to have a decent credit rating.

Thanks very much for your help!

Ogham

If you can afford the current repayments - then I would get the term reduced. Cutting monthly payments by 40 a month will probably just mean you will spend that on something else. Cutting 2 years off the mortgage will be a more noticeable saving - ( but not for a few years.)
If the mortgage rate is low - you could do better by just putting the money on deposit if you can get a rate (after DIRT) which is bigger than your mortgage rate.

www.moneyguideireland

Defo clear the credit card if you trust yourself not to build up the debt on it again, if you are in stable employment I'd keep the car loan, wouldn't save a whole load in interest by clearing that. Defo throw the then grand into the mortgage, you'll thank yourself when it's gone two years early.

shotcaller

Cheers lads. So that's pay 10K off the mortgage and reduce the term and pay off the credit card but keep the car loan. it's not too much and i am in stable enough employment. i would make a joke about my job here but given the climate, don't think it'd be in good taste.

Thanks once again!

......... but do try to clear the credit card 100% every month going forward, otherwise you'll be back to square one with the credit card, they're very handy but the rates are robbery.

chris85

Clear as much credit as possible starting with the one at the highest interest rate. I would personally clear the credit card straight away and then clear the car loan. anything left take it off the mortgage.

in terms of credit rating both the CC and car loan will be on ICB anyways showing you are paying. When you clear them it would show up as cleared on the ICB which is good.

Thats just my view anyways.

raido9

chris85 wrote: »

Clear as much credit as possible starting with the one at the highest interest rate. I would personally clear the credit card straight away and then clear the car loan. anything left take it off the mortgage.

in terms of credit rating both the CC and car loan will be on ICB anyways showing you are paying. When you clear them it would show up as cleared on the ICB which is good.

Thats just my view anyways.

I'd agree with this. Always clear the highest interest loans first, so:
1, Clear credit card.
2, Clear car loan.
3, Depending on the rate your paying on the mortgage, either save it, or put it into the mortgage.
If you are putting it into the mortgage I'd go for reducing the years, rather than reducing the payments (if you can afford it). You'll end up paying less interest in the long run.

LookBehindYou

Credit card, clear it.
Car loan, clear it.
DO NOT throw any more money towards your mortgage.
Keep the balance for a rainy day, because it is more difficult these days to get credit.
If you are out of work or any other emergency, the cash would be very much needed.