Is it worth paying off mortgage

darrenseventwo

Hi,

I'm looking for some advice on something I know very little about.

Currently on an Ulster Bank tracker mortgage, EBC rate + 1.15% (currently 1.65% total). I've 20yrs left on a 30yr mortgage, owing €138K. Monthly repayments are currently €650. APR is 1.7% (not sure if that's something I need to take into account).

By the end of the year I'll have enough saved to pay off the mortgage completely if I wish. Savings are currently in an AIB Online Notice Deposit 7 account, 0.75% A.E.R.

Before I go talk to a Financial Advisor, I was hoping someone might be able to advise what's the best move here... pay off the full 138K, pay off a partial lump sum or do nothing and keep paying monthly.

Will greatly appreciate any advice.

OU812

You lucky, lucky bastard. That's all I have to add to this thread.

beazee

I other words it is better to keep savings at 0.75% AER or pay off mortgage at 1.70% AER?

0.95% AER difference on €138K costs you €1311 a year. It's up to you.

unclebill98

Simple, in the longer term you will save more money paying off the mortgage than you will with your savings in any form of standard savings account. Unless you wish to invest your savings in a investment with some from of risk that could increase its value but of course you could loose more.


Plenty of online calculators that will show you how much your mortgage will cost over its life time. Your savings as they currently stand will not exceed them unless of course you earn a **** load of money.

If your worries about having no savings then pay a large lump of the mortgage. Even over paying your mortgage each month has a massive impact on the over all amount owed.

Johnny K

beazee wrote: »

I other words it is better to keep savings at 0.75% AER or pay off mortgage at 1.70% AER?

0.95% AER difference on €138K costs you €1311 a year. It's up to you.

Talk to Ulster Bank about getting a discount if you were to clear the balance. They are making a loss on the mortgage product and may offer a discount. No harm in asking.

unclebill98

Yes, the discount will be that you don't have to pay it for the rest of your life..... they may even make you a coffee....

coylemj

OP, you're not getting any tax relief if the mortgage is 10 years old - that used to be the reason not to pay off the mortgage if you won the lottery but in your case I'd say pay it off. As the owner of a mortgage-free house you will have no problem borrowing money should the proverbial 'rainy day' arrive so I'd clear the mortgage.

_Kaiser_

I'd pay it off. Who knows what is going to happen in this country in the next few years generally, never mind where the property market is concerned.

At least with it cleared you have a bit more "freedom" and room to maneuver if you ever need it.

Liam D Ferguson

Without knowing your specific circumstances I'd be inclined to agree with everyone who said to pay off the mortgage.

There's a purely mathematical argument against it that's based on the fact that you can get higher interest on your savings than what you're paying on the mortgage, because the mortgage is a tracker. Example - if you put your money in a PTSB Interest First account before the end of this year, you'd get 2.5% interest, from which 33% DIRT tax would be deducted. So you'd be getting 1.675% net interest, which is a shade higher than what you're paying on the mortgage. And you'd be retaining access to your savings. But in this example, the gap is so small as to make it barely worth your while doing.

I'm assuming that you're in a secure job and that you don't foresee any reason why you'd need your savings for anything else over the next couple of years? No point in paying off a loan at 1.65% now if you need to borrow to change the car in a few months at 8%.

Aside from that, go for it and pay off the mortgage. Put the €650 per month to good use. Not necessarily saying be practical with ALL of it. Spend some of it on something you enjoy. You've earned it. Well done on getting yourself into this position.

sonny jim bob jones

Would he not be better paying off 2/3 and keep the remainder for a rainy day fund, available to pay the balance when ECB rate starts to rise, if the OP chooses. Keeping some flexibility would be my preference.

darrenseventwo

Thanks for all the advice. It's really helpful how well the posters on here explain things.

zbluebirdz

Liam D Ferguson wrote: »

...

There's a purely mathematical argument against it that's based on the fact that you can get higher interest on your savings than what you're paying on the mortgage, because the mortgage is a tracker. Example - if you put your money in a PTSB Interest First account before the end of this year, you'd get 2.5% interest, from which 33% DIRT tax would be deducted. So you'd be getting 1.675% net interest, which is a shade higher than what you're paying on the mortgage. And you'd be retaining access to your savings. But in this example, the gap is so small as to make it barely worth your while doing.

...

DIRT will be 41% shortly ... so the net interest from 2.5% will be 1.475%.

sonny jim bob jones

zbluebirdz wrote: »

DIRT will be 41% shortly ... so the net interest from 2.5% will be 1.475%.

The account he mentioned pays interest upfront, so if opened in 2013 it would still be 33% DIRT.

Plates

Keep the mortgage and invest half your savings in a medium to high risk fund. Over 20 years you will always make money on stocks and shares. Key thing will be to ignore the ups and downs in the first 10-12 years and then decide if you want to move it into a lower risk fund closer to the 20 year mark. At the end of the 20 years you'll own your house and you should have gained significantly on your investment.

bbam

unclebill98 wrote: »

Yes, the discount will be that you don't have to pay it for the rest of your life..... they may even make you a coffee....

Why would you say that.
It's purely a business transaction. It's widely known these are loss making mortgages for the banks so there is a real incentive for them to get them off the books. OP would e offering them a way out of his mortgage, he should be in a position to deal for a discount.

I can't understand the mentality. When businesses and developers deal with the banks they angle for deals and discounts all the time, it's a widely accepted practice. But when an individual tries to deal with the banks in a similar manner then all the cranks come out and take pot shots at them.

OP should push for a significant deal. I know personally I'm moving towards a similar position and I'll be looking for a deal.

Junglewoman

Is there an Offset account associated with the mortgage? I have an UB tracker mortgage and any monies on deposit either in my savings and/or current account reduces the interest payable and is calculated monthly. If this is the case you can reduce your interest liability.This may be more attractive when new rates of DIRT and PRSI kick in....and you still have access to the cash if you need it.

LionelNashe

Do you have a pension OP, and have you been contributing up to the maximum amount that you can receive tax relief on? I haven't done the maths on it, but maybe you'd be better off putting a lump sum into your pension retrospectively. As far as I remember you can avail of the tax relief as far back as 6 years ago, if you know what I mean. Sorry, badly explained.

darrenseventwo

Thanks All.

There's no offset acc, the mortgage is the only business I have with UB.

I hadn't thought about the pension angle. Currently employer contributes 8% of salary, I add in 3% plus a small AVC of about €60 a month. Probably an avg enough pension contribution I suspect.

On the subject of asking UB for a deal/discount to close the tracker mortgage, does anyone koiw if anyone has tried it, been successful? I'd have no hesitation at all about asking, they can only say no. What would be a realistic open offer if I approached UB, 5% discount, less/more?

zbluebirdz

sonny jim bob jones wrote: »

The account he mentioned pays interest upfront, so if opened in 2013 it would still be 33% DIRT.

It is an "AIB Online Notice Deposit 7". Don't think AIB pay interest upfront. PTSB has/had an account that paid interest upfront.

ABC101

Well congratulations, you are obviously doing something right.

I would be tempted to clear off the mortgage debt, due to the fact that having high balance current accounts, saving accounts is still risky in my opinion.

The financial crisis is still there.. and in my opinion it is more serious than what the ECB / eurocrats are letting on.

Recently Ms Christine Lagarde mentioned snipping 10% of deposits to aid the banks, a bit like a pan European Cypress event.:eek:

It's amazing how something which is so unmentionable can become acceptable very quickly.

However if you wish to keep the tracker... you have money there to buy an investment property, or stocks and shares etc etc... but keeping cash is still dangerous... just my opinion, that's all.

Value Hunter

First and foremost. Speak to a financial adviser.

With a sum that size it would be foolish not to get professional advice.

Personally I would pay of perhaps 80% of the loan and keep the extra 20% as rainy day money.

sonny jim bob jones

zbluebirdz wrote: »

It is an "AIB Online Notice Deposit 7". Don't think AIB pay interest upfront. PTSB has/had an account that paid interest upfront.

Liam suggested he move the lumpsum to the PTSB account...

darrenseventwo

Can anyone tell me a good Financial Advisor in Dublin? Not sure if that's allowed on here so apologies for asking if not.

Liam D Ferguson

bbam wrote: »

Why would you say that.
It's purely a business transaction. It's widely known these are loss making mortgages for the banks so there is a real incentive for them to get them off the books. OP would e offering them a way out of his mortgage, he should be in a position to deal for a discount.

I can't understand the mentality. When businesses and developers deal with the banks they angle for deals and discounts all the time, it's a widely accepted practice. But when an individual tries to deal with the banks in a similar manner then all the cranks come out and take pot shots at them.

OP should push for a significant deal. I know personally I'm moving towards a similar position and I'll be looking for a deal.

This is fine in theory, but you can only make a deal if the other side is willing to make a deal with you. I'm aware of a number of people who have been in a similar position and have made very strong and reasonable arguments to their banks for a discount on paying off a tracker mortgage. The banks' response has been a flat NO.

You can't force a bank to give you a discount.

Liam D Ferguson

darrenseventwo wrote: »

On the subject of asking UB for a deal/discount to close the tracker mortgage, does anyone koiw if anyone has tried it, been successful? I'd have no hesitation at all about asking, they can only say no. What would be a realistic open offer if I approached UB, 5% discount, less/more?

There's a big thread on this on Askaboutmoney.com here. The early posts are old but there's more recent examples at the end.

strandsman

Pay off your mortgage. Nobody can then take your savings off you. If you invest it in pensions or saving schemes you'll end up making money for the fund managers and government through fee's and taxes. Maybe increase your avc to fund retirement. Relax and enjoy your OWN Home. Keep saving and in a few years you might have other options to choose from but aleast you'll still have your own home.