Is it worth paying off mortgage???

rockdrummer4

Following on from thread: 2057073693

In October I payed off 10,000 off my mortgage, and reduced the monthly payments by €50.. yesterday I payed another 5000 off and it only reduced the monthly payment by €10.. What is the reason for this? The girl in EBS did not know why, plan to ring EBS next week to find out.

Does it have anything to do with TRA i.e. the TRA falls as you pay off the mortgage or something?

Im on a tracker, interest at 1.75%..

Am I better reducing the monthly repayments or reducing the term? Which is better to reduce the interest I pay in the long run?

Am I better off saving up 5000 and paying that off once a year? OR increasing the amount I pay every month?

Should I leave my monthly payment as 650 and pay an additional 350 myself, or just increase the monthly payment - which is better? People mention overpaying monthly payments is good, if I change monthly payment to 1000 is that overpaying or do I have to make a seperate payment to be seen as overpay?

Sorry may sound a bit stupid - hear alot of suggestions thrown around but dont understand the reason behind them. and I would like to understand..

Thanks.

coffeenut

In theory, the change in your payment for the 5K lump sum should have been about 25 quid assuming your remaining term and rate weren't changed. things like tax relief at source also need to be considered though. could the overall payment have dropped by the 25 but maybe your TRS dropped by 15?

your lender should have been able to explain why there was only a €10 drop - for them to say they can't explain it isn't good enough. contact their mortgage department - it's likely that branch staff don't have the knowledge or experience to explain this type of thing - and if you still dont' get a good enough answer, make a complaint.

whether you're better off saving and paying lump sums depends on the deposit rate in the savings account and whether interest is paid monthly, quarterly etc. take a look at the NCA website FAQ's, there might be something there to help you decide.

also - you'll save more in the long run on the mortgage by reducing the term when you make a lump sum instead of the payment but overall, it might be better to keep payments the same and put the leftover money into a deposit account - really depends on what rates are on offer.

rockdrummer4

Thanks coffeenut

My savings is with Rabobank, I think the interest is paid monthly... Anyway, will get about €200 interest for on average 15000 in the saving account. By paying off the 10,000 I saved 600 in the year

Will definitely ring EBS to find out why the 5000 only reduced by 10!!

Would like to understand the theory behind reducing term, reducing monthly payments, increasing monthly payments, overpaying monthly payments, lump sum payments?

Thanks..

rockdrummer4

Any advice?

bmwguy

rockdrummer4 wrote: »

Any advice?

Ring your bank and get them to explain, anything here will be speculation

rockdrummer4

I like speculation.. just looking for impartial advice..

I will ring to get explanation on mortgage repayment after paying in 5000. But would like a bit of advice on which way to go on paying off mortgage

Thanks..

Doodah7

Google Karle Jeacle mortgage calculator or input figures into this website. You will see how much you could save over the life of your mortgage by testing different scenarios.

If you are making monthly overpayments or extra lump sum payments, ,ake sure that these amounts are being deducted from the capital owed.

It is always a good idea to overpay your mortgage if you can as you will definitely save in the long term and particularly at present with deposit interest being so poor.

Carawaystick

If you're paying 1.75%
this will have an effective rate of less due to trs; if you're getting 20% trs relief, the effective rate will be 1.4%

If your savings are getting paid a rate of 3% dirt takes 41% off this so the effective saving rate is 1.77%

Gussyfc

I'm against paying off your mortgage if you're on a tracker. Instead I placed my over repayments in a capital secure investment account. My average return is 7% per annum. My aim is to earn enough interest to off set the interest I am paying on my total mortgage. I understand that there is 41% tax on the returns but you are still ahead. Plus the 41% is only paid after 8 years if it is left there, so you are using the tax to make more money on a compound basis.

Doodah7

Gussyfc wrote: »

I'm against paying off your mortgage if you're on a tracker. Instead I placed my over repayments in a capital secure investment account. My average return is 7% per annum. My aim is to earn enough interest to off set the interest I am paying on my total mortgage. I understand that there is 41% tax on the returns but you are still ahead. Plus the 41% is only paid after 8 years if it is left there, so you are using the tax to make more money on a compound basis.

But your system means that you are not reducing the term of your mortgage for seven/eight years that you are investing your money. By overpaying during this time, the capital amount is constantly reducing which in turn obviously reduces the amount of interest paid over the life of the mortgage.

If I understand you correctly, you are saving for seven years and then taking a lump sum off at the end of this period. This will not be as effective as chipping away on a monthly basis due to the way mortgages work.

rockdrummer4

Gussyfc wrote: »

I'm against paying off your mortgage if you're on a tracker. Instead I placed my over repayments in a capital secure investment account. My average return is 7% per annum. My aim is to earn enough interest to off set the interest I am paying on my total mortgage. I understand that there is 41% tax on the returns but you are still ahead. Plus the 41% is only paid after 8 years if it is left there, so you are using the tax to make more money on a compound basis.

Yeah doesnt really work for me either.. by knocking the 15000 off the mortgage, my monthly mortgage has fallen by €60, in the 8 years you mention above thats a saving off 5760 - try earning that on any savings account of 15000 in 8 yrs after tax Plus the reduced capital amt..

AnnNoirin

Hi, I have a similar question to those above. I have a tracker mortgage, which has been on interest only payment on and off since 2009. The amount remaining is €31,000 and the interest rate is 1.2%, which equals approx 33/mth. I also have PPP (payment protection cover) and life insurance, which will realise €67k in 2022 if I die before then, assuming mortgage, is paid off.

My mortgage is due to clear by 2016 and I am due to revert to full monthly payments of 1,188.53 from the 1st January 2014. I am not in negative equity thankfully and my house is currently in the €150-250,000 bracket. I am still out of work but hope to return in 2014 so there is a lot of uncertainty in regards income. I have recently received some cash – approx €48,000 and I have no other debts. I do believe that cash is king but I also don’t want to be in debt to the bank any more and would like to clear my mortgage. Can anyone advise me on what I should do next? Am considering also paying off a large portion of the mortgage.

Many thanks