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Paying Mortgage Monthly in Advance

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  • 27-11-2013 5:00pm
    #1
    Lister1
    Registered Users Posts: 726 ✭✭✭


    An accountant acquaintance of mine was explaining to me over a couple of drink a couple of years ago about how paying your mortgage monthly in advance(i.e. making a double payment now and then monthly payments going forward) could help reduce the payment period of a mortgage by a substantial amount. I think it had something to do with the monthly payments going against the Principle rather then the going Interest. Has anyone ever heard of this before or something similar? I did a bit of research on google and there does seem to be a bit of truth in the matter....


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    #2
    pwurple
    Closed Accounts Posts: 12,449 ✭✭✭✭pwurple


    It's just doing one-off overpayment. Makes a small difference, but not as much as a constant overpayment.


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    #3
    coylemj
    Registered Users Posts: 25,437 ✭✭✭✭coylemj


    Occasional additional payments over and above the agreed monthly amount are usually allowed with variable rate loans of any type, they will ultimately reduce the interest bill and shorten the duration of the loan. With fixed rate loans they are normally not allowed.


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    #4
    retroactive
    Registered Users Posts: 292 ✭✭retroactive


    Everything stated re - fixed v variable and 'the future value of money' /'cost of credit' (reducing the principle now will mean a smaller than planned balance for the duration of the loan and thus would reduce the cost of credit) is correct

    But just for clarification:

    If you overpay your mortgage, you build up a credit and you have to direct the bank to either apply this over payment to either a. reduce the monthly payment falling due (Doesn't affect Cost of credit, but does reduce your monthly repayment) or to reduce the term of loan (reduces the cost of credit).

    Note - This "credit" cannot be used to skip a future mortgage payment - while your arrears would be zero, if a payment falls due and it isn't matched by a credit then your ICB will show a missed payment.


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