Overpayments - Lump sum or monthly?

DrPhilG

I have a PTSB tracker mortgage. I am financially a bit better off these days so I want to increase the payments to clear the mortgage faster (only 9 years into a 35 year term).

Unfortunately PTSB aren't the most useful. They have told me that I cannot increase the payments off the principle directly, but what I can do is overpay my monthly payments which will build up a credit on the account, then I can pay that credit off the principle whenever I want. However the paperwork is a nuisance.

In my case my current monthly payment is €550. I want to increase that to €700, an overpayment of €150. To do that, I would need to fill out an application form, send it to PTSB, increase my payments to €700 which would then start to build a credit. After 1 year (for example) I would have a credit on the account of €1800. However I then need to complete another form to clear that balance off the principle. IIRC making that credit payment also undoes the increased payment arrangement so I would have to start again with an application to increase to €700!

What a pain in the arse!

Is there any reason I can't just stick the extra €150 a month into a jar and then once a year pop into the nearest branch and pay €1800 off directly? Would that make any difference to my term and interest?

I know the obvious concern with that would be that I would dip into the money but I know I wouldn't. I save for a number of things at the same time by just putting a certain amount into envelopes!

Chris_5339762

The GENERAL rule is that with a tracker, you do better from investing money into a fixed rate investment scheme than paying off early. (With a general variable rate mortgage its always worth overpaying).

Just my 2c on that!

Arbiter of Good Taste

What a pain in the ar$e.

Maybe tracker is somehow different but with my variable rate mortgage with AIB, I just prepare and sign a letter advising them to increase its the payments, scan it and email it to them, and then put the original in the post.

I don't have much dealings with PTSB, but any that I have, it has been painful

Jake Stiles

Seems very orchestrated.

I'm with UB - i just use their online facility - Anytime. Very handy indeed and the funds are off the outstanding balance the following day. No paperwork, signatures etc..

Worth checking with PTSB on their online options for you.

newacc2015

You have a tracker with an interest rate of probably of 1%. There is no real incentive to repay it early.

Do you have a private pension? IMO I would be putting that €150 a month in a private pension until rates start to increase, as even with poor performance with S&P 500 this year. You would have been better off than overpaying your mortgage.

DrPhilG

newacc2015 wrote: »

Do you have a private pension?

I work in the UK and have an NHS pension.

NIMAN

I have made overpayments on my AIB standard variable rate mortgage, usually sent them a cheque for a lump sum and they have an online form which says if you want to reduce the monthly payments or else reduce the capital.

I also think I could have done it through my online banking, but always feared that it might not come off the capital and would be a handling trying to get it sorted.

Fiona

I rang up PTSB about the same thing and I was told I could just make the payments but they never said anything about filling out forms they just said to let the money build up as a credit in the account.

For now though going to save the extra bit of money each month than put off the mortgage as I don't really have much savings so I think that would be a better option.

keane2097

Surely better off just putting the extra in a savings account making 3% than paying extra off a mortgage charging 1%?

If the tracker rate goes up in the future you could pay your lump sum off then.

DrPhilG

I know I could probably earn more in a good savings account, but I do want to reduce my term by a few years, just for peace of mind.

I am looking various investment and savings options too, but I want to pay a little off the mortgage too.

Regardless of interest rates etc I would personally think clearing the mortgage as quickly as possible is the most desirable thing.

NIMAN

True, its a psychological thing isn't it? That was my logic.

Plus, the rate on savings is awful at the minute. OK it might still be slightly higher than the rate you are paying on a tracker, but I was on a SVR mortgage and it was higher than the savings rates I would have got (minus DIRT).

Gumbo

I'm with Bank of Scotland.
Have no direct debits or anything. Do I one transfers every 2 weeks (fort nightly pay). I over pay to the tune of approx €50-€75 per month. Not a lot in fairness but over the course of a year I give them 26 payments instead of 12 monthly.

I've never had to fill out forms either, but this thread has prompted me to call them in January to confirm what happens to the overpayment.

BigCon

kceire wrote: »

I'm with Bank of Scotland.
Have no direct debits or anything. Do I one transfers every 2 weeks (fort nightly pay). I over pay to the tune of approx €50-€75 per month. Not a lot in fairness but over the course of a year I give them 26 payments instead of 12 monthly.

I've never had to fill out forms either, but this thread has prompted me to call them in January to confirm what happens to the overpayment.

I do the same with BOSI - it comes off the principal...

OU812

Am with PTSB & have done overpayments by increasing the monthly payment.

They don't like it & will do everything they can to resist it. The balance builds in a credit account attached to your mortgage account, it doesn't gain interest, but the calculated interest on your mortgage is reduced by this overpayment (allegedly).

When you're happy with the amount built up, you can let them know you want to pay it off the balance, this requires you to sign a form & then pick wether you want to pay it off the balance or the term, (pick the balance).

Be warned though, there's a clause in your contract that any overpayments become the property of the PTSB & you are not entitled to a refund of them.

Personally I hate PTSB. I was caught up in their tracker fraud & now that I've got my tracker back, I'm going to do everything I can do to make the mortgage last the full term because every payment costs them money. Our credit balance with them is around €3k now which is about 3 months mortgage & I'm going to keep it there & not contribute to it until I absolutely need to use it.

My advice is to build a cusion of a couple of month's mortgage payments & then find somewhere that will pay you interest on the extra funds & divert them into there.

MarkAnthony

Zaria Some Retiree wrote: »

Regardless of interest rates etc I would personally think clearing the mortgage as quickly as possible is the most desirable thing.

c1.5% on the mortgage and c.6% available in the UK on savings.

I'd personally save and invest with a view to paying a lump sum off the mortgage. Especially if the OP is UK based as one would want to maximise exchange rates. Also I assume the property is rented out - giving a further reduction in interest paid.

brianomc

NIMAN wrote: »

I have made overpayments on my AIB standard variable rate mortgage, usually sent them a cheque for a lump sum and they have an online form which says if you want to reduce the monthly payments or else reduce the capital.

I also think I could have done it through my online banking, but always feared that it might not come off the capital and would be a handling trying to get it sorted.

I have started to use the AIB online banking to pay it, it's easier than filling out the form and comes off the balance immediately. I emailed the home mortgages section beforehand to confirm that it came off the balance of the mortgage and didn't reduce the term. It might be worth emailing them yourself to confirm as I think you can have it set either way. They got back to me by regular mail in about a week or 2.

fyfe79

DrPhilG wrote: »

I have a PTSB tracker mortgage. I am financially a bit better off these days so I want to increase the payments to clear the mortgage faster (only 9 years into a 35 year term).

Unfortunately PTSB aren't the most useful. They have told me that I cannot increase the payments off the principle directly, but what I can do is overpay my monthly payments which will build up a credit on the account, then I can pay that credit off the principle whenever I want. However the paperwork is a nuisance.

In my case my current monthly payment is €550. I want to increase that to €700, an overpayment of €150. To do that, I would need to fill out an application form, send it to PTSB, increase my payments to €700 which would then start to build a credit. After 1 year (for example) I would have a credit on the account of €1800. However I then need to complete another form to clear that balance off the principle. IIRC making that credit payment also undoes the increased payment arrangement so I would have to start again with an application to increase to €700!

What a pain in the arse!

Is there any reason I can't just stick the extra €150 a month into a jar and then once a year pop into the nearest branch and pay €1800 off directly? Would that make any difference to my term and interest?

I know the obvious concern with that would be that I would dip into the money but I know I wouldn't. I save for a number of things at the same time by just putting a certain amount into envelopes!

OP,

I've a 1% tracker with PTSB. It was originally a 30 year fixed rate plan that I took out in January 2006. I started making overpayments of €300 a month about 1 year into the term when I switched to a tracker. With the current overpayments the 'flexi feature end date' according to my online account, is October 2023. So it's taken 12 years and 3 months off.

When I started the repayments I got a letter from them which states;
"As a result of your accelerated repayments, a credit will build up on your mortgage account which may be used to fund underpayment or payment holidays if required. Please note that each month the interest portion of your mortgage is calculated on the principal balance at the end of the previous month, minus any payments in credit. All accelerated payments will give you the benefit of a lower interest calculation".

Note that this was early 2007 and the bust was just around the corner, so I don't know if their stance has changed, but (allegedly) I'm seeing the benefit of only paying interest on the 'principle minus credit' amount. They, like every other bank, were heavily promoting trackers at the time so they were happy to do whatever I wanted regarding overpayments. They may have changed their tune since.

I realise my money may be best served elsewhere but there is, like you said, the psychological benefit of getting the mortgage out of the way as soon as possible. Also, we hope to move house within the next 5 years or so and would like to do that with the deeds in our hands, so to speak (this may require another overpayment at the end of the mortgage as OCT 2023 is a little under 8 years away still).

General question:
If the ECB rate starts to rise from 0.05% in the future (which is most likely in the next 2 years imo), wouldn't it make more sense to have as much credit built up in your mortgage account now, so that when the rates climb, the new rate will apply to a smaller principle thanks to the overpayments?

Zaria Some Retiree

Zaria Some Retiree wrote: »

Regardless of interest rates etc I would personally think clearing the mortgage as quickly as possible is the most desirable thing.

NIMAN wrote: »

True, its a psychological thing isn't it? That was my logic.
.........

You should really sit down and look at the bottom line. What you do with your spare cash short term dictates the longterm use of it.

€1800/annum over 5 years invested in the best risk free banking products will yield a bigger amount to knock off the mortgage thus reducing the mortgage term more.

The tracker mortgage is a huge win, by paying a bit extra every month you dilute the bottom line benefit of the win.

ronan45

Jake Stiles wrote: »

Seems very orchestrated.

I'm with UB - i just use their online facility - Anytime. Very handy indeed and the funds are off the outstanding balance the following day. No paperwork, signatures etc..

Worth checking with PTSB on their online options for you.

Jake , can you use UB Anytime Online to view your Mortgage details? I asked them before and they said there was no option for that at present.

Mrs OBumble

Augeo wrote: »

You should really sit down and look at the bottom line. What you do with your spare cash short term dictates the longterm use of it.

Agreed - but as well as cash value, there's also the utility value of having or not having a debt: the usefulness of your first 15k or so of income is a lot higher than the rest of your income.

Personally, paying of a mortgage very quickly enabled me to take an extended mid-career travel break which involved being without any employment-income for the best part of 6 months. Was well worth it.

Victor

Chris_5339762 wrote: »

The GENERAL rule is that with a tracker, you do better from investing money into a fixed rate investment scheme than paying off early.

You do realise that interest rates are at about zero?

NIMAN

ronan45 wrote: »

Jake , can you use UB Anytime Online to view your Mortgage details? I asked them before and they said there was no option for that at present.

I can see my mortgage account on my AIB Internet banking, and can move money from my current account into it (although I have never done this)

Heisenberg1

brianomc wrote: »

I have started to use the AIB online banking to pay it, it's easier than filling out the form and comes off the balance immediately. I emailed the home mortgages section beforehand to confirm that it came off the balance of the mortgage and didn't reduce the term. It might be worth emailing them yourself to confirm as I think you can have it set either way. They got back to me by regular mail in about a week or 2.

I do the same myself with AIB through the banking App. The term will not be reduced but the repayments will be a little less, but I maintain the same level of repayment that I had before I over paid.

Heisenberg1

Heisenberg1 wrote: »

I do the same myself with AIB through the banking App. The term will not be reduced but the repayments will be a little less, but I maintain the same level of repayment that I had before I over paid.

How can the term not be reduced if you regularly over pay?

My plan when I go about getting a mortgage is get the longest term possible but over pay as much as I can from day one with the aim of significantly reducing the term, however the option to fall back on the smaller payment will be there if required.

Gumbo

ronan45 wrote: »

Jake , can you use UB Anytime Online to view your Mortgage details? I asked them before and they said there was no option for that at present.

On my UB app I can see my current account, joint savings account and our UB Mortgage account. The mortgage just shows balance and transactions. I cannot transfer to the mortgage account as its a fixed rate but it's in my transfers tab so I would assume if it was a variable mortgage, online transfers would be possible.

It also used to be possible to see our Bank of Scotland mortgage in the same app, but somewhere along the line, they removed that feature.

Jake Stiles

kceire wrote: »

On my UB app I can see my current account, joint savings account and our UB Mortgage account. The mortgage just shows balance and transactions. I cannot transfer to the mortgage account as its a fixed rate but it's in my transfers tab so I would assume if it was a variable mortgage, online transfers would be possible.

It also used to be possible to see our Bank of Scotland mortgage in the same app, but somewhere along the line, they removed that feature.

Yes - can view it all right. Sometimes I wish I couldnt see it

wench

Zaria Some Retiree wrote: »

How can the term not be reduced if you regularly over pay?

My plan when I go about getting a mortgage is get the longest term possible but over pay as much as I can from day one with the aim of significantly reducing the term, however the option to fall back on the smaller payment will be there if required.

The two options are keep the payment the same, and the term reduces,
or reduce the payment and keep the term the same.

The second is AIB's default option if you use online banking.

This is the option I would have gone for anyway, as it reduces the amount I'm committed to giving them, and as I keep my total of payment & over-payment constant, the difference in interest paid is minimal.

Heisenberg1

Zaria Some Retiree wrote: »

How can the term not be reduced if you regularly over pay?

My plan when I go about getting a mortgage is get the longest term possible but over pay as much as I can from day one with the aim of significantly reducing the term, however the option to fall back on the smaller payment will be there if required.

When you over pay you must specify whether the term or the repayment is reduced. When you make a payment via the app with AIB the repayment is automatically reduced unless you specify otherwise. It's the same really, for example when you overpay and let's say you repayment was €900 now reduced to €870 pm you just keep paying the original amount of €900 which in turn will reduce the term overall as your loan will be repaid quicker.

Heisenberg1

kceire wrote: »

On my UB app I can see my current account, joint savings account and our UB Mortgage account. The mortgage just shows balance and transactions. I cannot transfer to the mortgage account as its a fixed rate but it's in my transfers tab so I would assume if it was a variable mortgage, online transfers would be possible.

It also used to be possible to see our Bank of Scotland mortgage in the same app, but somewhere along the line, they removed that feature.

KC I would check out your options with UB first. AIB allow to transfer money from my Current account to my Mortgage account via online banking.

Gumbo

Heisenberg1 wrote: »

KC I would check out your options with UB first. AIB allow to transfer money from my Current account to my Mortgage account via online banking.

The fixed rate is an investment property anyway with UB, or tracker is with BOSI and we can overpay that as I just manually transfer myself.