Overpayments - Lump sum or monthly?

J.pilkington

To those recommending savings accounts please factor in the torturous dirt of 41% and also PRSI at 4%(where applicable) which takes the gloss of the advertised bank interest rates

Xaniaj

Jake Stiles wrote: »

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

Jake, did you just add the mortgage account as a payee and make once off payments?

I actually rang UB yesterday re overpaying and was advised that any once off payments could only be done in branch or over the phone. It'd be much easier if I could just do it online!

Heisenberg1

Heisenberg1 wrote: »

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.

This was sort of my point. If my monthly repayment is 600 but I pay a 1000 a month instead all the time the term has to reduce as the loan will be paid off quicker.

JimmyMW

Is there any monetary value in having your overpayment's paid off the capital rather than reducing the term, I am failing to see the advantage of one over the other, maybe there is something I am missing?

OU812

JimmyMW wrote: »

Is there any monetary value in having your overpayment's paid off the capital rather than reducing the term, I am failing to see the advantage of one over the other, maybe there is something I am missing?

More capital paid off = less interest on the capital = less to pay.

I've paid off €2,000 several times off the capital & each time it's the equivalent to reducing the amount you'll pay over the term by approx €6,500

JimmyMW

OU812 wrote: »

More capital paid off = less interest on the capital = less to pay.

I've paid off €2,000 several times off the capital & each time it's the equivalent to reducing the amount you'll pay over the term by approx €6,500

I understand that, however surly that is of equal monetary benefit to reducing the term, I cant see the difference? Can you enplane the difference with a simple maths formula?

OU812

JimmyMW wrote: »

I understand that, however surly that is of equal monetary benefit to reducing the term, I cant see the difference? Can you enplane the difference with a simple maths formula?

Sorry, I misread, I reduce the term. Pay the principle down reduces the term.

The way I look at it is the modest amounts I can pay off it can bring down the payments, but if the interest rate goes up, I'm back where I started, but by reducing the term, I can mentally be unshackled much earlier

ronan45

Came across this on DM op, might be some food for thought! Its in sterling but you get the idea

PAY OFF YOUR HOME LOAN SIX YEARS EARLY

Overpaying on your mortgage each month could save a fortune in interest and help clear your debt faster.

Interest rates are still ultra-low and unlikely to rise until much later this year, so it makes sense to overpay now while your repayments are cheaper.
Putting this money into a savings account won’t do you much good.
If your mortgage interest rate is 4 per cent and you’re a basic-rate taxpayer, you’ve got to find a savings deal paying 5 per cent before tax to match the benefit you would get by overpaying on your home loan.
As a higher-rate taxpayer, you’d have to earn at least 6.7 per cent on your savings before tax to beat a mortgage rate of 4 per cent. This is a tall order since the best internet savings deal is around 1.7 per cent before tax.
If you plough your cash into your home loan instead then you could save bucket loads in interest and be mortgage-free far sooner.
With a 25-year £150,000 mortgage at a rate of 3.5 per cent, you could shave two years and four months off the term with an overpayment of just £50 a month. You would also save £7,986 in interest.
For those able to set aside a little more, a £150 monthly overpayment on the same loan would reduce your mortgage term by five years and 11 months, and save £19,663.
Overpaying will also help you when interest rates do start to climb as you will be paying a higher rate on a smaller balance.
Equally, when you come to remortgage, banks will be more likely to offer you a cheaper rate because you’ll own a greater stake in your home.
If you are on a standard variable rate — the rate your mortgage reverts to after your fixed deal expires — there are typically no restrictions on how much you can overpay each month.
If you are on a fixed or tracker deal, most banks will let you overpay by up to 10 per cent of the value of the loan each year without any charges. So, if you have a £150,000 mortgage, you can pay back £15,000 a year. But always double-check with your lender.:cool:

4ensic15

JimmyMW wrote: »

I understand that, however surly that is of equal monetary benefit to reducing the term, I cant see the difference? Can you enplane the difference with a simple maths formula?

Mathematically there is no difference on the day the payment is made. The issue is what happens afterwards. If there is a lump sum payment and the term remains the same the monthly payments decrease. If the monthly payments remain the same the term shortens. Since the rate of interest remains the same in either case, the longer the period there is money owed, there will be a higher amount of interest interest paid overall.
Whether it is worth paying a higher payment depends on a number of factors.
Once the capital balance is reduced it can't be increased again. It is difficult to forecast what one's financial situation may be years hence. It would completely undo the benefits of paying down a mortgage rapidly if one was forced to incur credit card debt or the like as a result. My approach is to keep the longer term and only pay down capital when i am absolutely sure I will not be in need of short of funds for the foreseeable future.