Overpaying Mortgage - thoughts?

SarahMollie

So I got my 2015 statement from BOI yesterday and there was a leaflet with some general info on it, and a piece about over payment caught my eye. As I'm in a fixed period, I can only over pay by up to 10%, which I can afford to do.

Does anyone else do this? Am I better off keeping my money in my pocket or is this money well spent as it will reduce the amount of interest I'm paying in the long run? Or is a 10% over pay going to make so little difference that it won't really matter?

flanders2006

SarahMollie wrote: »

So I got my 2015 statement from BOI yesterday and there was a leaflet with some general info on it, and a piece about over payment caught my eye. As I'm in a fixed period, I can only over pay by up to 10%, which I can afford to do.

Does anyone else do this? Am I better off keeping my money in my pocket or is this money well spent as it will reduce the amount of interest I'm paying in the long run? Or is a 10% over pay going to make so little difference that it won't really matter?

Hi,

For a while I have been overpaying by approx 30% and that is going to reduce the lifetime of the mortgage by 7 years and save me about €15k over the lifetime if I continue it.

Use this site to help get an idea....

https://www.drcalculator.com/mortgage/#

SarahMollie

flanders2006 wrote: »

Hi,

For a while I have been overpaying by approx 30% and that is going to reduce the lifetime of the mortgage by 7 years and save me about €15k over the lifetime if I continue it.

Use this site to help get an idea....

https://www.drcalculator.com/mortgage/#

Thanks Flanders.

TBH its not a huge sum, maybe equivalent to a new dress or a dinner out a month. Now that I've hit the 30 mark, my demand for new dresses is less anyway

As I've only been a home owner for a few months now, I guess I'm just getting over the financial shock of redecorating and furnishing a home and all the other costs you have in year 1, so from now on my spending should be pretty much back to normal, so an extra few euro towards the mortgage is no harm.


I work in a job where I get a bonus from time to time, and once my fixed term is up, I'd also be considering making a lump sum payment. I was told I had to take a 35 year term, but I think I'll be paid off before then

adelcrowsmel

I'm in a similar situation to yourself - I went onto a 3 year fixed rate in September last year and I set up the maximum over payment I could which was only €65 - this will reduce my mortgage term by almost 3 years and also reduces the interest amount paid over the term by nearly €8k....so for me I think its worth it, especially with interest rates on saving so low at the moment. Anything I can afford over this repayment I am putting into a saving account and after the 3 year fixed term is over I will pay a lump sum off my mortgage and reduce it even more....well that's the plan at the moment anyway bar anything unforeseen.

Just give your mortgage adviser in the bank a quick call and they will run through what this over payment might save you

Shermanator

Sometimes we stress too much about the term of our mortgage. When I got my first mortgage back in 1989 it was for a 15 year term and it was an endowment mortgage (dont think you can get these anymore). Anyway, i sold my house and took out a new mortgage after 5 years. My new mortgage was for a period of 20 years and was a fixed rate mortgage. i moved house again after 10 years and my third mortgage was for a period of 25 years. Sold that house in 2013.

so my point is that the term of any of these mortgages was really irrelevant in my case as I ended each mortgage well before the term was up.

Not sure what the statistics are in Ireland but most people move/upgrade house at least once in their lives so usually the term of your first mortgage is not that important. For most young people, the extra bit of cash is more valuable to them for lifestyle more so than reducing their mortgage during the early years of house ownership.

At 30 years of age, i think i might spend a little more on dresses and enjoying life rather than worrying about the mortgage

Shermanator

Sometimes we stress too much about the term of our mortgage. When I got my first mortgage back in 1989 it was for a 15 year term and it was an endowment mortgage (dont think you can get these anymore). Anyway, i sold my house and took out a new mortgage after 5 years. My new mortgage was for a period of 20 years and was a fixed rate mortgage. i moved house again after 10 years and my third mortgage was for a period of 25 years. Sold that house in 2013.

so my point is that the term of any of these mortgages was really irrelevant in my case as I ended each mortgage well before the term was up.

Not sure what the statistics are in Ireland but most people move/upgrade house at least once in their lives so usually the term of your first mortgage is not that important. For most young people, the extra bit of cash is more valuable to them for lifestyle more so than reducing their mortgage during the early years of house ownership.

At 30 years of age, i think i might spend a little more on dresses and enjoying life rather than worrying about the mortgage

SarahMollie

Shermanator wrote: »

At 30 years of age, i think i might spend a little more on dresses and enjoying life rather than worrying about the mortgage

This! This is what the niggling little voice at the back of my head is saying!

I guess I'm only talking about paying extra off the mortgage that would otherwise be sitting in a savings account earning practically nothing, but maybe I should just spend it instead!

I probably will move again, at least once, so shortening the term is a bit nominal really - what I guess I'm trying to do is reduce my interest liability and build up a bit of equity for when I'm looking to buy again. As it is, my mortgage is only 54% anyhow, but I'd love to get this really low.

But then again, I'd also love to go shopping! Its really angel on one shoulder, devil on the other :O

Yourmama

I overpay regularly 10%. I don't feel the difference in overall bills but the thought I will be mortgage free 5 years early is great.

AndyBoBandy

I'm variable, and we are overpaying by roughly 80% per month, the plan is to clear the mortgage asap,

we are only 20 months into our repayments, but based on our original payment schedule, we are currently where we should be after 4 years of just the standard payments, so by that logic, if we just reverted now to the standard payments, we would be clear in 16 years (20 year mortgage), so by overpaying up to now, we'd reduced our term from 20 years to 17 years 8 months.

That in itself is incentive enough to keep going while we can, and reduce it even further. The aim was always to try and clear it in 10 years (even sooner if possible).

johnnyskeleton

SarahMollie wrote: »

So I got my 2015 statement from BOI yesterday and there was a leaflet with some general info on it, and a piece about over payment caught my eye. As I'm in a fixed period, I can only over pay by up to 10%, which I can afford to do.

Does anyone else do this? Am I better off keeping my money in my pocket or is this money well spent as it will reduce the amount of interest I'm paying in the long run? Or is a 10% over pay going to make so little difference that it won't really matter?

Yep. I do both a monthly overpayment and irregular lump sum overpayments. I've never liked being in debt and I get more satisfaction from knowing that my mortgage has been reduced that I do from, say, having a large savings account. I am also aware that having spare cash also burns a hole in my pocket such that I tend to spend it on stuff like dvds, dinners out etc, so I try not to keep too much cash saved at any one time.

I am on a variable rate out of preference so that I could do precisely that.

There is also a good financial reason to do this - you save a lot on interest.

Consider the following situation:
100k MTG at 4.1%
10K savings at 1.25%
Interest free finance available for car/furniture/change credit card

The 10K savings nets you around €70 per year after DIRT. But if you were to pay that off the mortgage, your mortgage interest would be €410 less per year. So it makes sense to pay it off if you don't need that savings for e.g. a rainy day fund etc. Moreover, with your mortgage down to €90k, if you keep your repayments at the same rate say €600 per month, you are now making an extra overpayment each month because the interest is less, thus decreasing your principle and interest payments further.

As regards interest free finance/credit card etc, this is obviously dangerous if you are not good at managing debt. However, if you have €1k to buy, say, a laptop, but could get a year's interest free finance on it, and you know that you can afford the monthly repayments, you will knock €1k off your mortgage and replace it with an interest free loan. The caveat is that usually these interest free loans must be paid off at the end or else you go onto a ridiculously high rate afterwards.

But yeah, making overpayments is highly recommended.

SarahMollie

johnnyskeleton wrote: »

Yep. I do both a monthly overpayment and irregular lump sum overpayments. I've never liked being in debt and I get more satisfaction from knowing that my mortgage has been reduced that I do from, say, having a large savings account. I am also aware that having spare cash also burns a hole in my pocket such that I tend to spend it on stuff like dvds, dinners out etc, so I try not to keep too much cash saved at any one time.

I am on a variable rate out of preference so that I could do precisely that.

There is also a good financial reason to do this - you save a lot on interest.

Consider the following situation:
100k MTG at 4.1%
10K savings at 1.25%
Interest free finance available for car/furniture/change credit card

The 10K savings nets you around €70 per year after DIRT. But if you were to pay that off the mortgage, your mortgage interest would be €410 less per year. So it makes sense to pay it off if you don't need that savings for e.g. a rainy day fund etc. Moreover, with your mortgage down to €90k, if you keep your repayments at the same rate say €600 per month, you are now making an extra overpayment each month because the interest is less, thus decreasing your principle and interest payments further.

As regards interest free finance/credit card etc, this is obviously dangerous if you are not good at managing debt. However, if you have €1k to buy, say, a laptop, but could get a year's interest free finance on it, and you know that you can afford the monthly repayments, you will knock €1k off your mortgage and replace it with an interest free loan. The caveat is that usually these interest free loans must be paid off at the end or else you go onto a ridiculously high rate afterwards.

But yeah, making overpayments is highly recommended.

Thanks JS - yeah this is probably what I'm thinking in reality. I still have a decent bit of rainy day money even after spending way more than originally intended on redecorating/furnishing my new place, so paying a few extra €€€ per month wouldn't really make any difference to me on a day to day basis, especially once I've finished paying for all the big outlays. I want to buy a new dining table and chairs, and I'm getting a pump fitted to improve my water pressure, but that should be me done for the medium term at least.

I'm actually a bit of a sensible soul, I tend to live within my means - my mortgage is actually the first loan I've ever had so this repayment lark is a bit new to me.

I never buy things on credit, I even bought my car outright around this time last year (2015 was v.expensive!)

I'd love my savings account to look as healthy as it did pre house purchase but in reality it was earning me nothing, and i only had such a stockpile as I knew I'd need to spend a lot once I got my keys.

Shermanator

SarahMollie wrote: »

This! This is what the niggling little voice at the back of my head is saying!

I guess I'm only talking about paying extra off the mortgage that would otherwise be sitting in a savings account earning practically nothing, but maybe I should just spend it instead!

I probably will move again, at least once, so shortening the term is a bit nominal really - what I guess I'm trying to do is reduce my interest liability and build up a bit of equity for when I'm looking to buy again. As it is, my mortgage is only 54% anyhow, but I'd love to get this really low.

But then again, I'd also love to go shopping! Its really angel on one shoulder, devil on the other :O

Lol. I am with the Devil on this one. Any potential reduction in your interest liability and any potential equity build up could dissapear overnight due to a change in the housing market. This could also work in your favour and you could end up with a lot of unexpected equity when you decide its time to move. Its all about the timing and a little bit of luck. I wouldn't even try to predict what the housing market will be like in five years time.
Life is short. Enjoy it while you can. Buy the dresses

SarahMollie

Shermanator wrote: »

Lol. I am with the Devil on this one. Any potential reduction in your interest liability and any potential equity build up could dissapear overnight due to a change in the housing market. This could also work in your favour and you could end up with a lot of unexpected equity when you decide its time to move. Its all about the timing and a little bit of luck. I wouldn't even try to predict what the housing market will be like in five years time.
Life is short. Enjoy it while you can. Buy the dresses

True enough, but even if my house loses value, I still owe BOI what I owe them. Also, by paying down the principle, am i not somewhat insulating myself against interest rates rising, if that were to happen?

That said, I've 5 weddings to go to this year, so some (possibly 5!) new dresses are surely on the cards

Shermanator

SarahMollie wrote: »

True enough, but even if my house loses value, I still owe BOI what I owe them. Also, by paying down the principle, am i not somewhat insulating myself against interest rates rising, if that were to happen?

That said, I've 5 weddings to go to this year, so some (possibly 5!) new dresses are surely on the cards

Its always a good thing to owe less money. Odds are in your favour that it is the way to go. I just think that we stress about it a bit much and place too much emphasis on ending a mortgage early, especially if there is a high chance that you might move house within the term of your mortgage.

newacc2015

Do you think hit the higher rate of taxation? If so, paying into a private pension maybe a better option. Over the long term, most decent pensions average 10% p.a.

If you arent in the position to pay into a pension. I would definitely overpay into a mortgage. Saving rates are too low to consider saving money. I wouldnt worry about a rate increase for the next 2/3 years

zarker

Here is BOI overpayment calculator that may be helpful (can't post the full link):

personalbanking.bankofireland.com/borrow/mortgages/mortgage-overpayment/

SarahMollie

newacc2015 wrote: »

Do you think hit the higher rate of taxation? If so, paying into a private pension maybe a better option. Over the long term, most decent pensions average 10% p.a.

If you arent in the position to pay into a pension. I would definitely overpay into a mortgage. Saving rates are too low to consider saving money. I wouldnt worry about a rate increase for the next 2/3 years

Ha, yes, I pay a small fortune in tax

I'm part of my pension scheme in work where I pay 4% and they pay an additional 10% (it used to be less generous, but they've recently upped it as a staff retention measure)

I think the scheme allows an AVC next month to coincide with payment of bonuses so maybe I should give that a bit of consideration.

Maybe its silly but I'm not that worried about my pension just now. For one thing, it seems really far away and also I've been paying into one scheme or another since I was 24, so should be in reasonable shape. I think I'd get more of a feel good factor with paying down the mortgage.

Agree though, no real point in sitting on savings at the moment. I'm either going to spend more, or lessen my debt. Or maybe a bit of both! Even if I do decide to pay down the mortgage a bit, I certainly won't be curtailing my lifestyle to do so. If money got tighter, I'd just go back to my actual repayment amount before I'd stop spending on living life.

SarahMollie

zarker wrote: »

Here is BOI overpayment calculator that may be helpful (can't post the full link):

personalbanking.bankofireland.com/borrow/mortgages/mortgage-overpayment/

Thanks, actually this is a lot easier to use that anything else I'd seen! Makes the numbers seem a bit more real

johnnyskeleton

SarahMollie wrote: »

Thanks JS - yeah this is probably what I'm thinking in reality. I still have a decent bit of rainy day money even after spending way more than originally intended on redecorating/furnishing my new place, so paying a few extra €€€ per month wouldn't really make any difference to me on a day to day basis, especially once I've finished paying for all the big outlays. I want to buy a new dining table and chairs, and I'm getting a pump fitted to improve my water pressure, but that should be me done for the medium term at least.

I did the dry january thing and it made me realise that my old cheapo pine table, chairs, shelves etc were a bit naff so I went and got new ones. But the trick is to do it one item at a time because otherwise you can drop serious money in the space of a few days. I probably spent on furniture 3x what I saved by not going to the pub. Bottom line - I can't afford to give up drinking again!

I'm actually a bit of a sensible soul, I tend to live within my means - my mortgage is actually the first loan I've ever had so this repayment lark is a bit new to me.

Good. Some people treat it like a rental payment and don't conceptualise it as money that is owed. Of course, owing such large sums can be daunting, but even small overpayments can make a big psychological, as well as financial difference.

I never buy things on credit, I even bought my car outright around this time last year (2015 was v.expensive!)

Sometimes its good to buy on credit. I try to put all my expenses on my credit card. I pay it off 100% every month, and could pay it off sooner if I wanted to, but I get interest on my current account so by operating it this way pays the stamp duty on the credit card, and it's also convenient for internet purchasing etc.

I'd love my savings account to look as healthy as it did pre house purchase but in reality it was earning me nothing, and i only had such a stockpile as I knew I'd need to spend a lot once I got my keys.

With 41% DIRT or whatever it is, and the rebates for FTBs, it seems like the government are giving with the one hand and taking with the other. I wish they would just make savings a better option without all the messing.

TheSelf

If you don't want to overpay then just ask the bank to switch your dd to biweekly payments. I wrote to boi and instructed them to do this. Now I pay €350 every two weeks rather than €700pm . I'm paying the same amount per month but am making 13 monthly payments per annum rather than 12. Just by doing this you will knock years off depending on the amount and remaining term. If you include overpayments the savings can be huge and your mortgage term will reduce significantly. Search Google for "biweekly overpayment calculator and type in your details to reveal the potential savings. I've just taken out a seconds mortgage over 15 years and will do the above from the get go. If all goes according to plan the mortgage Will be cleared in 7 years..

athtrasna

Try using the search facility. This comes up every second month or so.

4ensic15

athtrasna wrote: »

Try using the search facility. This comes up every second month or so.

Such as this one
http://www.boards.ie/vbulletin/showthread.php?p=98235445

where I said
"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 or short of funds for the foreseeable future."

tharmor

SarahMollie wrote:

Does anyone else do this? Am I better off keeping my money in my pocket or is this money well spent as it will reduce the amount of interest I'm paying in the long run? Or is a 10% over pay going to make so little difference that it won't really matter?

same question...what are repayment rules in ireland ? i would like to pay off if i have money...are there any penalties ?

athtrasna

tharmor wrote: »

same question...what are repayment rules in ireland ? i would like to pay off if i have money...are there any penalties ?

Depends on your mortgage. Ask your bank.

adelcrowsmel

TheSelf wrote: »

If you don't want to overpay then just ask the bank to switch your dd to biweekly payments. I wrote to boi and instructed them to do this. Now I pay €350 every two weeks rather than €700pm . I'm paying the same amount per month but am making 13 monthly payments per annum rather than 12. Just by doing this you will knock years off depending on the amount and remaining term. If you include overpayments the savings can be huge and your mortgage term will reduce significantly. Search Google for "biweekly overpayment calculator and type in your details to reveal the potential savings. I've just taken out a seconds mortgage over 15 years and will do the above from the get go. If all goes according to plan the mortgage Will be cleared in 7 years..

Do you mind me asking when did you set this up to do bi-weekly payments with BOI? I took out my mortgage with them in 2014 and as I get paid fortnightly I asked if I could do this and I wasn't allowed - they would only allow monthly payment.

SarahMollie

TheSelf wrote: »

If you don't want to overpay then just ask the bank to switch your dd to biweekly payments. I wrote to boi and instructed them to do this. Now I pay €350 every two weeks rather than €700pm . I'm paying the same amount per month but am making 13 monthly payments per annum rather than 12. Just by doing this you will knock years off depending on the amount and remaining term. If you include overpayments the savings can be huge and your mortgage term will reduce significantly. Search Google for "biweekly overpayment calculator and type in your details to reveal the potential savings. I've just taken out a seconds mortgage over 15 years and will do the above from the get go. If all goes according to plan the mortgage Will be cleared in 7 years..

Thats an interesting idea, I'll look into it. You'd be overpaying and probably hardly notice it.

SarahMollie

johnnyskeleton wrote: »

Sometimes its good to buy on credit. I try to put all my expenses on my credit card. I pay it off 100% every month, and could pay it off sooner if I wanted to, but I get interest on my current account so by operating it this way pays the stamp duty on the credit card, and it's also convenient for internet purchasing etc.

Just to clarify, I meant I never sign up to those Harvey Norman or Littlewoods type offers of paying over time. I looked at the financing offers around the car, but they didnt have 0% on at the time, so it was a choice between paying 1.9% APR or using money that I had in a (rather crap) savings account.

I do have a credit card, and I always pay it in full but I have a DD set up for the last possible days so something can sit on balance for about 60 days before I pay for them.

Did you pick a mortgage term or go for the max? That would be one thing to think about when it comes to overpaying. My intention would be to get as long a term as possible but over pay from day one, how much I would over pay would depend on what I could afford at the time and would have the fall back to a low monthly repayment if required.

If I was you I would overpay as the faster you own the house the better imo. Even if you move maybe you will have equity built up in the house if you sell it or on the other hand if you keep it and rent it the faster its paid is the faster you have a fully owned rental which can be sold with all the money going to you and not back to the bank to clear a mortgage (less taxes of course).

SarahMollie

Graham Yellow Reaction wrote: »

Did you pick a mortgage term or go for the max? That would be one thing to think about when it comes to overpaying. My intention would be to get as long a term as possible but over pay from day one, how much I would over pay would depend on what I could afford at the time and would have the fall back to a low monthly repayment if required.

If I was you I would overpay as the faster you own the house the better imo. Even if you move maybe you will have equity built up in the house if you sell it or on the other hand if you keep it and rent it the faster its paid is the faster you have a fully owned rental which can be sold with all the money going to you and not back to the bank to clear a mortgage (less taxes of course).

The mortgage term is 35 years, I didnt chose it, BOI said they wanted me to be on that because of my age. I'm fixed for the next few years so can only overpay by 10% but I'm thinking I'll do so.

Obviously I'd want to be making serious over payments once I exit my fixed period to be able to clear the mortgage anytime soon but there would be something satisfying about watching the principal steadily go down. At the moment a lot of my monthly repayment is going towards interest (i believe this is the norm?) so it would be nice the see the lump sum that I owe getting smaller, but not by living like a nun!

SarahMollie

SarahMollie wrote: »

Obviously I'd want to be making serious over payments once I exit my fixed period to be able to clear the mortgage anytime soon but there would be something satisfying about watching the principal steadily go down. At the moment a lot of my monthly repayment is going towards interest (i believe this is the norm?) so it would be nice the see the lump sum that I owe getting smaller, but not by living like a nun!

Yeah its obliviously is a compromise, I would certainly not be one to give up socialising or buying bits and pieces etc in order to overpay loads but I'd be inclined to divert savings to over payment rather than a savings account (not all savings but a reasonable chunk).

SarahMollie

I've done a few sums and just by paying the extra 10%, which is all I can do until my fixed term ends, I reduce my term by 5 years and 9 months, and save €27k in interest.

I think this is pretty affordable for me so I'm going to do this for now. Once my fixed period is over, I may make a lump sum payment, depending on how flush I'm feeling/rates available on savings at the time.

I'm tied to BOI for the first 5 years of my mortgage (well, if I dont want to return the 2% cash they gave me!) but after that I'll be looking around to also to see if better rates are available elsewhere - I'm paying 3.6% currently.