Overpaying Mortgage - thoughts?

Arbiter of Good Taste

2.5 years into current mortgage. Originally 25 years, but with a lump sum payment last year, plus overpayments of (at the moment) approx. €300-€350 per month (interest rates have come down and we just kept the payments the same - actually increased them slightly), so have knocked off about 8 years off the total term of the mortgage.

Got my interest statement last week and was pretty annoyed at how little the overpayments have impacted interest paid this year. I know that the banks front load interest on mortgages, but can any smart person explain to me in layman's terms how this works?

Tar.Aldarion

Overpay if you can't get a bigger return on investment with the money you have. i have seen millionaires not overpay because they had a good investment return (higher than their mortgage interest). In general overpaying would be best for the average person I imagine.

AndyBoBandy

using the BoI calculator,

If we overpay the €800 a month we've been doing since day 1, we'll reduce our mortgage term from 20 years to 10 years, and save ourselves €47,000 in interest!!

no brainer really!, so while we can, we will.

SarahMollie

AndyBoBandy wrote: »

using the BoI calculator,

If we overpay the €800 a month we've been doing since day 1, we'll reduce our mortgage term from 20 years to 10 years, and save ourselves €47,000 in interest!!

no brainer really!, so while we can, we will.

€800 is quite a lot - are you still able to have the lifestyle you want or are you making sacrifices for this?

AndyBoBandy

SarahMollie wrote: »

€800 is quite a lot - are you still able to have the lifestyle you want or are you making sacrifices for this?

Yeah, pretty much, we both earn decent salaries (110k + combined), and have a 1 year old child, and have been able to continue the overpayments without feeling it on our pockets, we are both home based, and any travel we do for work is all on expenses.

I like my gadgets/stupid things, and will buy something if I want it, and won't really feel it too much in the pocket. I'm not as silly as I used to be with money now I have the mortgage, but am still comfortable.

SarahMollie

AndyBoBandy wrote: »

Yeah, pretty much, we both earn decent salaries (110k + combined), and have a 1 year old child, and have been able to continue the overpayments without feeling it on our pockets, we are both home based, and any travel we do for work is all on expenses.

I like my gadgets/stupid things, and will buy something if I want it, and won't really feel it too much in the pocket. I'm not as silly as I used to be with money now I have the mortgage, but am still comfortable.

Fair play! I've a good income myself and also my BF lives with me so I charge him a nominal €500 per month and we split the bills.

As I mentioned before I'm currently a bit limited by 2 factors;

1. can only overpay by 10% in my fixed period.
2. have completely redecorated including a new kitchen and bought all new furniture - so I'm still recovering from that! I've also just paid my LPT, TV license, house contents insurance and management fees, and my car insurance is due next month so my outgoings have been, and still are relatively high.

However I've now spent most of what I need to spend so over the next month or two my finances should even out and return to normal.

I still don't see myself overpaying by €800 per month anytime soon though! I'm waaay too speedy for that Myself and himself have notions of going to Chile/Argentina next year sometime and I'm off to Australia myself this month to visit friends. I definitely want to do these things while I'm still young(ish!)

Life is for the living

Tar.Aldarion

Tar.Aldarion wrote: »

Overpay if you can't get a bigger return on investment with the money you have. i have seen millionaires not overpay because they had a good investment return (higher than their mortgage interest). In general overpaying would be best for the average person I imagine.

I don't know, even with a better return on investment elsewhere I'd personally prefer to be clearing a mortgage faster and owning the house outright asap.

pwurple

Graham Yellow Reaction wrote: »

I don't know, even with a better return on investment elsewhere I'd personally prefer to be clearing a mortgage faster and owning the house outright asap.

It also depends on the life of the mortgage. Overpaying at the start saves you the most in interest. For the first few years you don't take much off the capital, so any overpayment makes a big different, because it goes straught to capital.

I overpaid at the start of my mortgage... best thing i ever did. Gave me a good chunk of equity, so i was able to trade up at the bottom of the market when others were stuck in negative equity.

TheSelf

@adelcrowsmel - I wrote to BoI mortgages in New Century House in Sept 2015 a and asked them to switch from monthly to fortnightly. They did it no questions asked. Drew down the original mortgage in 2009. Annoyed that I didn't do it earlier. Absolutely no reason why they should refuse you...

4ensic15

Arbiter of Good Taste wrote: »

2.5 years into current mortgage. Originally 25 years, but with a lump sum payment last year, plus overpayments of (at the moment) approx. €300-€350 per month (interest rates have come down and we just kept the payments the same - actually increased them slightly), so have knocked off about 8 years off the total term of the mortgage.

Got my interest statement last week and was pretty annoyed at how little the overpayments have impacted interest paid this year. I know that the banks front load interest on mortgages, but can any smart person explain to me in layman's terms how this works?

The banks don't frontload interest. It just happens that the more you owe the more interest you pay. As the balance outstanding goes down the interest charged goes down. Given that the repayment schedule is organised so that the same payment is made every month or fortnight it follows that in the early stages when a lot of money is owed a lot of interest is taken from each
repayment.
In the case of lump sums they will often have a small impact on the interest bill for the year.
If you owe say 200K at 5 % the annual interest is 10k. If you pay off 10 K the balance outstanding is 190k and the annual interest is 9.5k so for a 10k repayment you will only save 500 per year.

4dxc

Overpaying does make sense, especially if you run out of the fixed interest rate period. At present interests are low, so pay down as much as possible. Otherwise you might be surprised of the monthly charge when interests go back to a normal level.
Interest on loans are anyway crazy in Ireland compared to Europe...

anewme

When I moved into my house in 2008, my repayments were 925 per month.
With interest rate drops, I ended up paying 580-600 per month. (Tracker ECB plus 0.5%)

When I'm paid I set aside some savings, pay my bills and then basically stick my card into the wall till no more money comes out! So I was no better off and had no idea where the 325 was going, I was wasting it.

So last year I told the bank to start taking 1,000 per month. I haven't even noticed it. But if current rates stay as they are I will be mortgage free in 7 years!!!!

That's some incentive.

Villa05

anewme wrote: »

When I moved into my house in 2008, my repayments were 925 per month.
With interest rate drops, I ended up paying 580-600 per month. (Tracker ECB plus 0.5%)

When I'm paid I set aside some savings, pay my bills and then basically stick my card into the wall till no more money comes out! So I was no better off and had no idea where the 325 was going, I was wasting it.

So last year I told the bank to start taking 1,000 per month. I haven't even noticed it. But if current rates stay as they are I will be mortgage free in 7 years!!!!

That's some incentive.

Your case is a clasic example of how extra pension contributions would be far more beneficial than oerpaying on a mortgage. That tracker rate is practically money for nothing

Hope this does not come across as being forward, just friendly advise

slowjoe17

If you have an AIB mortgage, check the conditions.

I got free banking while the mortgage is in good standing, and they need to cancel this deal for everyone if they wish to cancel it for me, and they have to give 12 months notice.

So I'll be overpaying till a certain point (probably when there is 120e per year left), but NOT reducing the term. 25 years of free banking is very attractive.

I thought I'd mention it.

Villa05

Villa05 wrote: »

Your case is a clasic example of how extra pension contributions would be far more beneficial than oerpaying on a mortgage. That tracker rate is practically money for nothing

Hope this does not come across as being forward, just friendly advise

I'd still rather clear the mortgage faster rather than putting the money elsewhere if it was me. Owning the house outright is a massive advantage imo, say you lose your job or get sick and can't work the money in your pension that you can't touch is worth nothing to you but not having a mortgage to pay is huge.

anewme

Graham Yellow Reaction wrote: »

I'd still rather clear the mortgage faster rather than putting the money elsewhere if it was me. Owning the house outright is a massive advantage imo, say you lose your job or get sick and can't work the money in your pension that you can't touch is worth nothing to you but not having a mortgage to pay is huge.

Thanks for the advice re pension and I have looked at it!

Being a typical irish (working class) person, I suppose we are hell bent on house ownership and that's why being mortgage free is so important to me. My parents drilled into me, once your house is paid for, they can't do anything to you!!!

I agree with this post above, the pressure of not having to work or maybe even staying in a job you hate (I love my job but things can change) are a huge benefit to me.

I'm also trying to balance now living and enjoying life when I'm (relatively) young and having security when I'm older. It's no use living frugally now and having s ball of cash when older and nothing to do with it!

I also don't trust pensions!!! I started late with mine so I've only hit it about 10-12 years and St the minute it's worth exactly what I've paid into it, not a penny more!

Villa05

anewme wrote: »

I also don't trust pensions!!! I started late with mine so I've only hit it about 10-12 years and St the minute it's worth exactly what I've paid into it, not a penny more!

perfectly understandable to disthrust pensions and to want to have the mortgage gone as quickly as possible, I would be in the same boat myself. Many finacial services have proven themselves to be extremly incompetent.

It is worth noting however that what you pay into your pension is income that has been untaxed. That gives you a saving of at least 20% and more likely 40%

It is also nice to have a product from a bank that costs them money and gives you great priveleges, I would not be in a hurry to return it to them

Glitzgirl

My partner had a mortgage when I met him house bought during the boom usual story. I've always been over careful with money and I convinced him we could pay extra and clear his mortgage before he retires from work (he has an option with a state contract to retire after 21 years of service , so he will be retiring in about 6 years in his early 40s). We pay over double his mortgage payment. His mortgage will be gone in another 3/4 years. If we hadn't paid it off early he would still have another 20 years on it :Eeek:

Sure it's meant compromises but we would rather the peace of mind knowing that the house is ours and we owe no one for it and the security that gives our kids too. There are a lot of people in his job that would love to retire after their 21 is up but can't purely because of their mortgage.

I should mention that Im only in my late 20s (very late at this stage lol ) and I fully plan on enjoying my life and buying those dresses in 3 more short years :pac: I've seen too many friends take out loans to go on hols or for Christmas and really worry about how they will mange afterwards. My motto is if you can't afford it don't get it. If you can pay it off early do it and always save !

johnnyskeleton

Villa05 wrote: »

It is worth noting however that what you pay into your pension is income that has been untaxed. That gives you a saving of at least 20% and more likely 40

You have to pay tax on the pension when you draw it down. At that stage, an ordinary worker or self employed person will get the contributiry state pension. So you will have to pay tax on it at 20% at least aged 65+ anyway. The only tax saving is if you are currently paying the higher rate and you pay just enough to top up your post retirement income to the top of the 20% bracket, you make a saving. Otherwise the tax scheme is deferred taxation rather than a tax break per se.

Sorry for going off topic, but owning my home outright sooner is far more important to me personally than having a private pension, and I find the pension arguments unconvincing. And at least Im not relinquishing control of my finances to some investment banker who could lose it all!

anewme

johnnyskeleton wrote: »

You have to pay tax on the pension when you draw it down. At that stage, an ordinary worker or self employed person will get the contributiry state pension. So you will have to pay tax on it at 20% at least aged 65+ anyway. The only tax saving is if you are currently paying the higher rate and you pay just enough to top up your post retirement income to the top of the 20% bracket, you make a saving. Otherwise the tax scheme is deferred taxation rather than a tax break per se.

Sorry for going off topic, but owning my home outright sooner is far more important to me personally than having a private pension, and I find the pension arguments unconvincing. And at least Im not relinquishing control of my finances to some investment banker who could lose it all!

How do I work that out? That I pay in just enough not to break the 20% bracket. I currently pay tax at the higher rate.

Don't like the idea of deferred taxation...grrr!

Villa05

anewme wrote: »

How do I work that out? That I pay in just enough not to break the 20% bracket. I currently pay tax at the higher rate.

Don't like the idea of deferred taxation...grrr!

Would like to know also, as far as i know you can get a tax free sum on retirement and the remainder can be drawn down on a weekly basis in a tax efficient manner so that you minimise/elimiate tax

athtrasna

Taxation forum is the place for that

Mod

Heisenberg1

Glitzgirl wrote: »

My partner had a mortgage when I met him house bought during the boom usual story. I've always been over careful with money and I convinced him we could pay extra and clear his mortgage before he retires from work (he has an option with a state contract to retire after 21 years of service , so he will be retiring in about 6 years in his early 40s). We pay over double his mortgage payment. His mortgage will be gone in another 3/4 years. If we hadn't paid it off early he would still have another 20 years on it :Eeek:

Sure it's meant compromises but we would rather the peace of mind knowing that the house is ours and we owe no one for it and the security that gives our kids too. There are a lot of people in his job that would love to retire after their 21 is up but can't purely because of their mortgage.

I should mention that Im only in my late 20s (very late at this stage lol ) and I fully plan on enjoying my life and buying those dresses in 3 more short years :pac: I've seen too many friends take out loans to go on hols or for Christmas and really worry about how they will mange afterwards. My motto is if you can't afford it don't get it. If you can pay it off early do it and always save !

Wow well done can I ask how much was your mortgage starting out?

Glitzgirl

Heisenberg1 wrote: »

Wow well done can I ask how much was your mortgage starting out?

I think it was 179k. :eek: thank got it wasn't more !

Heisenberg1

Glitzgirl wrote: »

I think it was 179k. :eek: thank got it wasn't more !

Aiming to do the same ourselves have been overpaying since the start going to ramp that up over the next few months.

lisasimpson

Trying to get a place of my own at the moment lacking of housig causing problems. The repayments on the amount im approved for is less than my monthly outgoings for rent and regular savinga amount... so when i get that place i intend to overpay too. Like the OP money management was drilled into me..im debt free no loan for the changing the car

fyfe79

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.

Does anyone know if PTSB offer biweekly payments to their tracker costumers? I'm 10 years into my term and have been overpaying monthly for 9 of them. Would they be willing to switch the existing agreement (mortgage + overpayment) to biweekly instead of monthly?

Villa05

fyfe79 wrote:

Does anyone know if PTSB offer biweekly payments to their tracker costumers? I'm 10 years into my term and have been overpaying monthly for 9 of them. Would they be willing to switch the existing agreement (mortgage + overpayment) to biweekly instead of monthly?

I should think so, they will be delighted you are overpaying your tracker, less of a loss for them.

fyfe79

Villa05 wrote: »

I should think so, they will be delighted you are overpaying your tracker, less of a loss for them.

Not so sure anymore, yesterday I was reading on askaboutmoney that most of the banks can now borrow at more favourable terms from the ECB than before. Trackers of around 1.17% are generally breaking even for them now.

Regardless, overpaying a tracker is good for the customer I would think - lowering the principle through overpayment when the interest rate is very low makes sense because the ECB rate won't stay at 0.05% indefinitely. When the rate starts climbing again, your interest repayments will rise too so it's better to have a lower principle to repay when it does.