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Lump sum off mortgage?

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  • 09-12-2016 8:05pm
    #1
    GopErthike
    Registered Users Posts: 251 ✭✭


    Just throwing this out for ideas.

    @k.

    I have some money saved, that i shouldn't need in the foreseeable future. So here's what I'm thinking:

    Wouldn't it be interest efficient so to speak, to pay a lump sum now off the mortgage that I owe, and then when I sell the house, put the equivalent of the lump sum back in to my savings?

    Any thoughts?


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    #2
    GarIT
    Registered Users Posts: 8,671 ✭✭✭GarIT


    It depends, compared to any savings account available in Ireland you'd be mad not to pay it off the mortgage. The one thing that might change that is if you have large fees for paying your mortgage back early. You may get better returns if you invest but it could be worse too.

    You'd also be mad to put any lump sum from the sale of your house back into savings unless you really need the money for something. Mortgage interest rates can be over 10 times, deposit interest rates.


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    #3
    GopErthike
    Registered Users Posts: 251 ✭✭GopErthike


    GarIT wrote: »
    It depends, compared to any savings account available in Ireland you'd be mad not to pay it off the mortgage. The one thing that might change that is if you have large fees for paying your mortgage back early. You may get better returns if you invest but it could be worse too.

    Thanks for that.

    It's making nothing where it is, and don't want to lock it up for a set period or do anything risky.

    So the question is if there are penalties for paying it down?


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    #4
    VW 1
    Registered Users Posts: 4,504 ✭✭✭VW 1


    GopErthike wrote:
    So the question is if there are penalties for paying it down?


    The terms of your mortgage will dictate this.

    Generally, fixed rate mortgage will attract penalties for a lump sum payment. Variable generally doesn't.


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    #5
    GarIT
    Registered Users Posts: 8,671 ✭✭✭GarIT


    GopErthike wrote: »
    So the question is if there are penalties for paying it down?

    Pretty much, as long as the penalty isn't greater than what you will save it's probably a good idea. Although mortgage interest relief could cancel out savings you make by paying the mortgage off early because that would cancel some or all of your interest.

    If you're not going to do something risky or put your money away for a long time and you don't need to save for something like a new car I can't see any reason to keep your savings while you have a mortgage.


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    #6
    GopErthike
    Registered Users Posts: 251 ✭✭GopErthike


    Thanks for your opinions guys.

    I'll look into this on Monday. Seems like a plan.


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    #7
    davindub
    Registered Users Posts: 1,447 ✭✭✭davindub


    You can look at it like this, paying money off the mortgage will "earn" the mortgage rate until the mortgage balance reduces below the overpayment. So lets say 3.5%. On 100k that's 3500 a year. Tax free. But you do not have access to the funds so your flexibility is limited.

    Other options include investing the money, can you exceed 3.5% return after taxes/ commission?

    One option if you have enough is to buy a rental property. Your interest is 75% deductible from income earned and you can hopefully improve on the 3.5% especially if property continues to increase.


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