Mortgage Lump Sum Payments Question

cronos

Just wondering if you lets say have 200k mortgage you took out for 20 years and then suddenly had 100k to pay off said mortgage. If you were to just transfer the 100k to the mortgage account to pay down 100k, do you have to specify it's against the principal or is that just automatic?

Is there any tricks around mortgage interest that I'm missing? It's variable fyi.

brianomc

It will come off the principle alright but it’s best to contact your bank to make sure it gets treated the way you wish. They can either keep the repayments the same and you will pay it off in a shorter time. Or you can lower the monthly repayment and keep the duration the same.

I prefer the second option as you can always keep overpaying each month if you prefer. I don’t think either method has much of a saving of interest over the other. Someone worked it out here before but I can’t remember who/where.

tommythecat

brianomc wrote: »

It will come off the principle alright but it’s best to contact your bank to make sure it gets treated the way you wish. They can either keep the repayments the same and you will pay it off in a shorter time. Or you can lower the monthly repayment and keep the duration the same.

I prefer the second option as you can always keep overpaying each month if you prefer. I don’t think either method has much of a saving of interest over the other. Someone worked it out here before but I can’t remember who/where.

As above. It's always off the principle. It's just how the term is treated. There is no real saving over one or the other. The second way is the way to do it. Pay off the 100k. The repayments will come down but just continue to repay the original payments and then the term automatically reduces but you have the option should you need it to just repay that greatly reduced payment for a while. It's the best of both.

The_Conductor

You have to choose either a lower repayment- or a shorter term- one or the other- and get a fresh schedule, reflecting your chosen option, from your lender.

4ensic15

Some banks , such as AIB don't give a choice. The lump sum comes off the principal, the mortgage term remains the same and the monthly payment is reduced. This means that more interest will be paid over the remaining life of the loan. To offset this further lumps sums equivalent to the difference between the old repayment and the new can be made. This will eventually result in the loan being paid off early anyway.

lawred2

cronos wrote: »

Just wondering if you lets say have 200k mortgage you took out for 20 years and then suddenly had 100k to pay off said mortgage. If you were to just transfer the 100k to the mortgage account to pay down 100k, do you have to specify it's against the principal or is that just automatic?

Is there any tricks around mortgage interest that I'm missing? It's variable fyi.

lucky you

wench

4ensic15 wrote: »

Some banks , such as AIB don't give a choice. The lump sum comes off the principal, the mortgage term remains the same and the monthly payment is reduced.

They do give a choice. What you have outlined is the default option, but you can elect to reduce the term by requesting it in writing.

cronos

lawred2 wrote: »

lucky you

Numbers are made up!

cronos

So basically paying down the lump sum is equivalent to not having taken that portion of the loan in the first place. Except for the interest incurred up to having paid the lump sum.

Then you have choices about how much to pay per month after that.

awec

4ensic15 wrote: »

Some banks , such as AIB don't give a choice. The lump sum comes off the principal, the mortgage term remains the same and the monthly payment is reduced. This means that more interest will be paid over the remaining life of the loan. To offset this further lumps sums equivalent to the difference between the old repayment and the new can be made. This will eventually result in the loan being paid off early anyway.

This isn't true, I was in with AIB last week and asked this question and was told if I pay a lump sum I can ask for either the repayments to be reduced or the term to be reduced.

tommythecat

awec wrote: »

This isn't true, I was in with AIB last week and asked this question and was told if I pay a lump sum I can ask for either the repayments to be reduced or the term to be reduced.

If you want aib to reduce the term you just need to write a lette letter to them to confirm that's what you want. They certainly do have this service.

awec

tommythecat wrote: »

As above. It's always off the principle. It's just how the term is treated. There is no real saving over one or the other. The second way is the way to do it. Pay off the 100k. The repayments will come down but just continue to repay the original payments and then the term automatically reduces but you have the option should you need it to just repay that greatly reduced payment for a while. It's the best of both.

I was told (again by AIB) that I can increase the term again back to the original so that it goes back to lower payments should I ever need to.

But again, this requires writing to them.

spaceHopper

You can get the mortgage added to your online banking so you can see it then you have to go to the branch to make extra lodgments you may be able to get them to allow online lodgments too but they don't like you doing that. Also check that the money isn't applied at the end of the year. aka it goes into holding, you earn no interest on it and are charges interest on the mortgage.

Malari

awec wrote: »

This isn't true, I was in with AIB last week and asked this question and was told if I pay a lump sum I can ask for either the repayments to be reduced or the term to be reduced.

Yep, I have a mortgage with them and asked this question myself recently. They actually gave me the breakdown figures and years, etc, so it is possible to do either.

tommythecat

awec wrote: »

I was told (again by AIB) that I can increase the term again back to the original so that it goes back to lower payments should I ever need to.

But again, this requires writing to them.

I would certainly triple check this and get in writing because anecdotally this is not usually what the banks allow. Just to be sure for yourself.

In my own scenario. I paid a lump sum of 15k in and now continue to overpay what i can each month. My repayments are coming down but i make up this difference and so am "reducing my term" by the same amount as if i asked them to shorten my term. But it still gives me the flexibilty to pay the lower amount some months if things are tight. I don't really know why you would do it the other way as the savings are essentially the same. Just my opinion, everyone has their own thoughts on it, I am just giving a real world scenario.

bmwguy

AIB do allow both. I guarantee it because I used to do it semi regularly, smaller amounts of 5k-10k. I chose to reduce the term each time and continue paying normal monthly amount.
But I could reduce the monthly amount of I so chose.

tommythecat

bmwguy wrote: »

AIB do allow both. I guarantee it because I used to do it semi regularly, smaller amounts of 5k-10k. I chose to reduce the term each time and continue paying normal monthly amount.
But I could reduce the monthly amount of I so chose.

I have done both also. I am querying the ability to switch back to the original term after changing it.