Mortgage overpayment

previousmass

I called my mortgage provider (Haven) to see how to overpay my mortgage.

It seems a bit 50s but I need to send them in a letter and specify what to do with the extra payment. The first option was to reduce the term (seems like a good idea) but I couldn't understand the second option and they seem to be trained to refer you to a broker at the end of each sentence which makes them difficult to talk to.

What can the over payment be used for? Is there any point talking to a broker or will they just say paying extra into the mortgage is a good idea as long as you have a cash reserve if you need it.

awec

Usually the options are to reduce the term (generally not the favoured option) or reduce the payments from that point on (generally the favoured option).

Reducing the payments from that point on allows you to keep paying at your current rate (therefore overpaying each month) to clear the mortgage quicker. And if you ever need to, you can stop overpaying and drop back to the lower rate.

previousmass

Thanks awec.

Maybe I'm just getting old but I don't see the difference. Is it basically just a procedural difference? If you reduce payments they let you revert back to the normal payment but if you reduce term they won't let you lengthen out term at a latter point if needed.

L1011

If you reduce term and then seek to increase it later there'll be calculations done to see if they want to do it, basically. And they might not.

worker bee

As far as I can understand, if you reduce the payments you don't actually make any saving - other than the money in your pocket that you now have.

But if you reduce the term then you make actual savings. I have done it a few times back when I had a few euro spare.

I found that paying say the equivalent of one or two months extra now might reduce the overall length of my mortgage by 4 months. If you do this enough times you can knock a few years off your mortgage.

Personally, I prefer the little bit of hardship now with the prospect of not paying a mortgage right up until I'm 70 years old.

seamie78

if you reduce pmts but keep overpaying, the term reduces itself. if you have a rainy day you have reduced payments its win win

awec

worker bee wrote: »

As far as I can understand, if you reduce the payments you don't actually make any saving - other than the money in your pocket that you now have.

But if you reduce the term then you make actual savings. I have done it a few times back when I had a few euro spare.

I found that paying say the equivalent of one or two months extra now might reduce the overall length of my mortgage by 4 months. If you do this enough times you can knock a few years off your mortgage.

Personally, I prefer the little bit of hardship now with the prospect of not paying a mortgage right up until I'm 70 years old.

Reducing payments + then overpaying ultimately reduces the term and provides the savings, but with the added buffer of giving you some breathing room if you ever hit financial issues.

Like if your current payment is 1000 per month, and you make a lump sum payment and ask for payments to be reduced they might drop to 800 a month. If you continue to pay 1000 per month, you are now overpaying by 200 per month, which will go against the capital and therefore ultimately reduce the term (cause you're paying it off faster).

However, say next year you suffer some financial hardship, like your employer cuts your salary, you can stop overpaying and drop your repayment down to 800 a month without issue, since that's what you're supposed to pay.

If you instead opted to reduce the term, your monthly payments will stay at 1000. You might take 5 years off the term. But if you suffer a pay cut, you still have to pay 1000 a month. You would have to go to the bank, cap in hand, and hope that they would agree to extend your term back to what it was to try bring your payments down to something you could afford. They might not.

Rothmans

worker bee wrote: »

As far as I can understand, if you reduce the payments you don't actually make any saving - other than the money in your pocket that you now have.

But if you reduce the term then you make actual savings. I have done it a few times back when I had a few euro spare.

This is not correct. If you opt to reduce the payments, you can make the exact same savings as you can reducing the term with none of the risks of term reduction, should you fall on hard times (obviously provided you make the same monthly payment in both scenarios).

Reducing payments is by far the better option, provided you keep on top of your overpayments. I'm with AIB and it couldn't be any more straightforward, although I know some banks make it awkward.

worker bee

Yes of course with reducing the payments and then overpaying you are correct.

But using a lump sum to just reduce the payments would just mean you have more money in your pocket each month, which is what I referring to when I said I would prefer to reduce the term.
Thanks.

tiredblondie

previousmass wrote: »

I called my mortgage provider (Haven) to see how to overpay my mortgage.

It seems a bit 50s but I need to send them in a letter and specify what to do with the extra payment. The first option was to reduce the term (seems like a good idea) but I couldn't understand the second option and they seem to be trained to refer you to a broker at the end of each sentence which makes them difficult to talk to.

What can the over payment be used for? Is there any point talking to a broker or will they just say paying extra into the mortgage is a good idea as long as you have a cash reserve if you need it.

I'm with Haven too and i have being overpaying the mortgage for the past couple of years - every 3 months, i send them a cheque for x amount and state on it that i wish for the payment to go against the capital portion of my mortgage. Make sure you ask them for confirmation too that this has been done - they sometimes sent me a loan account balance statement when i do it confirming they have done as i asked.

ETA: i am doing it to reduce the term of the mortgage and so far have taken about a year and a half off the term.

bri007

Are you fixed or variable rate?

tiredblondie wrote: »

I'm with Haven too and i have being overpaying the mortgage for the past couple of years - every 3 months, i send them a cheque for x amount and state on it that i wish for the payment to go against the capital portion of my mortgage. Make sure you ask them for confirmation too that this has been done - they sometimes sent me a loan account balance statement when i do it confirming they have done as i asked.

ETA: i am doing it to reduce the term of the mortgage and so far have taken about a year and a half off the term.

tiredblondie

bri007 wrote: »

Are you fixed or variable rate?

Variable rate - but the rate hasn't changed in a long time.

aloooof

tiredblondie wrote: »

Variable rate - but the rate hasn't changed in a long time.

Just on this for the OP, my understanding is that you can overpay when on variable rate as much as you like, but there may be penalties if you overpay while on a fixed rate mortgage after a certain amount e.g. BOI seem to allow you to overpay by 10% while fixed without penalty. But ultimately, talk to you bank to make sure.

tiredblondie

aloooof wrote: »

Just on this for the OP, my understanding is that you can overpay when on variable rate as much as you like, but there may be penalties if you overpay while on a fixed rate mortgage after a certain amount e.g. BOI seem to allow you to overpay by 10% while fixed without penalty. But ultimately, talk to you bank to make sure.

I have no idea on that tbh, i've always been on variable rate and i can see on my yearly statement that the overpayment is going directly against the capital.

aloooof

tiredblondie wrote: »

I have no idea on that tbh, i've always been on variable rate and i can see on my yearly statement that the overpayment is going directly against the capital.

That's exactly what you want, it coming off the capital. Only difference being, ff you're on a fixed rate, there may be a limit to what you can overpay off the capital, without penalty.

limktime

Apologies for resurrecting an old thread but I think it makes sense to.

I'm planning on paying a lump sum off our Haven mortgage (by cheque because that's the only way to apparently) but our payments each month are taken by direct debit. If I ask to reduce the payments, how do I overpay each month since I'm guessing they will just take the new reduced payment via direct debit?

pwurple

limktime wrote: »

Apologies for resurrecting an old thread but I think it makes sense to.

I'm planning on paying a lump sum off our Haven mortgage (by cheque because that's the only way to apparently) but our payments each month are taken by direct debit. If I ask to reduce the payments, how do I overpay each month since I'm guessing they will just take the new reduced payment via direct debit?

I don’t quite follow you. Do you want to overpay each month, or do you want to pay off a lump sum? You have mentioned both there.

If you ask to change the payments and overpay monthly then they adjust the direct debit to change it.

If you ask to overpay a lump sum and keep the repayment the same, no change.

If you ask to overpay and lump sum and change the repayment then they adjust.


Option that saves you the most interest is to change the term, and not the repayment amount. Compound interest sums for mortgage repayments. less time = less cost.

awec

pwurple wrote: »

I don’t quite follow you. Do you want to overpay each month, or do you want to pay off a lump sum? You have mentioned both there.

If you ask to change the payments and overpay monthly then they adjust the direct debit to change it.

If you ask to overpay a lump sum and keep the repayment the same, no change.

If you ask to overpay and lump sum and change the repayment then they adjust.


Option that saves you the most interest is to change the term, and not the repayment amount. Compound interest sums for mortgage repayments. less time = less cost.

Pretty sure this is not true.

Lump sum payment, reduce the required payment but don't reduce the actual payment and you'll save the same amount, but will be able to reduce payments if ever needed.

alan partridge aha

With AIB, they will automatically reduce the repayments if you overpay or put a lump in.

I overpaid, but sent an email requesting to reduce the term. No problem just had to write a letter, take pic and send as an attachment. Got mortgage reduced by 2 years.

Everyone is different depending on your circumstances. But no matter what if you overpay you'll save money at the other end.

AIB have a handy calculator to see how much interest you will save both ways.

AndyBoBandy

I’m variable with BoI, and have been overpaying since day 1 (couldn’t be easier to do the overpayments, the mortgage account is added to my 365online, so I can make a payment from my current account anytime I want).

Original term was 20 years, but mortgage will be fully paid off after about 8 years and 7 months, saving roughly €50,000 in interest.

If you can overpay, do it.

There’s a great calculator on the citizens information site that shows much much you can save and how much you can shorten your term with various overpayment amounts.

limktime

pwurple wrote: »

I don’t quite follow you. Do you want to overpay each month, or do you want to pay off a lump sum? You have mentioned both there.

If you ask to change the payments and overpay monthly then they adjust the direct debit to change it.

If you ask to overpay a lump sum and keep the repayment the same, no change.

If you ask to overpay and lump sum and change the repayment then they adjust.


Option that saves you the most interest is to change the term, and not the repayment amount. Compound interest sums for mortgage repayments. less time = less cost.

I want to pay a lump sum now, reduce the required payment but continue to pay what I'm currently paying (which will then be overpaying).

I think you answered the question though. I wasn't sure I could ask them to keep the repayment the same after reducing the required payment. Thanks

limktime

AndyBoBandy wrote: »

I’m variable with BoI, and have been overpaying since day 1 (couldn’t be easier to do the overpayments, the mortgage account is added to my 365online, so I can make a payment from my current account anytime I want).

Original term was 20 years, but mortgage will be fully paid off after about 8 years and 7 months, saving roughly €50,000 in interest.

If you can overpay, do it.

There’s a great calculator on the citizens information site that shows much much you can save and how much you can shorten your term with various overpayment amounts.

Thanks for the advice. If it wasn't for Haven having the lowest rate, I'd switch. They have no online portal of any sort and everything needs to be done by post and cheque. It's a pain.

pwurple

awec wrote: »

Pretty sure this is not true.

Lump sum payment, reduce the required payment but don't reduce the actual payment and you'll save the same amount, but will be able to reduce payments if ever needed.

No. Definitely incorrect.

You can’t possibly save the same amount over a longer term.

Interest is calculated over time. If you pay off 20k over 5 years or 10 years at the same interest rate, you pay more interest over ten years.

Actually... are you saying reduce the term (by keeping the payment the same?). In that case it’s the same.

AndyBoBandy

limktime wrote: »

Thanks for the advice. If it wasn't for Haven having the lowest rate, I'd switch. They have no online portal of any sort and everything needs to be done by post and cheque. It's a pain.

Just remember though, published/advertised rates aren’t necessarily the lowest rates offered by a bank!

I called BoI up about 18 months ago asking for a better rate (was on 3.9% (their lowest variable rate)) otherwise I was off to AIB (offering 2.65% + €2,000 towards change fee’s) and the next day they reduced my rate to 3.4%

If you don’t ask you don’t get...

awec

pwurple wrote: »

No. Definitely incorrect.

You can’t possibly save the same amount over a longer term.

Interest is calculated over time. If you pay off 20k over 5 years or 10 years at the same interest rate, you pay more interest over ten years.

Actually... are you saying reduce the term (by keeping the payment the same?). In that case it’s the same.

Yes. Reduce the required payment, but keep paying the old amount, so you are now overpaying every month (but not paying any more than you used to)/

This effectively reduces the term, but also gives you a buffer to reduce your payment if you ever have to.

wirelessdude01

AndyBoBandy wrote: »

Just remember though, published/advertised rates aren’t necessarily the lowest rates offered by a bank!

I called BoI up about 18 months ago asking for a better rate (was on 3.9% (their lowest variable rate)) otherwise I was off to AIB (offering 2.65% + €2,000 towards change fee’s) and the next day they reduced my rate to 3.4%

If you don’t ask you don’t get...

Why didn't you change anyway? That is some difference even with the slightly better rate from BoI.

limktime

AndyBoBandy wrote: »

Just remember though, published/advertised rates aren’t necessarily the lowest rates offered by a bank!

I called BoI up about 18 months ago asking for a better rate (was on 3.9% (their lowest variable rate)) otherwise I was off to AIB (offering 2.65% + €2,000 towards change fee’s) and the next day they reduced my rate to 3.4%

If you don’t ask you don’t get...

That's still not as good as the AIB rate you were being offered though, right? I asked elsewhere and I didn't get.

aloooof

AndyBoBandy wrote: »

Just remember though, published/advertised rates aren’t necessarily the lowest rates offered by a bank!

I called BoI up about 18 months ago asking for a better rate (was on 3.9% (their lowest variable rate)) otherwise I was off to AIB (offering 2.65% + €2,000 towards change fee’s) and the next day they reduced my rate to 3.4%

If you don’t ask you don’t get...

A .75% difference is still a massive , so it still would've been worthwhile changing, imo. For example, take a 300k mortgage with a 25 year term:

The repayments @3.4% would be €1485.83.
The repayments @2.65% would be €1368.83, a saving of €117.20 every month.

You'd have saved €2,109.60 in the 18 months since remaining with BOI.

AndyBoBandy

wirelessdude01 wrote: »

Why didn't you change anyway? That is some difference even with the slightly better rate from BoI.

It is still a big difference, however given the expected time left on the mortgage (15 years remaining, but just over 3 years at current overpayment rates), I felt it probably wasn't worth the hassle of changing, as the savings wouldn't be huge (unless we reverted to regular payments over 15 years*), also I've exclusively banked with BoI for over 20 years, so perhaps theres a sort of a loyalty there (hence me calling them (twice actually) looking for better rates and getting them both times (first time I called we had a better LTV so got a better rate)).

*even if we did do this, with the overpayments to date since they re-calculated the monthly payments when we got the lower rate (and based off previous overpayments to date), the mortgage would be paid back after about 9 1/2 years anyway despite having 15 years of term left, or if we chose to, we could re-calculate again now based on the remaining 15 years and reduce the monthly payments by about €220 per month. We won't do that though as we are overpaying by so much (roughly 150% on top of the standard payments), so it makes little difference, and gives us flexibility for any eventuality in the future to reduce the monthly repayment to a very manageable amount should the need ever arise.

I know the general consensus from financial advisors would be to better use/invest/save the overpayment money, as a mortgage is the cheapest loan you'll ever get, but we are both firmly of the belief that we want it paid off asap, and to own the house outright. We bought in 2014 just as things were starting to pick up again, so should be relatively well insulated from negative equity in the future (houses in the estate now are going for 150k more than we paid), although negative equity wouldn't ever even bother me as we bought adequately for family expansion, so wouldn't ever feel pressured to move up in size.

LTV% is another thing everyone should be looking at.. If you've done work to increase the value of a property, or the property has just naturally increased in value over time and all the while you've been reducing your mortgage amount, you could be falling into a better LTV% range with your bank, and be eligible for a better interest rate, and all it would cost you is a valuation on the property. My sister did this last year. They moved home from abroad to a house they had renovated before moving home, so immediately increased the house value, and saved themselves around €50 a month by getting a slightly better rate due to the lower LTV%.

AndyBoBandy

aloooof wrote: »

A .75% difference is still a massive , so it still would've been worthwhile changing, imo. For example, take a 300k mortgage with a 25 year term:

The repayments @3.4% would be €1485.83.
The repayments @2.65% would be €1368.83, a saving of €117.20 every month.

You'd have saved €2,109.60 in the 18 months since remaining with BOI.

All very true, however we only took 165k over 20 years, and at the time of the last rate cut, it was down to 105k. Currently down to 70k, so doing it now certainly wouldn't be worth while (I'm sure the €2k over from AIB is also expired at this stage).

Wheety

Can anyone tell me if what I'm doing is ok, or is there a better way to apply overpayments?

I'll use rounded figures to make it simple.

Mortgage payment is €800 a month. We're actually paying €1000. That extra €200 is coming off the capital. The last statement shows this.

However we haven't asked them to reduce our monthly payment. It's still €800. But with the overpayment, the extra €200 is reducing the capital, plus the split between interest/capital each month is progressing faster than if we just paid the €800.

This will result in the mortgage being cleared early. But would it make a difference if our mortgage payment was recalculated? Or would it be the same?