Mortgage overpayment

awec

Wheety wrote: »

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?

It would make no difference if you continue to pay 1000 a month.

smelly sock

Take time to do the Maths here though.

I am on an ltv of 3.9 %. Ive beeb offered a fixed rate of 3.2% for 5 years but cant go back onto an ltv again. So just be careful.

cruizer101

smelly sock wrote: »

I am on an ltv of 3.9 %. Ive beeb offered a fixed rate of 3.2% for 5 years but cant go back onto an ltv again. So just be careful.

ltv?? is LTV not the loan to value ratio e.g. mortgage is 80% of house value.

Its always the case that at the end of a fixed your options are whatever is available at that time.Nobody knows what the rates are going to be then but the only way to insulate against that is a longer term fixed, 10 year the max available currently in Ireland

AndyBoBandy

Some banks will also offer part fixed,

So if your mortgage is €200,000, you could fix €150,000 at a fixed rate, and have the other €50,000 variable, meaning you can overpay on that portion of the loan.

Claw Hammer

worker bee wrote: »

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.

That is not correct. If you use a lump sum to reduce payments you are saving the interest you would have been charged on that amount of money for the remainder of the time there is an amount outstanding of greater than that sum of money.
mathematically it makes no difference which a person chooses, shorter term or lower payments.
The danger with a shorter term is that if the borrower is hit on some unexpected expense before the mortgage is paid of, they may be forced to borrow money at a much higher rate than the mortgage, e.g credit card or term loan or overdraft. Reducig monthly payments means that the borrower has a choice every month of paying down the mortgage by an additional payment or not, giving them the flexibility to build a reserve of savings instead.

Cyrus

Claw Hammer wrote: »

mathematically it makes no difference which a person chooses, shorter term or lower payments.

this is true where you continue to pay the same monthly amount as before notwithstanding that the monthly amount that you are now required to pay has fallen.

if you pay the new smaller monthly payment you save less interest than if you go for a shorter term.

smelly sock

cruizer101 wrote: »

ltv?? is LTV not the loan to value ratio e.g. mortgage is 80% of house value.

Its always the case that at the end of a fixed your options are whatever is available at that time.Nobody knows what the rates are going to be then but the only way to insulate against that is a longer term fixed, 10 year the max available currently in Ireland

I think we can assume though thebinterest rate in Ireland wont drop that much so i might take the 5 year at 3.2 %. Currently on the LTV rate of 3.9%.

Cyrus

smelly sock wrote: »

I think we can assume though thebinterest rate in Ireland wont drop that much so i might take the 5 year at 3.2 %. Currently on the LTV rate of 3.9%.

why would you take 3.2% when 2.5% is available?

smelly sock

Cyrus wrote: »

why would you take 3.2% when 2.5% is available?

That's the best fixed rate PTSB told me they had. They are sending me out more info this week regarding the different options so I'll review then.

I presume you are talking about 2.5% if I switch?

Cyrus

smelly sock wrote: »

That's the best fixed rate PTSB told me they had. They are sending me out more info this week regarding the different options so I'll review then.

I presume you are talking about 2.5% if I switch?

yes, indeed

your costs would be covered by cash back by ulsterbank

smelly sock

Cyrus wrote: »

yes, indeed

your costs would be covered by cash back by ulsterbank

I fell into arrears during the downturn. Fully cleared them a few years ago.

In any event I don't think any bank would consider me.

Cyrus

smelly sock wrote: »

I fell into arrears during the downturn. Fully cleared them a few years ago.

In any event I don't think any bank would consider me.

ok maybe not, but worth asking all the same

smelly sock

Cyrus wrote: »

ok maybe not, but worth asking all the same

Yeh worth putting my neck out. Im happy with 3.2 in comparison to 4.5 though. A decent saving at the end of it all.

Cyrus

smelly sock wrote: »

Yeh worth putting my neck out. Im happy with 3.2 in comparison to 4.5 though. A decent saving at the end of it all.

absolutely.