Mortgage Repayment Plan – Does this make (Financial) Sense?

DublinBill84

Long-time reader of the forum and has given me a lot of pointers but 1st time poster so apologies if this is in the wrong place and please move it as necessary!

So been looking at household finances and how best we can manage some key costs particularly around our mortgage and loans we have. Would love people’s opinions or advice and views. Thanks in advance.

Current Situation:
Mortgage Balance Outstanding €276,000 (House Value c. €470k)
Mortgage Term Remaining (Sickening When You See It!) 22yrs 8mths
Monthly Repayment €1,332 (Ulster Bank @ 2.6% 2 Years remaining out of 4 Year Fix)

Home Improvement Loan Outstanding €28,834
Loan Term Remaining 7yrs 7mths
Monthly Repayment €370 (Rate 4.25% Fixed But Can Pay Off Early without Penalty)

Car Loan Outstanding €22,844
Loan Term Remaining 4yrs 5mths (rightly or wrongly a new car purchased in February this year)
Monthly Repayment €472.33 (Rate 4.95% Fixed But Can Pay Off Early Without Penalty)

We are fortunate that we are both in secure jobs and can afford these as laid out above taking into account childcare costs and other household costs, as well as managing to do a bit of saving. I suppose my question revolves around is there a more efficient way to use our money to pay off these loans at a quicker rate and obviously pay less in interest. Also I know it’s only a number but I believe there is scope to shave considerable time off our mortgage (5 years +) without drastically changing the amount we have to pay to achieve this in terms of servicing these loans.

This is both financially and psychologically very attractive……….if it can be achieved!

Goal:
Get Mortgage to approx. 10 years remaining over next 7 years e.g. shave c. 5 years off current term.

Plan
Break out of current rate and switch mortgage to a cheaper rate and consolidate home improvement loan with outstanding mortgage balance inclusive of breakage charge. I’m not sure if this is allowed in terms of consolidating the home improvement loan with the mortgage balance but as it was used to add value to the house I have my fingers crossed.

Indicative Costings (Using Bonkers):
New Mortgage Balance c. €305k
New Mortgage Term 17 Years
New Mortgage Rate KBC 2 Year Fix 2.3% (it is available from Ulster Bank @ 2.2.% for 5 Years or KBC for 3 Years at 2.3% also but only fixing for shorter period as don’t want to get locked in and feel rates are only going one way at the moment particularly with Avantcard supposedly coming into mortgage market shortly)
New Monthly Repayment €1,807.80 (up from €1,702 between mortgage and home improvement loan) This €105 extra per month we can manage by making adjustments on other areas of household expenditure.

After 2 Years switch again fixing for 2 -3 years with a rate of 2.3% or better. Idea always being keeping repayments similar to before but taking time off the mortgage following each switch……….even if only to save a few months!

At the end of this term c. October 2024 car would be pretty much paid off so would again fix for 2 years and look to put the money that was being used to service car loan (€472.33 per month) into the mortgage. At this stage I would look to reduce the term again taking into account a proposed new monthly payment of €2,280.13.Within this time frame the car will still be perfect as only 7 years old.

By doing the above I think we’d be very close or indeed under the 10 year remaining term on our existing mortgage within the next 6 / 7 years. Based on current repayments we would be somewhere in the region of 16 years remaining if we continue as is. In approx 7 years the current house may require works to provide us with additional space or we may need to consider moving depending on circumstances and we would re-evaluate then.

Have I missed anything obvious or other things I should take account of in terms of calculations? There is a suggestion when Avantcard do enter the mortgage market in the next couple of months they will aggressively target market share with rates (suggested under 2%) so I don’t plan on making any decision until I see how that develops over next few weeks. Would be very interested in peoples thoughts on plan above.

Thanks Again Folks and sorry for lengthy post,

Bill

Hollybeg

DublinBill84 wrote: »

Long-time reader of the forum and has given me a lot of pointers but 1st time poster so apologies if this is in the wrong place and please move it as necessary!

So been looking at household finances and how best we can manage some key costs particularly around our mortgage and loans we have. Would love people’s opinions or advice and views. Thanks in advance.

Current Situation:
Mortgage Balance Outstanding €276,000 (House Value c. €470k)
Mortgage Term Remaining (Sickening When You See It!) 22yrs 8mths
Monthly Repayment €1,332 (Ulster Bank @ 2.6% 2 Years remaining out of 4 Year Fix)

Home Improvement Loan Outstanding €28,834
Loan Term Remaining 7yrs 7mths
Monthly Repayment €370 (Rate 4.25% Fixed But Can Pay Off Early without Penalty)

Car Loan Outstanding €22,844
Loan Term Remaining 4yrs 5mths (rightly or wrongly a new car purchased in February this year)
Monthly Repayment €472.33 (Rate 4.95% Fixed But Can Pay Off Early Without Penalty)

We are fortunate that we are both in secure jobs and can afford these as laid out above taking into account childcare costs and other household costs, as well as managing to do a bit of saving. I suppose my question revolves around is there a more efficient way to use our money to pay off these loans at a quicker rate and obviously pay less in interest. Also I know it’s only a number but I believe there is scope to shave considerable time off our mortgage (5 years +) without drastically changing the amount we have to pay to achieve this in terms of servicing these loans.

This is both financially and psychologically very attractive……….if it can be achieved!

Goal:
Get Mortgage to approx. 10 years remaining over next 7 years e.g. shave c. 5 years off current term.

Plan
Break out of current rate and switch mortgage to a cheaper rate and consolidate home improvement loan with outstanding mortgage balance inclusive of breakage charge. I’m not sure if this is allowed in terms of consolidating the home improvement loan with the mortgage balance but as it was used to add value to the house I have my fingers crossed.

Indicative Costings (Using Bonkers):
New Mortgage Balance c. €305k
New Mortgage Term 17 Years
New Mortgage Rate KBC 2 Year Fix 2.3% (it is available from Ulster Bank @ 2.2.% for 5 Years or KBC for 3 Years at 2.3% also but only fixing for shorter period as don’t want to get locked in and feel rates are only going one way at the moment particularly with Avantcard supposedly coming into mortgage market shortly)
New Monthly Repayment €1,807.80 (up from €1,702 between mortgage and home improvement loan) This €105 extra per month we can manage by making adjustments on other areas of household expenditure.

After 2 Years switch again fixing for 2 -3 years with a rate of 2.3% or better. Idea always being keeping repayments similar to before but taking time off the mortgage following each switch……….even if only to save a few months!

At the end of this term c. October 2024 car would be pretty much paid off so would again fix for 2 years and look to put the money that was being used to service car loan (€472.33 per month) into the mortgage. At this stage I would look to reduce the term again taking into account a proposed new monthly payment of €2,280.13.Within this time frame the car will still be perfect as only 7 years old.

By doing the above I think we’d be very close or indeed under the 10 year remaining term on our existing mortgage within the next 6 / 7 years. Based on current repayments we would be somewhere in the region of 16 years remaining if we continue as is. In approx 7 years the current house may require works to provide us with additional space or we may need to consider moving depending on circumstances and we would re-evaluate then.

Have I missed anything obvious or other things I should take account of in terms of calculations? There is a suggestion when Avantcard do enter the mortgage market in the next couple of months they will aggressively target market share with rates (suggested under 2%) so I don’t plan on making any decision until I see how that develops over next few weeks. Would be very interested in peoples thoughts on plan above.

Thanks Again Folks and sorry for lengthy post,

Bill

You don't say how much you have in savings or how much capacity you have to save however I would be very reluctant to pay down the mortgage too quickly. It's the cheapest money you will ever borrow. Certainly shop around on rates but there's not much use having all your wealth tied up in your primary dwelling. I'm sure at some stage in the future you may want to send your children to college (be it abroad or outside the county you live in) or maybe pay for private education. My point is, you will need some cash set aside. You can't assume the car will be fine in 6 years time either. Certainly I would be setting aside the extra €105eur you mention above and putting it against the car loan now (given the higher rate). You might want to consider other investments, AVC's, Shares etc.

Before you switch mortgage or consolidate your mortgage & home improvement loan, you will also have to factor in a breakage cost and any legal / other fees. Whilst the home improvement loan you say can be broken without cost, the mortgage will likely cost you to break. You don't say if the home improvement loan is secured to your mortgage or not.

Overall I know there's a temptation to paydown everything as quickly as possible but it's not always the smartest move.

DublinBill84

Thanks for that. The home improvement loan is not secured against the mortgage so don’t expect that to be an issue. Indeed there will be a breakage cost which I should know today but I’m budgeting c €3k and about €1k legal fees so about €4K all in for the switch.

While this might seem excessive it would of offset by an ability to overpay (compared to current payments) following a consolidation of both loans.

I know you never know what it will be like but I feel 6 / 7 years on a well maintained car with small driving is not unrealistic.

In terms of college and associated costs I guess that’s part of the attraction of the plan as if we continued as set out we would be mortgage free by time college comes around. This does assume we don’t move / extend.

I do agre need more thought and research on how our pensions both look. I guess just trying to find that sweet spot around not over stretching ourselves now but still paying down the mortgage and shifting that efficiently to eliminate the key household expense.