Pay lump sum off mortgage query

rje66

We have about 115,000 left on our tracker. Prob another 14 years. We have about 80k in savings, that isn't getting much interest . Is it a good idea to pay off 40k of mortgage and shorten the life of it?.we would consider ourselves low risk investors if the money could be use else where. Any advice appreciated. Thanks

JaCrispy

rje66 wrote: »

We have about 115,000 left on our tracker. Prob another 14 years. We have about 80k in savings, that isn't getting much interest . Is it a good idea to pay off 40k of mortgage and shorten the life of it?.we would consider ourselves low risk investors if the money could be use else where. Any advice appreciated. Thanks

Whats the interest rate on your mortgage?

tjhook

I'm not a professional in this area, so these are just my thoughts.

Paying off debt is usually a good move. However, I assume your tracker is at a very low interest rate. The only way it'd be worth paying it off early is for all these to be the case:

- You won't need access to that money over the coming 14 years (rainy day etc)
- You won't need another loan over the coming 14 years (which might have an interest rate of 10%, maybe more depending on how interest rates go over the next 14 years)
- You won't be able/willing to match that tracker interest rate by saving/investing (keeping in mind you may have to accept some risk to do so)
- You already have a healthy pension fund (you could "save" 40% income tax by putting as much extra money as permissible into your fund).

JazzyJ

rje66 wrote: »

We have about 115,000 left on our tracker. Prob another 14 years. We have about 80k in savings, that isn't getting much interest . Is it a good idea to pay off 40k of mortgage and shorten the life of it?.we would consider ourselves low risk investors if the money could be use else where. Any advice appreciated. Thanks

The following would need to be taken into consideration:

• Mortgage rate
• Need for spending the savings in the short to mid-term (presumably not if you're looking use some of it)
• Pension plan - if you're working and paying the highest rate of tax, and haven't maxed out your contributions, it may be more beneficial to invest that money in a pension to reduce your tax liability.
• Scope for other investments - can you get anything that returns a higher percentage than the mortgage rate. This is where your appetite for risk comes into play.

Here's a decent enough flowchart on reddit from this thread which may be of assistance, although it doesn't touch on low interest mortgages (or really mortgage for that matter):

Merowig

rje66 wrote: »

We have about 115,000 left on our tracker. Prob another 14 years. We have about 80k in savings, that isn't getting much interest . Is it a good idea to pay off 40k of mortgage and shorten the life of it?.we would consider ourselves low risk investors if the money could be use else where. Any advice appreciated. Thanks

We need to know the interest rate on your tracker - if it is low you should put additional money in your pension - please advise if you have one as well - and if it is a PRSA, please advice if there are contribution charges - if so you should switch the PRSA to one without contribution charges first. Additional pension contributions are even more beneficial if you are at the higher tax band.
Also you should perhaps advise your age, and how large the pension pot is so far.

If the interest rate is high on your mortgage you should pay of a part of your mortgage.
Also do not shorten the life of the mortgage but reduce the monthly payments to it. That way you can continue to overpay and if circumstances change you have a lower monthly rate already. The period will shorten automatically in the end if you continue to overpay.

rje66

Thanks for replies. Mortgage interest is in around 3.5%.

hots

JazzyJ wrote: »

The following would need to be taken into consideration:

I never knew there was an irish r/personalfinance, I've been following the UK one and trying to translate, very handy!

Merowig

rje66 wrote: »

We have about 115,000 left on our tracker. Prob another 14 years. We have about 80k in savings, that isn't getting much interest . Is it a good idea to pay off 40k of mortgage and shorten the life of it?.we would consider ourselves low risk investors if the money could be use else where. Any advice appreciated. Thanks

rje66 wrote: »

Thanks for replies. Mortgage interest is in around 3.5%.

Personally I would pay off a chunk of the mortgage. With which bank are you and what is your loan to value?
Any chance to get a better deal with your current provider?

handlemaster

rje66 wrote: »

Thanks for replies. Mortgage interest is in around 3.5%.

Tracker at 3.5%. You have a variable interest rate at the level and even that is expensive

conor_mc

handlemaster wrote: »

Tracker at 3.5%. You have a variable interest rate at the level and even that is expensive

Good spot. If it were me, my first step would be to switch mortgage, reduce rate to 2.x, bank a few grand on the switch offer.

Then I’d think about how much it might cost me to “insure” my lifestyle if I hit a rainy day. I’d probably decide that the mortgage is now cheap as chips and having the cash on hand is worth it.

I’d reevaluate when the outstanding amount on the mortgage is less than my savings - at that point I might feel that the guaranteed reduction in monthly outgoings would outweigh the short-term rainy-day risk while I rebuild my cash pile.

Static M.e.

rje66 wrote: »

Thanks for replies. Mortgage interest is in around 3.5%.

Are you sure? I would have expected 1.25 or even 1.5 for a tracker..

lawrencesummers

Someone’s doesn’t know what a tracker mortgage is

bee06

Static M.e. wrote: »

Are you sure? I would have expected 1.25 or even 1.5 for a tracker..

If the tracker rate was applied after the crash it could be that high. I bought in 2008, fixed for 2 years and was offered a tracker rate of ECB+3.25% when the fixed rate ended.

listermint

Would it not make more sense to move mortgage.

That rate is ridiculous tbh given the market right now.

Move mortgage keep a low rate. Have the savings work for you on some other mixed investments.

Might be a good idea to pay a small fee for a good financial advisor.

conor_mc

bee06 wrote: »

If the tracker rate was applied after the crash it could be that high. I bought in 2008, fixed for 2 years and was offered a tracker rate of ECB+3.25% when the fixed rate ended.

Could be. But either which way, that’s far from a gold-plated tracker worth keeping. Quite the opposite in fact.

cruizer101

First off move your mortgage, @3.5% 14 years and 115 outstanding you are probably paying around 860 a month, you could easily get that below 800, and thats ignoring paying a lump off it.
As part of moving the mortgage I would pay a lump sum off it, maybe not all your savings but a good half anyway, depending of what other saving you have i.e. rainy day fund.
Just to give you the idea, if you paid 40k off it you could save yourself around 7 grand in interest, assuming keep 14 year term, on that would have ~500 monthly payback.
Or you could drop the term to about 8 years and keep repayment the same and that would save another few grand in interest too.

bee06

conor_mc wrote: »

Could be. But either which way, that’s far from a gold-plated tracker worth keeping. Quite the opposite in fact.

Absolutely! Not all tracker mortgages were created equal.

tina1040

I have a tracker about 1.8%. 3.5% is what I was on for a variable rate top up taken for an extension to be built a few years ago. This time last year I fixed the variable to a fixed for 2 years at 2.3%. So I agree your tracker is not one to be hanging on to for dear life. Your LTV must be quite low. A chat with your bank is needed to check your options with the rate.

tina1040

bee06 wrote: »

If the tracker rate was applied after the crash it could be that high. I bought in 2008, fixed for 2 years and was offered a tracker rate of ECB+3.25% when the fixed rate ended.

bee06, if you had a tracker before your fixed term did you not go back to that after the fixed term ended?

bee06

tina1040 wrote: »

bee06, if you had a tracker before your fixed term did you not go back to that after the fixed term ended?

I fixed at the start of the mortgage and then went onto the tracker.

Trish56

Are you sure you have a tracker mortgage ? Standard variable rates can be lower (AIB = 3.15%). If you switch lender and your loan to value is below 60% you can avail of a 2 or 3 year fixed at 2.25% and get 3k cash back. If you pay off 40k
the balance of 75k over a term of 10 years at 2.25% your monthly repayments would be €698.53.

rje66 wrote: »

Thanks for replies. Mortgage interest is in around 3.5%.

tina1040

bee06 wrote: »

I fixed at the start of the mortgage and then went onto the tracker.

Did you ever check you had a review under the Tracker Mortgage Examination as to why you fixed instead of taking a tracker rate?

silver2020

rje66 wrote: »

Thanks for replies. Mortgage interest is in around 3.5%.

if you are on a 3.5% tracker the bank is laughing at you.

A tracker of 3.5% has no value whatsoever and you are overpaying. Don't be fooled into thinking a tracker is great just because the media says so. Its a LOW tracker e.g 1.5% and lower over the ECB that is a good tracker.

You might have your figures wrong though. 14 years and 114k balance would mean repayments of about €870/month. And if it was originally a 30 year mortgage, it was taken out in 2005 when the low trackers were given out.