Do you overpay your mortgage?

JimmyVik

McGaggs wrote: »

What are you doing to use up the allowance?

If you look up CGT allowance harvesting you will find how it works.
Still pretty crap in Ireland compared to other countries tbh, but at least its €2.5k per year.

thesimpsons

Bass Reeves wrote: »

I have gone through the costs to put children through college already in this thread. It will cost in the region of 75K/child. By opening an investment in a child's name and putting money into it it will help to fund college. While most young adults work while going to college they will not use up all there tax Credit. As well some of the the money can be extracted into a normal account pre college. Even if you leave some money in the account till college there highest rate of tax is 20%

where do you get this figure from ? I've had 3 children through college now and didn't pay anywhere near 75k per child. I paid accommodation and fees, etc , no grants of any kind, and they all had part time jobs in college and during summers which helped towards their personal and living costs, but there is no way it all came up to 75k per child. for a masters or further education, I don't know anyone who paid for their children. They all worked and paid their own way.

Bass Reeves

thesimpsons wrote: »

where do you get this figure from ? I've had 3 children through college now and didn't pay anywhere near 75k per child. I paid accommodation and fees and they all had part time jobs in college and during summers which helped towards their personal and living costs, but there is no way it all came up to 75k per child.

College fees are over 3k. Most on campus accommodation is above 5K add in Electricity, heating, bins etc 5-600 euro. Add in travel and food and it about 10K/year. After that you may have a child who has to repeat a year full fee's cost 5K or above. Finally many will have to go on and do a masters,9fees about 10-20K) I expect that in future this will be the standard just like 40 years ago the leaving cert was the standard.

As I pointed out as well there is a move to force parents to pay full college fees this may or may not happen but there is a risk it will.

Cyrus

[Deleted User] wrote: »

This is an awfully funny thread. People get very defensive if anyone doesn't follow their instructions.

I can only speak for myself, but I have a retired neighbor, who used work with mortgages in one of the main Irish Banks. He drives a very nice car, retired at an early age, and has, what I would consider a very comfortable life.
He offered advice one evening, and I gladly listened to him.

Bear in mind, I started with a 30 year mortgage of approx €350,000. 4 years fixed rated at 2.6%

His advice, in simplistic terms was:
1. Max out your pension contributions if you can afford to
2. Have no more than 6 months of salary easily available - rainy day fund (Anyone more is not working for you)
3. If you can find an investment that has a return of greater than 5%, then invest in it
4. If you can't be sure of a greater than 5% return, then put that extra money into overpaying your mortgage

Avoid, in anyway possible paying interest only on your mortgage.

Very sensible and simple advice

2lazytogetup

just slightly going off topic... but what about not getting a mortgage. just renting and putting money into a pension and investments. i find homes money pits. need to replace the boiler every few years. new gutters, roof to be fixed. kitchen needs to be replaced. house prices could potentially drop.

WhiteWalls

2lazytogetup wrote: »

just slightly going off topic... but what about not getting a mortgage. just renting and putting money into a pension and investments. i find homes money pits. need to replace the boiler every few years. new gutters, roof to be fixed. kitchen needs to be replaced. house prices could potentially drop.

Think we will start to see this becoming a lot more common

Leg End Reject

The benefit of a mortgage is that it's limited to x number of years and you have an asset. Yes, there's maintenance, property tax and insurance, but there's also security.

Rent is for life, with no security in the private rental market.

This thread is great reading in the middle of the night, isn't it? Reading about other people's genius investments, and simultaneously, how dear everything will be with university fees and whatnot. Two clocks in this room are ticking, very ominously.

2011

2lazytogetup wrote: »

just slightly going off topic... but what about not getting a mortgage. just renting and putting money into a pension and investments. i find homes money pits. need to replace the boiler every few years. new gutters, roof to be fixed. kitchen needs to be replaced. house prices could potentially drop.

How do you think landlords pay for these costs?
Answer: They build them into the price of the rent.

So unfortunately those of us that are stuck in the rent trap end up paying someone else’s property related bills. Also I wouldn’t fancy trying to pay rent as a pensioner, mortgages should be paid off at this point.

styer

https://www.boards.ie/discussion/comment/117095233#Comment_117095233

Nicely put together

Cluedo Monopoly

https://www.boards.ie/discussion/comment/117039230#Comment_117039230

Good advice. Prioritise any higher interest rate loans or credit first. Then build up savings and pension so you don't need future short term loans with higher rates.

Mortgage is cheapest interest rate you will ever have.

AndyBoBandy

https://www.boards.ie/discussion/comment/118921570#Comment_118921570

While I agree largely with this last point, I'd also counter it with the potential savings to be made on interest on debt that some of which will be 20+ years old by the time it eventually gets paid off.

I took out a mortgage 8 years ago next month over a 20 year term, and have been consistently overpaying it off such that at our current overpayment rates it will be clear in 11 months, so we've reduced our term from 20 years to 8 years & 11 months. The interest calculated for the 20 year term was about €81k, and by the time we're fully paid off the total interest we'll have paid will be around €31k, so I'm seeing the benefit of our overpayments as a €50k saving in interest I would have otherwise paid the bank.

Which is the loan you'd want to pay off quicker? €150k over 20 years @ 3%, or €20k over 4 years at 6.9%?

Cluedo Monopoly

https://www.boards.ie/discussion/comment/118921862#Comment_118921862

I guess it also depends on inflation including salary inflation and what % of my income is going into the mortgage and interest in 10 years.

Amirani

https://www.boards.ie/discussion/comment/118921862#Comment_118921862

Best approach here is to pay off the 6.9% loan of 20k first. After that is completed, start paying off that 3% loan with the overpayment amount as well as the amount you were previously paying for the previous loan.

victor8600

No, I have not even maximized my pension contributions yet. IMO, there is no point in clearing a cheap mortgage early if you have any other way to profitably invest your money.

AndyBoBandy

https://www.boards.ie/discussion/comment/118922062#Comment_118922062

Is it though?

3% APR on €100k is €3,000 & 6.9% APR on €20,000 is €1,380, so although it's a higher interest rate, in the grand scheme you'd be paying more interest on the lower interest rate loan as it's 5 times larger than the 6.9% loan. Now I know eventually the capitol amount on the larger loan would reduce to the point where it would then make more sense to concentrate the overpayments on the higher interest loan, but that figure would be around €46,000 as I see it.

Ray Palmer

Weird a lot of people here are not overpaying their mortgage because they aren't getting it taken off the principle. They are prepaying their regular mortgage and not getting the benefit of overpaying.

The mortgage rate is so low at the moment it makes no sense to over pay. I couldn't get a loan at the value of my mortgage rate so I am better off not paying it at the moment and use the money to improve the house. I am only paying €600 in interest a year and close to the end.

Paul_Mc1988

I took out a 30 year mortgage and have my morgage nearly 30 months now. It was 330k at 2.6%. Initial payment was 1321. Payment now 1054. In another 30 months it should be down to about 780.

I'm saving a ton on interest and will have it paid off in ten years. I lived through that last recession in and out of jobs like a yoyo and the pleasure I get knowing I'll be comfortable if it happens again is enough to keep me going on with the overpayments.

L1011

Currently paying the max 10% overpayment, has a negligible impact; when the fixed rate expires I intend to change it to a 25% overpayment. Have a pension already.

I kept the payment much the same when I got a significant rate cut (4.lots% to 3.9%) by taking a full year off the term to begin with; and did so again when remortgaging (3.9% to 2.25%) so I should have it all paid off in May 2029 rather than January 2033 even without increasing it again.

Ginger83

Overpaying by roughly 60%

Cyrus

https://www.boards.ie/discussion/comment/118926103#Comment_118926103

10% of the principal? or an extra 10% in what you repay every month?

If the former you would pay off the mortgage in 10 years cant see how the impact is negligible, if the latter i get it.

L1011

https://www.boards.ie/discussion/comment/118926328#Comment_118926328

10% of the payment. Max the bank would allow.

Its a small mortgage with only 8 years left anyway (reduced to 7 and a few months by that payment).

AndyBoBandy

I'm sure I posted it before, but CCPC have a great overpayment calculator where you can see how much potential interest savings there are as well as the term reduction benefit of overpayments, however small they are;

https://www.ccpc.ie/consumers/money-tools/extra-mortgage-payments-calculator/

Paul_Mc1988

https://www.boards.ie/discussion/comment/118926103#Comment_118926103

Who are you with?. Avant allow a 10% overpayment per year of what's left on the balance at the start of the year.

Say you owe 200k at the start of January, you can throw 20k of it.

Next year you have 175k left you can throw off 17.5k etc.

Edit: seen your answer up above. This is the reason I don't go with a lot of banks

Paul_Mc1988

https://www.boards.ie/discussion/comment/118926498#Comment_118926498

I use Karl's mortgage calculator. It's an app you can download. It's very good

Amirani

https://www.boards.ie/discussion/comment/118922201#Comment_118922201

Look at it this way - for every €100 you spend paying off the 100k@3%, you will save €3. Whereas for every €100 you spend paying off the 20k@6.9%, you will save €6.90. So you will save more than double. If the loans were the same length, this would be all there is too it, but there is a compounding aspect over time, so for example, let's say you have 20k sitting in a savings account and you want to decide what it do with it. Is it better to pay it off the low interest big loan of the high interest smaller loan?

Scenario 0 - No overpayment:

Loan 1 cost = 48,926, monthly repayment = 829

Loan 2 cost = 2,944, monthly repayment = 478

Saving = 0

Scenario 1 - Pay 20k off 20 year 150k loan @ 3%

Loan 1 cost = 42,404

Loan 2 cost = 2,944

Saving = 6,422

Scenario 2 - - Pay 20k off 4 year 20k loan @ 6.9%

Loan 1 cost = 35,388

Loan 2 cost = 0

Total saving = 17,211

The main thing you need to notice here mathematically, is that if you pay 20k off the 20k high interest loan, you free up €478 per month in repayments that can be used to overpay the longer term loan for the next 4 years. And hence you will save more than double.

Ray Palmer

https://www.boards.ie/discussion/comment/118926815#Comment_118926815

All very good points people don't seem to understand. It is generally better to put the extra money into a pension as you get tax back straight away of over 20% then put that against your mortgage. It really doesn't sound like some of these over payments are not coming off the principle which defeats the whole point.

CPTM

Mathematically I would probably be better off investing in a low risk market fund. But I pour everything into the mortgage because it reduces the life from 30 years to 6 and in 6 years I will feel more free to spend my money on fancy holidays and trips and maybe even a career change. I might have more money with investing but money quantity and fund size isn't my actual goal. My actual goal is freedom to relax a bit sooner rather than later. With a fund, capital gains tax, potential dips in the market, I could have more assets but I wouldn't feel as comfortable actually spending it. I would always be thinking of gains I'd lose by taking money out of the market, or I'd think what if I need the money later to pay the mortgage.

I've maxed out my pension and the rest goes into the mortgage so that when the kids hit 7/8ish years old, I can reward myself with nice flight times and taxis and better holiday accommodation instead of counting the pennies left after the mortgage repayments.

AndyBoBandy

https://www.boards.ie/discussion/comment/118926982#Comment_118926982

Pretty much the same as us.

Want the freedom of owning the house outright, and then our money every week/month is ours to spend how we see fit.. Our jobs pay well but we can't see ourselves in them forever, so we've also been paying up front for long term cost saving measures like an EV & Solar PV. The idea being to have our future outgoings as low as possible. We bought in the dip for €250k (borrowed €165k) and houses either side of us are going for €400k+ again, so that was a bit of a stroke of luck too. 20 year term will be finished after 8yrs 11 months.

We are 11 months away from mortgage paid off and then we will max out our pension contributions (currently 5% + 10% employer), and just keep going with work for as long as we can stick it!! We're also in the process of buying a holiday home in Lithuania (80km from the Russian border which will be fun) which we'll borrow around €100k for, but the idea is after the Irish house is fully owned in a year, to just overpay on the Lithuanian house to have it cleared in 4-5 years.

jaykay2

Overpaying by 20 - 25% the last few years which reduced the length of the mortgage by 8 years. Currently in the process of switching which will save us significant money as the rate is going to be a good bit lower than what we could get with our initial mortgage holder, plus going to throw on another small bit while we are at it. Hopefully those two changes will take some time off it too.

Probably going to lock ourselves into a 10 year fixed now as rates are likely to rise very soon. Hopefully then we can then pay off the remainder at the end of that 10 years.

Might be willing to lock into a 7 year either if the rate is better, just worried rates could get significantly higher in the coming years with inflation such as it is.

CPTM

The only downside to 10 year fixed term mortgage is that you usually can overpay by just 10 per cent of the balance for the entire fixed term and 10 years is a long time to spread 10 per cent across. If inflation really is going to be around, wages might go up but you'll be locked into your 10 year agreement. I'd prefer 5-7 year max for that reason.

AndyBoBandy

What about fixing some of the balance, and going variable on another portion (means a higher interest rate, but no penalty for overpaying on the variable side)

and I was of the understanding that the 10% allowed overpay on a fixed rate was per annum. So 10% per year without penalty!

CPTM

10 per cent per annum definitely exists in some cases but I know that any fixed terms I've had allowed 10 per cent overpayment for the entire term only. It's just worth triple checking before locking yourself into a 10 year, especially if you're someone who has over paid until now. And I'd make sure I get it in writing.

The split could be a good option alright. Not sure what sort of deals are available there though.. I might look into that with Perm TSB, I'm switching to them next for the 2 per cent cashback perk. I'm with KBC at the moment so looking to move soon.

jaykay2

https://www.boards.ie/discussion/comment/118957588#Comment_118957588

Yeah, that is why I am thinking maybe 7 is a better option, but we are building the additional money we are already paying into the baseline cost this time, along with another little bit, so we'll have a further 10% to pay off on top of those if we wanted.

Even with all the extra we will be paying off, we are paying less than houses around us for rent for so we are in a very good position thankfully, and we can afford to do it which is the most important part.

jaykay2

https://www.boards.ie/discussion/comment/118958008#Comment_118958008

Yeah, I think we can pay the additional 10% per year without penalty so with that in addition to the extra we are locking ourselves into, I think we will have a serious dent in it by the end of the fixed period, whether we lock it for 7 or 10 years.

Is your name a Trailer Park Boys reference Andy by the way?

AndyBoBandy

"Is your name a Trailer Park Boys reference Andy by the way?"

I am partial to the odd cheeseburger picnic alright!!

JimmyVik

This is discussed where I work quite often.

The place is full of financial people who know their stuff.

And it varies what they all think is best.

1 - There are some who took the extra payments and put the money into investments every month. These guys are doing the best from it out of anyone, and could if they wanted cash in any day and pay the mortgage off with the proceeds. They are making far more than they would save in over payments. Also they get to use up about €2500 CGT alloowance by harvesting the gains every year and reinvesting (some use that for a holiday instead).

2 - There are some who overpayed their mortgage to get rid of it. These are very happy that their mortgage has come down.

3 - Now most of them have decided to upgrade their houses during high inflation and have put the overpayments on hold to make the most of their money. Also they have fixed long term at low rates now.

4 - But what every single one of them said is that they max out both theirs and their other halfs pension contributions before any over payments.

Myself, I think i would max out pension and then get rid of a mortgage as quickly as possible. I hate debt.

Wanderer78

fair play to the folks that can afford to overpay, its a great idea if you can afford it, you never know what the future holds, causing you issues to be able to afford to pay your mortgage

CPTM

Does anyone have opinions about a balance figure below which overpaying is not really as effective? In other words, at what point will you start relaxing on the overpayments?

I'm thinking that once my mortgage dips below 90/100k, the interest calculated on it is so small that, while I will still continue to overpay, I might relax a bit or reduce the overpayments.

Take a mortgage of 80k for example. Just 550 euro accrues on that per quarter if my calculations are correct. Whereas a mortgage of 350k would see approximately 2,400 euro accruing on it per quarter.

I know it's subjective but just wondering if anyone else is targeting a figure which is not necessarily 0.00 euro.

retalivity

https://www.boards.ie/discussion/comment/118959639#Comment_118959639

I'm coming up to circa 50% left on my mortgage, Iv been overpaying since I got it 7 years ago, going to overpay a bit more when switching to Avant to bring it under 100k then fix for 3 years. Its always been said that a mortgage is the cheapest loan you will ever get, I think under 100k the benefits of continually overpaying a loan of under 100k at 1.95% are negligible, so keeping the cash to spend elsewhere.

AndyBoBandy

We're down to €22k now, and with current overpayments it'll be clear in 11 months. If we stop overpaying, and revert to standard payments (€714), it'll be clear in about 2.5 years. If we re-calculated our payments based on remaining term (12 years) the monthly payments would go down to about €150

We've just decided to keep cracking on and be done with it by this time next year!!

raxy

https://www.boards.ie/discussion/comment/118926815#Comment_118926815

How have you come up with these figures for savings? Is it saving on the interest payments? They don't look right to me. If you pay 20k off a 20yr 150k mortgage the savings in interest would be ~14k.

In your calcs how long are you overpaying the mortgage after clearing the loan? Once the short term loan is up you should be adding that overpayment to the mortgage if that's what you have done with your loan Scenario & then savings in interest paying the mortgage is ~23k

jaykay2

https://www.boards.ie/discussion/comment/118959521#Comment_118959521

We both have Government pensionable jobs so are covered along those lines. Some small investments in crypto and stocks but will likely increase those as time goes on. The thoughts of living mortgage free though is super appealing.

Bass Reeves

https://www.boards.ie/discussion/comment/118960092#Comment_118960092

No the total interest on 20 K @ a mortgage interest rate if 2.5% over 20 years is 5k.

In the first 6-7years you will pay 50% of that interest. As years go on capital repayments increase and interest rates increase.

Any financial advisor will tell you to avoid personnel lending of at all.pisdible. if the only loan you ever have is a mortgage you should never worry.

What do you do when you repay your mortgage. Money in the bank depreciates in value. It's WL be 3-5 years before you have a lump that you can personally invest other than in investment funds.

By saving and paying a mortgage you can gaurantee never having personnel lending whether for a car, a once in a decade holiday( we went with the children to Orlando in 2008 holiday cost 5-6k) or savings for kids education.

raxy

https://www.boards.ie/discussion/comment/118960416#Comment_118960416

I'm not sure what your getting at here. I queried how savings were calculated on a a €150k mortgage over 20 years. If you pay 20k off that mortgage in month 6 the savings in interest would be ~14k.

What people do once it is paid off it their own business. I only wanted to understand how the other poster calculated his savings.

Bass Reeves

https://www.boards.ie/discussion/comment/118960630#Comment_118960630

You are incorrect. The total interest you will pay on 20K at a mortgage rate of 2.5% ( most present rates are lower than that) is 5 k over 20 years.

How can you save 14 k in interest. On a 150 k mortgage over 20 years you total interest bill on such a loan is 37.5k.

You are probably assuming that the same repayments are continued to be made at the same rate as if the loan was a 150k loan as opposed to a loan that is now 20k lower. You are still making separate over payments.

Banks generally after you pay a lump sum off readjust your repayments so as that you have the same final repayment date.

raxy

https://www.boards.ie/discussion/comment/118961659#Comment_118961659

I must owe the bank money so if I am wrong. Thanks for enlightening me!

JimmyVik

This will tell you all you need to know

https://www.drcalculator.com/mortgage/

jaykay2

https://www.boards.ie/discussion/comment/118959445#Comment_118959445

Thought so. Did you ever go and see them for their live shows in Dublin? I went twice or three times I think. I was at the special on Netflix filmed here too. Friend sent me a picture of me in the audience when he was watching it while in the states!

RIP Jim.