Mortgage overpayment

PokeHerKing

athlone573 wrote: »

Let me use a simplified example.

You have 10 years left on your mortgage at 1000 euros a month. You then pay 20% of the balance you owe as a lump sum.

You can then choose to pay off the rest over 8 years at 1000 a month.
Or 10 years at 800 a month.
Or 9 years at 900 a month, as you suggest.

Now the numbers aren't exact because of compounding, but that's the idea.

Do you agree?

Edit:as dubrov said with much less words!

Yes agreed. I think the confusion is coming from you saying to reduce the term. I currently overpay my mortgage by about 130% so my 35 year mortgage will be paid off in 12 years if I continue with my current over payments.

However if I physically reduced my loan term to 12 years then my repayment would be my current repayment and my current optional overpayment but it would no longer be optional.

So I would never do that but I now know you don't mean that when you say reduce the term.

athlone573

PokeHerKing wrote: »

Yes agreed. I think the confusion is coming from you saying to reduce the term. I currently overpay my mortgage by about 130% so my 35 year mortgage will be paid off in 12 years if I continue with my current over payments.

However if I physically reduced my loan term to 12 years then my repayment would be my current repayment and my current optional overpayment but it would no longer be optional.

So I would never do that but I now know you don't mean that when you say reduce the term.

Yes as you say, if you keep the repayment at the original lower level it leaves you the flexibility in case your circumstances change.

ecdi

Great stuff, thanks

From all the comments my take is that when making an over payment it's best to recalculate (lower) the monthly repayments. The lump some payment (eg €5k) will be coming off the balance owed so when switching mortgage provider this payment will come off the loan required.

This is what happened for me

Loan owed €207,599
Term left. 30 years
Interest rate 2.6%
Monthly repayment. €825

Overpayment €5k
New Monthly repayment. €805

The Phantom Jipper

Interesting discussion, and it raised a question for me. Is it possible to alternate between reducing your payment and shortening the term?

For instance the first few years, if you're happy to overpay to reduce your payment from €1000 per month to €900, could you then change so that all future payments shorten the term length?

Davexirl

I overpay my mortgage monthly and I never reduce the term as that gives me flexability, say in the future if I can't afford the overpayments. If I can continue overpaying I will pay my mortgage off earlier then the original term.

The overpayment calculators are great way to see how much money you can save on interest and how many years the overpayment could potentially knock off your mortgage term.

A €250 monthly overpayment knocks 10 years off my term and approx €30k in interest saved.

tscul32

Currently at the "trying to clear the mortgage" stage. Just put a lump sum off and contacted the provider cos their website says there's a form to fill in to say whether you want the term reduced or payments reduced (variable rate). There are 10 years left but we're planning on being done by the end of the year.
After talking to them don't think I'll bother doing the form, just let the over payments (lump plus monthly tx straight into the account) build up as a credit balance and then when we've almost enough we'll sort it out and clear it. No matter what we do the credit will always be taken into account for interest calculation.
The only thing I'm not 100% clear on is the advantage of reducing the term. When we started first we overpaid monthly but never adjusted the term, preferring to have that flexibility, as we were young and hoped to have kids and knew our financials would change over time.
Is there any particular good reason to ever officially reduce term? Doesn't apply to us at this stage anyway but I've never understood what advantage it would be, other than to be able to say, "only 5 years left".

athlone573

tscul32 wrote: »

Currently at the "trying to clear the mortgage" stage. Just put a lump sum off and contacted the provider cos their website says there's a form to fill in to say whether you want the term reduced or payments reduced (variable rate). There are 10 years left but we're planning on being done by the end of the year.
After talking to them don't think I'll bother doing the form, just let the over payments (lump plus monthly tx straight into the account) build up as a credit balance and then when we've almost enough we'll sort it out and clear it. No matter what we do the credit will always be taken into account for interest calculation.
The only thing I'm not 100% clear on is the advantage of reducing the term. When we started first we overpaid monthly but never adjusted the term, preferring to have that flexibility, as we were young and hoped to have kids and knew our financials would change over time.
Is there any particular good reason to ever officially reduce term? Doesn't apply to us at this stage anyway but I've never understood what advantage it would be, other than to be able to say, "only 5 years left".

No good reason - it is administratively easier while removing flexibility.

Henry Ford III

ecdi wrote: »

Now this is helpful. Thank you

It's entirely accurate. No need for attempted smartness.

ecdi

Henry Ford III wrote: »

It's entirely accurate. No need for attempted smartness.

No need to be so sensitive. Genuine comment!

Wheety

I would always recommend to reduce the payment and leave the term.

We're overpaying at the moment. Mortgage is around €800 but we pay €1100. Each month the mortgage amount goes down slightly and our payment stays the same. Which means more is going off it every month. So the reduction in capital is accelerating.

I think (after changing rate a couple of times) that our mortgage was around €815 a month. This has now dropped to just over €800, but as said above we're still paying €1100. We could stop this overpayment whenever we like and have an extra €300 a month if we needed to.

The term naturally reduces anyway and the mortgage will have been paid off years early.

You don't have the same flexibility if you reduce the term.

Wheety

tscul32 wrote: »

but I've never understood what advantage it would be, other than to be able to say, "only 5 years left".

This is what I think is the only 'advantage'. But it's only a technicality on your statement really.

We have 24 years left according to our statement but because of the overpayments it'll really be 17 or 18 years but I don't need that in writing to know it.

insular1

Wheety wrote: »

We're overpaying at the moment. Mortgage is around €800 but we pay €1100.

Can I ask how did you set this up? Have a mortgage last couple of years and have been saving extra each month to pay off after the fixed period but I know we're allowed to overpay by 10% of the outstanding so would be handy to just be paying it straight off each month. Is it as simple as lodging extra money to the mortgage account number or do I need to notify the bank and arrange an overpayment with them?

ecdi

insular1 wrote: »

Can I ask how did you set this up? Have a mortgage last couple of years and have been saving extra each month to pay off after the fixed period but I know we're allowed to overpay by 10% of the outstanding so would be handy to just be paying it straight off each month. Is it as simple as lodging extra money to the mortgage account number or do I need to notify the bank and arrange an overpayment with them?

I'm in exact same boat.

I rang bank and paid with debit card. Was way more straight forward than I thought it would be

Wheety

We're with KBC and they have a form you just fill in and email to them.

3 options on the form.

1. You say how much extra you want to pay. So if you said 200 and the rate changed the overpayment would still be +200 on the new amount.

2. You state how much you want to pay every month. So you tell them 1000 and if the rate changes the overpayment could be more or less what it was. Payment could even increase beyond what you're paying so need to keep an eye on any rate changes.

Obviously a lot more straight forward with a fixed rate, which is what we have and option 2.

3rd option is for your term to reduce. But I think that's more for lumpsums

tscul32

insular1 wrote: »

Can I ask how did you set this up? Have a mortgage last couple of years and have been saving extra each month to pay off after the fixed period but I know we're allowed to overpay by 10% of the outstanding so would be handy to just be paying it straight off each month. Is it as simple as lodging extra money to the mortgage account number or do I need to notify the bank and arrange an overpayment with them?

Your mortgage statement which you probably get once a year (we do anyway) has a bic and iban on it. This is all you need to transfer money into the account. We recently went into the credit union and asked them to transfer a lump sum to our mortgage account, just passed over the bic/iban.
With ptsb (variable rate) it just sits as a credit (while reducing interest) unless we instruct the bank to either reduce payments or term. We're just going to leave it for now.

rtron

Davexirl wrote: »

I overpay my mortgage monthly and I never reduce the term as that gives me flexability, say in the future if I can't afford the overpayments. If I can continue overpaying I will pay my mortgage off earlier then the original term.

The overpayment calculators are great way to see how much money you can save on interest and how many years the overpayment could potentially knock off your mortgage term.

A €250 monthly overpayment knocks 10 years off my term and approx €30k in interest saved.

I'm looking to do something similar - when you make the overpayment is it coming off the Principle?
I'm looking at the BOI calculator and it doesn't specify.

My plan is to try and pay 2% off the current value in 2-3 months and then pay the same amount in the following 4 months so by then it should 2.1% (not exact but if you catch my drift).