any advantage in paying off mortgage early

homeOwner

I have an apartment in Dublin and a bit of money saved. I have tried (unsuccessfully - was outbid etc...) to trade up and buy a house over the past few months. I am drained after it all and dread the thought of starting to look at properties again. I am not married and have no kids.

An alternative to buying a house (and potentially having a huge mortgage to pay off) is to pay off a chunk of my mortgage with my savings and increase my mortgage payments to pay off my apartment within say 5-8 years. With the SSIA money coming in next year I have plenty of money to fall back on in case of emergencies.

My logic is that I will save money in the long run by the majority of my mortgage payments coming off the principle ie paying less interest over the lifetime of the mortgage and also not loosing out on property increases over the next few years as my property should go up in accordance with everything else (more or less). It seems to me like a good use of my money.

Does anyone have any thoughts on this? Is this a common thing people do?

Andrew Duffy

There's no point having savings paying a lower rate of interest than your outstanding debts cost. Ensure your bank knows your extra mortgage payment is to come off the principal - if you simply overpay the bank may stick it in a side account paying no interest. Also, if you are on a fixed term wait until it's over and you have reverted to a variable rate before overpaying to avoid penalties.
www.askaboutmoney.com will give you any information you need, and probably lots you don't.

MorningStar

It really depends on what you plan to do.

If you still have cash in storage for big purcahses like cars and holidays rather than personal loans it sounds good.

The happy medium is the one accounts where by you savings in the bank are considered with your mortgage. You don't get quite the saving as a direct payoff but you are getting a lot of flexibility. I think it is first active and TSB that do them but I am not 100%.

On buying a house I know the pain but ultimately houses tend to increase in value at a higher rate than appartments. Appartments are slowly getting a bad name that I think might get worse. Having a garden no matter how small can make a huge difference to your quality of life.

ambro25

MorningStar wrote:

The happy medium is the one accounts where by you savings in the bank are considered with your mortgage. You don't get quite the saving as a direct payoff but you are getting a lot of flexibility. I think it is first active and TSB that do them but I am not 100%.

Second that (G'morning... Star ).

I've used a One Account in the UK before, and it was a pretty effective way of putting a major dent in your brick debt in a fairly short time period (30% of a £60k mortgage, or £20k if you prefer, paid off in 3 years)... if you're good and disciplined with money.

If you can outstrip the pace of property price increases with early mortgage repayments free of any penalties (as One Accounts let you do), it's as good an investment as any that I can think of right now...

And as One Accounts, which make a lot of applicants sit up and take notice (and a firmer hold) of their outgoings vs their income(s), may make you think about your personal finances and wealth in a quite different way, so they make you think about investments in a different way too: as posted earlier, having say €20k savings at 3-or-so % versus taking €20k off your capital on which daily/monthly interests are calculated by your lender (over the next few years), so reducing your payable interest and borrowed capital, the property for which is already appreciating at 15-or-so% a year... is pretty much a no-brainer IMHO

homeOwner

I am on variable rate so no penalty in paying it off earlier (I think), also I will have extra cash for holidays etc.... when my SSIA matures next year with almost 20K. I am earning less on my savings than I am paying in mortgage interest so thats why I thought of paying it off early, but no one else i know does this even though they could - they all buy a second property and are urging me to do so also. Thats why I am not sure if I have thought it through enough - I cant be the only person who thinks this is a good idea.

MorningStar wrote:

On buying a house I know the pain but ultimately houses tend to increase in value at a higher rate than appartments. Appartments are slowly getting a bad name that I think might get worse. Having a garden no matter how small can make a huge difference to your quality of life.

Yeah I really do want a house with a garden and totally agree that they appreciate better than apartments but am trying to weigh up putting that off for a few years and using the majrity of my income to pay off mortgage early and then buying house almost for cash. On the other hand, houses could go up more than my apartment does as you pointed out.......wish i had a crystal ball!

lomb

trade up and buy that house, u wont go wrong trust me. i say that for NUMEROUS reasons.
property is a unique thing, its one of the few things that u should borrow as much as u can for, especailly if that property happens to b in dublin. demographic shifts mean that if u cant afford a house today u never will b able to buy one unless your salary is going to exceed normal inflation.

homeOwner

lomb wrote:

demographic shifts mean that if u cant afford a house today u never will b able to buy one unless your salary is going to exceed normal inflation.

That presumes that property never goes down which is not the case.

The other thing is that I cannot afford a house where I live and I like where I live. With the money I save by paying off mortgage early, I might be able to stretch to where I can buy a house in the area in say 5 years time.....assuming that houses and apts in the area appreciate at the same rate!

Bluehair

lomb wrote:

tdemographic shifts mean that if u cant afford a house today u never will b able to buy one unless your salary is going to exceed normal inflation.

Complete and utter rubbish. Current mania aside the market will cater to whatever the first-time buyer is prepared to pay. The only circumstances where this would not be true is where these is a land shortage, hardly the case in Ireland (even Dublin).

MorningStar

homeOwner wrote:

I am on variable rate so no penalty in paying it off earlier (I think), also I will have extra cash for holidays etc.... when my SSIA matures next year with almost 20K. I am earning less on my savings than I am paying in mortgage interest so thats why I thought of paying it off early, but no one else i know does this even though they could - they all buy a second property and are urging me to do so also. Thats why I am not sure if I have thought it through enough - I cant be the only person who thinks this is a good idea.

You should certainly check the one accounts out. It solves the intrest rates out on savings and loans. Buying a second property is a risk and the market is very high. I would jump in to renting out unless you plan the long haul. Other disagree. But in the future you want a nice place to live and enough to have in the future. An extra property may help but it may hinger also .

homeOwner wrote:

That presumes that property never goes down which is not the case.

The other thing is that I cannot afford a house where I live and I like where I live. With the money I save by paying off mortgage early, I might be able to stretch to where I can buy a house in the area in say 5 years time.....assuming that houses and apts in the area appreciate at the same rate!

Appartments rarely go up at the same rate. THe SSIA will effect the market so I would expect a sudden rise soon. You could buy a house in an area close to your ideal or in an up and comining area. In 5 years you may have the ideal property and a small mortgage. I did that and sold a little early but made a great profit and the area has drastically improved and still is and very desirable with FTBs and now going to 2ndTBs.

lomb

Bluehair wrote:

Complete and utter rubbish. Current mania aside the market will cater to whatever the first-time buyer is prepared to pay. The only circumstances where this would not be true is where these is a land shortage, hardly the case in Ireland (even Dublin).

well thats your opinion and u are entitled to it, but im afraid u dont know what the market is like on the ground. there are NO new quality houses being built any more in the greater dublin area. all current builds maximise land value by using multi tenancy leases or alternatively by packing houses in 10 or 15 to the acre. its actually quite sad but if one leaps in now its not too late but its definately getting there.

Victor

Also take mortgage interest relief into account.

And if you are that flush with cash, send me some.

MorningStar

Bluehair wrote:

Complete and utter rubbish. Current mania aside the market will cater to whatever the first-time buyer is prepared to pay. The only circumstances where this would not be true is where these is a land shortage, hardly the case in Ireland (even Dublin).

It is a valid opinion but I think it might be missing the current news and history. Fuel prices are rising and realistically always will. It may litterally be too expensive or too dificult to get fuel for cars (the 70s). Demand for property closer to places of work or transport may rise and there is a limited number of that. There may be a shortage of useful land as a whole. It's all speculation and there is no need to say another view is rubbish

homeOwner

Victor wrote:

Also take mortgage interest relief into account.
And if you are that flush with cash, send me some.

I am factoring that into my calculations.

I'm not that flush! Just wondering what to do with a bit of savings - I want to put it to the best use. I suppose i could blow it all on a nice car (and that is very tempting) but it would be a terrible waste as far as I am concerned.

Bluehair

MorningStar wrote:

It's all speculation and there is no need to say another view is rubbish

Point taken and no offence was intended. However while my own concerns on property have been expressed before I hate to see blanket scaremongering of "buy now or you'll never be able to afford to" being used to justify people getting into more debt than they would really be comfortable with.

Ironically I myself fell for the same line 6 years ago! Plenty of ftbs are still buying today and the supply has simply changed to cater to what they can afford (or rather get mortgage approval for).

Ireland and Dublin in particular is a clear example of market forces in action, namely supply and demand. Supply is finally beginning to meet demand and that can be seen clearly in the 'soft landing' so many vested interests have been talking up.

I've said it before and I'll say it again, Dublin property is overpriced. I'm certain it will correct, whether that will happen quickly or take years while inflation catchs up is open to debate.

So, to answer the ops question, your original idea is sound financial planning and imho a much better idea than taking on even more unnessary debt. Paying off your mortgage in 5-8 years would be a significant achivement and i applaud it.

MorningStar

Bluehair wrote:

Point taken and no offence was intended. However while my own concerns etc...

I don't want to hijack the thread but it looks like the info and views have been given.
I know if I didn't buy when I did I couldn't afford my first house now let alone what I have now. If I had bought earlier I would have more or be paying less. I know tons of people in the similar situation. If you could still buy what you have now for the same price and just as affordable to you I would think you are very unusual. I don't think people are trying to scare people into buying just the reality for many people.

The last time I looked at the figures demand was about to outstrip supply again in 2-3 years. Demand and supply appear to be briefly balance but there is longer supply chain on property. The property is still not cheap. I think there maybe a drastic shift in 5-7 years away from appartments causing a price surge in houses.

Commuting times and fuel prices I think will keep Dublin prices up. I don't think Dublin is overpriced becasue I save 2-3 hours a day over fellow workers. Commuting is unlikely to ever really be releaved and fuel will keep rising. I reckon where I live is worth €20k+ a year at the moment between extra time,fuel and car maitainence. It's also very easy to get to the airport which is also worth a lot to me and friends.

If anybody can pay off in 5-8 years I am well impressed and if you can do it. If that's what you are talking about Homeowner do it. It might suit to keep a little oustsatanding to get benifits of low interest rates for person requirements.

Culchie

Maybe look at some overseas investment? I don't mean flimsy appartments in the Costa del Concrete, I mean proper investments in emerging markets, Eastern Europe etc...

ambro25

homeOwner wrote:

but no one else i know does this even though they could - they all buy a second property and are urging me to do so also. Thats why I am not sure if I have thought it through enough - I cant be the only person who thinks this is a good idea.

Would you jump off the cliff because... etc

Assuming levels of personal wealth of those people you speak of are average (i.e. they're not buying second properties for cash, or 50% deposit or whatnot), good on them to put that second stone around their neck...

Because if interest rates pick up and/or the market adjusts/comes down (two big ifs, but nontheless...), a lot of such investors will bail out/ get repo'd, and that should make some seriously interesting brick purchases available to you, as you'll should then be rather cash-positive (as you've got near to full equity), and they won't.

That's how I've approached the brick market (as in "a place to live in") in both FR and the UK over the last 13 years, and it's served me well.

That's also why I'm only renting atm (because my pile of €s and income both appreciate faster than house prices climb, whereas using it or a big proportion thereof for some Dublin brick now, would adjust the scales negatively)...so I can bid my time waiting for the market adjustment and pick up twice the house for the money - hopefully (still got the house in FR to retire in otherwise ).

homeOwner

The one and only reason why I am hesitating on my plan to use my disposable cash to pay off early is that if house prices go up more than my apartment, I will never be able to afford one in the area I want. If I struggle a bit and buy now, at least I will have a house! Decisions, decisions.

Thanks for all your responses and opinions.

Maxwell

Interesting thread this and something I am interested in also.

I am only 28 and have my house 3 years after I had it built - so with a very low mortgage which if I upped the payment I could pay off before Im 38-40yrs. I am on good money and love the house I live in with my wife and therefore not really interested in "trading up" I could certainly afford to buy (another mortgage) another house either in Ireland or another country.

The questions are like the original poster:

Should I buy another house and put myself at jeporady if interest rates rise and therefore limiting my standard of living (which is quite high at present)

Or
Buy a cheapish foreign property (Bulgaria, Croatia Baltics etc) for approx €50,000 - €100,000 and use as an investment

Or
Plough all my disposable income in getting my mortgage paid off sooner and therefore be "mortgage free" before Im 40?

MorningStar

It's really simple putting the money off your own home is the safest option. You can't really loose.

The others have risk.

Buying in another holiday country normally means you pay more than the property is really worth. Changes in local laws can be devistating and you don't vote there!

Buying a rental property here is work. No matter what people say 10 years down the road that house is not new, the furntiure is shabby etc... Tenants can skip rent. It's a gamble on house prices unless you are in for the long road.

Homeowner, the one account sounds very like what you want .

Zaph0d

MorningStar wrote:

It may litterally be too expensive or too dificult to get fuel for cars (the 70s). Demand for property closer to places of work or transport may rise and there is a limited number of that. There may be a shortage of useful land as a whole.

I'd agree with this prediction: property prices in less car-dependent areas (milltown, raheny, dun laoghaire) will rise relative to exurban or poorly connected areas (lucan, templeogue, finglas).

You are predicting that apartment prices will lose value relative to houses, but you don't say why other than that it's nice to have a garden and 'Apartments rarely go up at the same rate'. Where do you get this belief? Are you extrapolating from recent trends in Irish property prices? UK prices? Is it a just a hunch or some logic you haven't revealed?

Why will people value gardens more in future than they do now?

Maxwell

Why will people value gardens more in future than they do now?


I was thinking the same: because I thought the general consensus was that with less and less larger families being "born" and only 1-2 kids per household and people not having kids till they are in their late 30's early 40's that Apartments were to be the better option to have in the coming years?

ambro25

MorningStar wrote:

Putting the money off your own home is the safest option. The others have risk.

Summed it up perfectly in two sentences.

go One Account, the same options you face now will still be available to you, except your savings will be lowering your mortgage interest in the process (therefore working for you better than they currently are, depending on respective interest rates) in the meantime.

homeOwner

MorningStar wrote:

Homeowner, the one account sounds very like what you want .

Can you briefly explain how this account works - is it a savings account or a mortgage account? and which bank offers it. I am not familiar with it.

MorningStar

homeOwner wrote:

Can you briefly explain how this account works - is it a savings account or a mortgage account? and which bank offers it. I am not familiar with it.

Very basically
Monthly mortgage based on interest and small principle pay off.

Mean while you have savings and get samll interest.

The idea is that instead of that situation your savings are taken off the principle yet you still have access.

So you have €20k and mortgage of €100k the bank treat it like you have a €80k mortgage. The difference to paying it off directly is you still have access to your €20k and as it reduces you get chareged appropriately. The samll catch is they charge a slightly higher rate, I think but I was told they don't.

I think that makes sense.

Zap

I think appartments will devalue due to bad construction techniques. The amount of noise complaints posted here and on DIY show this. Problems with parking, maintenace charges etc... Bascially people will begin to hate them more and bad mouth them. Strangely for something with a bad reputation to start with it seems to be getting worse. They are poping up in areas that aren't really suited to them with lack of transport. An appartment in Ashbourne makes no sense to me. I don't know anybody living in an appartment that wants to stay there either with one exception but if you live in a penthouse with 3 bedrooms I can see why. Generally it is a transient population in them that will get older and want a different form of accomadation. There are no signs of society changing yet.I could be wrong and there are exceptions.
Does anybody know anybody that wants to live in an appartment in any place other than the city centre?

Victor

MorningStar wrote:

I think appartments will devalue due to bad construction techniques.

Bad construction will devalue any type of property.

The amount of noise complaints posted here and on DIY show this. Problems with parking, maintenace charges etc...

But no lawn mower.

An appartment in Ashbourne makes no sense to me.

I might make sense to someone working there.

Does anybody know anybody that wants to live in an appartment in any place other than the city centre?

I do. The only real problem I have with where I live is the rugby practice on Saturday morning.

MorningStar

Victor wrote:

Bad construction will devalue any type of property.

Agreed but in appartments you are covered by more neigbours with more noise able to travel. Appartments I feel are constructed in a particular manner that makes them worse. Many are baddly desigened and when Threshold come out and say that it puts a bad name on them all. You can fix bad design in a house an appartment is another thing.

Victor wrote:

But no lawn mower.

You can always gravel your garden if need be. A garden doesn't mean grass but point taken.

Victor wrote:

I might make sense to someone working there.

Yes of course but a strong city style of living in a place without the city ammenities and poor transport links is not sustainable in general. Again a good point.

Victor wrote:

I do. The only real problem I have with where I live is the rugby practice on Saturday morning.

You are the exception as far as popular opinion goes most people in ireland would take a house over an appartment anyday. That cities are exceptions as it is taken for granted you have less living space. Would you really take an appartemnt over a house in the same area? The whole leashold and maintence doesn't bother you?
I could be very traditional but as I said I don't no anybody who thinks appartment living in the suburbs is a permanent plan. Other owners of appartments seem to be investors it doen't sound like a community is going spring up there. No big deal to some people
If your happy that's what counts. I still think a combination of factors mentioned will effect appartments in the long run.

lomb

just to give a balanced view on apartments vs houses one has to delve further
this is from todays independant


A 2.5 acre tract of development land at Central Park in Leopardstown has shattered all records for suburban Dublin by changing hands for around €50m, or €20m per acre.

The "ready to go" site comes with planning permission for a high density 450 apartment scheme and Galway builder Lalco has adquired the rights to the residential development element there.

Lalco is headed by John Lally who recently acquired the former Rowntree Nestle factory opposite Dublin's Kilmainham Jail for around €25m from Treasury Holdings.

Central Park in Dublin 18 is a joint venture between Treasury/Real Estate Opportunities and private investors Derek Quinlan and David Arnold which has set new standards for design and quality in the commercial property sector. Tenants Include Merril Lynch, First Active. Vodafone's, Irish HQ, Esso Oil, Tullow Oil and Leaseplan.

Lalco will now raise the bar in the residential sector there with high-spec two-, three-, and four-bed apartments plus basement car parking. Undertaken on a phased basis in three main blocks, prices are likely to be €500,000 plus given each apartment site cost is €110,000.

The site is located beside the new Vodafone building at the foothills of the Dublin Mountains. A major plus is that the Luas is planned to stop right outside the new scheme. Joint selling agents are Hooke & MacDonald and Sherry FitzGerald.




now basically whats happening here is the land is being maximised by putting up towerblocks. 450 units per acre compares with mature housing developments of 5 per acre.

now the builder buys each site for 110000, add to that 10000 in stamp duty makes 120000, with building costs at 160 euro a sqare foot, that 2 bed apartment will cost about 160000-170000 to build lets say 170000
now 170000+120000= 290000. now to this we can add vat and 5% cost overruns. giving us 340000.
now what they are saying is he will sell for 500000, so he is going to make 160000 PER UNIT less interest but including vat on the deal.

and people are debating here whether houses are a good buy :rolleyes:
for a start they are FREEHOLD , u will never own an apartment it will always be leasehold, all will need major rufurbishment in 10 years. and high density developments WILL give apartments a bad name.

homeOwner

lomb wrote:

A 2.5 acre tract of development land at Central Park in Leopardstown has shattered all records for suburban Dublin by changing hands for around €50m, or €20m per acre.

The "ready to go" site comes with planning permission for a high density 450 apartment scheme and Galway builder Lalco has adquired the rights to the residential development element there.

Is that the site backing onto Murphystown Road? If it is, it is going to have a 16 story tower block in it which the residents are up in arms about. They failed to block it and appealed, the decision is due next month. Check out their website www.lhra.info. The traffic there is chronic in the morning as it is. I cant imagine what another large development pouring onto that road is going to do for traffic in the area.

As for the discussion about aparment living. I agree with MorningStar. I would prefer a house in the same location if I could afford it. I am lucky enough to have only one neighbour above and one below me and they are very quiet. The maintainence fee is extortionate but being a director of the management company I understand where the money goes and I can tell you we waste none of it. We have a sinking fund for future emergencies which the surplus goes into. I can see the complex being very run down and shabby looking in about 10 years - it will look dated and newer apartment blocks will be the ones that will sell. I see myself looking at apartment blocks built in the 70s and 80s and wonder how anyone could buy them - they look so depressing but I am sure at the time they looked wonderful.

Zaph0d

homeOwner wrote:

As for the discussion about aparment living. I agree with MorningStar. I would prefer a house in the same location if I could afford it.

This is the point. Apartments are cheaper than houses in the same location. Everyone would prefer a house but not everyone can afford one. A 2-bed apartment often sells for less than the price of a pokey old 2-bed terraced house with no garden and dodgy wiring.

Apartments come with maintenance charges, but so do houses. As a house owner, morningstar must know that there are myriad charges each year involved in owning a house. Gutters and windows have to be replaced and after a few years various must-have features appear in new houses that weren't there when you built (underfloor heating, additional sockets etc etc). I don't see that apartment maintenance costs more than house maintenance.

What is the advantage to freehold over a long leasehold?

Noise is a problem depending on insulation but many modern 3-beds have only a visual barrier between you and your neighbour. I've been in houses in Lucan where you can hear the nieighbours shagging and shouting, the TV and even the alarm clock.

Apartment blocks are often better insulated from road noise, mowers etc.

Is a high spec 3 bed apartment with some shared garden more expensive than a 3 bed house in the same location? I doubt it. Front gardens are fast becoming parking places in most estates and while the privacy of a rear garden is nice in the summer, most gardens are ignored for most of the year. I'd prefer to pay a fee for the use of a secluded shared garden, tended by someone else.

Granted, I have no idea why anyone would live in an apartment in an outer suburb with no local train/tram, but a large apartment somewhere like Dun Laoghaire looks pretty good to me.

MorningStar

homeOwner wrote:

I can see the complex being very run down and shabby looking in about 10 years - it will look dated and newer apartment blocks will be the ones that will sell. I see myself looking at apartment blocks built in the 70s and 80s and wonder how anyone could buy them - they look so depressing but I am sure at the time they looked wonderful.

The appartments on Gardener St and Parnnell St. are worth looking at to see good and bad design/construction. Some block are in keeping with the area and look well and others (newer) look shabby and have sound and smell issues.

Some blocks built in the 70s/80s don't actually look bad and you may not even date them so. SOmetimes it is tast
I have the strange view that the Ballymun Towers weren't a bad design just baddly managed. They had undergraound heating and were huge inside. The views were amazing too. People didn't like them and anti social tenants were moved in. There were know single drug addicts moved into 3 bed flats beside families.