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Lump Sum - Clear Partial Mortgage or Save

  • 23-08-2022 8:32pm
    #1
    cmred
    Registered Users Posts: 108 ✭✭


    This question which every money expert tells you not to do! Iv saving of 40k and have been advised by PTSB that it will nearly half my years left on the mortgage from 15 down to 8. Sounds like a no brainer?

    my mortgage is pittance at €610o.m (i know!). Just cant decide whether to save for another 6/7 years and hopefully have enough clear the entire mortgage or pay off the lump now. Any benefit to waiting/doing it now?

    doesnt seem to be any saving accounts out there bar the post office at either 5/10 years.

    any feedback, much appreciated.



Comments

  • #2
    Citrus_8
    Registered Users, Registered Users 2 Posts: 1,165 ✭✭✭Citrus_8


    https://www.boards.ie/discussion/2058260058/lump-sum-clear-partial-mortgage-or-save

    You pay your interests based on how much you owe. Paying a lump sum now would reduce your monthly commitments. But you need to consider fees for early payment etc.



  • #3
    [Deleted User]
    Posts: 1,344 ✭✭✭ [Deleted User]


    First things first......is the remainder / mortgage tracker, variable or fixed.??? If it's 'fixed' I'd advise sitting out the remainder of the " fixed" period. Now, if it's variable or tracker that longstanding advice ( good advice really )has changed significantly in recent months ( ECB have increased % & are talking definitely 1 but possibly 2 more hikes in 2022) I would be seriously tempted to "cut" the debt lifetime ...... but ask yourself will you need/ require that not insignificant " cushion" you've accumulated in the short/medium term???? None of us know what's 'around the corner' so I would strongly advise against using your 'full' cushion.........a 75/80% use of your 'egg' would be as far as I would go



  • #4
    awec
    Administrators Posts: 54,006 Admin ✭✭✭✭✭awec


    Also if you do put a lump sum into the mortgage, I wouldn't reduce the term, instead I'd reduce the monthly payments and keep the current term. If your mortgage allows, you can overpay each month to still pay it off early, but this way at least gives you flexibility should you ever need to reduce your monthly outgoings.



  • #5
    walterking
    Registered Users, Registered Users 2 Posts: 1,297 ✭✭✭walterking


    1st question - do you have a pension

    If you do and it's well funded and will give you a comfortable lifestyle in retirement, then pay it down.

    If you don't or you have a small pension use a drip feed effect.

    Put as much of your salary that you are paying high rate tax on into your pension. If you don't have a pension, go for a mixed fund such as Zurich Prisma 3 & 4. Then drip feed the 40k savings into your everyday spending.


    EG. €3,000 a month is subject to 40% tax. Have this €3,000 put into a pension. The tax saving will be €1200. PRSI & USC apply, so your net take home will drop by about €1650. Make a monthly 1650 transfer (or less if you are saving anyway) from your savings into your everyday spending.

    In 2 years, the 40k will be €72k and that's assuming zero growth on the pension


    For me (I expect to semi-retire in about 6 years), I will have a pension that will provide myself and my wife with circa min 70k a year (net 60k), mortgage paid off (2 years time) and the financial security to enjoy ourselves without worrying about finance. I started with small pension contributions when I was 24 and did similar to above when I got a lump sum over 15 years ago.



  • #6
    AndyBoBandy
    Registered Users, Registered Users 2 Posts: 15,670 ✭✭✭✭AndyBoBandy


    https://www.boards.ie/discussion/comment/119515702#Comment_119515702

    I did sort of similar with my mortgage, but not with paying a lump sum but rather with regular overpayments... 2 rate reductions meant that the bank re-calculated our new payments based in the remaining term remaining as is.

    I chased the bank on 2 occasions for a better variable rate, which they obliged (1st was due to LTV entering their threshold for a lower rate, 2nd was me threatening to jump ship unless they gave me a better rate), and on both occasions, the monthly payments reduced but the term (2014 - 2034) remained unchanged..

    • Initial repayments in 2014 were €1,024pm @ 4.3%
    • Reduced to ~€850pm @ 3.9% in 2016 (the overpayments to date brought the monthly payments down by €175)
    • Reduced to €714pm @ 3.4% in 2018, and has remained there since, again with regular overpayments reducing the monthly.

    We continued overpaying, and we currently have 12 years remaining, but if we stopped overpaying, at the current payment rate of €714pm it will be clear in 21 months.. If we re-calculated our monthly payments based on remaining term/balance, the payments would reduce to something like €110 per month!! (so it's very nice to have that option in the back pocket in case of emergency). As such we are marching on with regular overpayments, and will be clear in April 2023, so only 6-7 more monthly payments/overpayments...

    I know the advice is always to put the money into pension etc... and a mortgage is the cheapest loan you'll ever get etc.... but we just wanted to be debt free asap, and clear the house. Once paid off, then we'll go big on pension contributions and focus all our efforts on that pile...

    My justification for paying off the mortgage quicker is the interest savings we made... At the outset, our total interest over the 20 year term was predicted to be €81k, but 8.5 years later, we've only paid €31.5k in interest, with about another €200-€300 to go before we are clear... so we've saved the guts of €49k over 8.5 years!! I don't do investing, so not sure if any investment strategy exists that could return €49k in 8 years plus reducing our mortgage from 20 to 9 years at the same time, but we figured paying off the mortgage as quick as possible was the safest strategy. (I'll be just gone 41, and she'll be 40 about 2 weeks after we are clear).

    I knew all long that we had the safety net of reducing our monthly payments should we need to, but luckily we haven't had to exercise that option.



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  • #7
    Fiyatoe
    Registered Users Posts: 322 ✭✭Fiyatoe


    https://www.boards.ie/discussion/comment/119518762#Comment_119518762

    very interesting thanks @walterking



  • #8
    Sunrise_Sunset
    Registered Users, Registered Users 2 Posts: 1,215 ✭✭✭Sunrise_Sunset


    https://www.boards.ie/discussion/comment/119515702#Comment_119515702

    Have to say, this is very smart advice. I think it was yourself that advised this on another thread a couple of years back and I've taken this on board and am doing this exact thing at the moment. The majority of my mortgage is on a fixed rate, which I'm not touching for now, but I've about 20k left on a variable rate that I overpay on using this method.



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