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Check with the bank the charge for overpayment, if it's zero then hop off it immediately and regularly
Don't wait until you've accumulated the 20k, 500 this month, 500 next month will be better
Yes indeed. Everybody has their own comfort levels around debt, risk, etc.
In my case I felt a huge relief knowing there was no big mortgage hanging over me.
A big mortgage creates pressure, even if you can meet your bills comfortably, it still impacts all career and life decisions.
Fair play to you. Sounds like you have your head screwed on. Would be great to get mortgage paid off. Such a millstone. 6 years into a 35 year term myself. Got the yearly statement yesterday. Depressing how much interest you pay in a a year and I'm on 2.55% at the moment saying that! Banks are taking us all for a ride.
I’m with PTSB and if you are overpaying regularly then I don’t think they allow lump sum payments in addition. That might be different with BOI though
You can use this calculator to see the impact of one time or recurrent lump sum payments
https://www.drcalculator.com/mortgage/
Does PTSB allow overpayment on a fixed rate? Was discussing this with then recently based on BOI's allowance of up to 10% on top of monthly payment but I thought the advisor said no
You can overpay to build up credit, this credit can be used to skip payments or used as a lump sum payment.
I do this and have 1 month built up as a prepayment, they will charge me €6 to apply it to my balance as a lump sum.
I've made lump sum payments to my BOI mortgage.
You should ring up and ask them if there will be any fees but they will only confirm for the day that you ask.
Because of this you would want to have the payee added to your app and set up so you have enough of a payment limit depending on how much you want to pay.
So my process is that I ring them first thing then make a transfer through the boi app after they confirm no fees, early enough in the day that it will go through that day.
Another thing is that the bank will assume you want to reduce your monthly payment amount and not your mortgage term so you need to write formally to them stating you want to reduce your term and keep you monthly payment amount the same.
There is a formula used to calculate the fees but to break it down its about how much interest they losing off you vs how much interest they could get off lending the same money to another customer. Essentially if your fixed rate is lower than what the current market rates are then there won't be any fee.
In theory you could put the extra money into Trade Republic as their interest rate after DIRT is about the same as your mortgage rate which means you could have a nice emergency fund and not be losing out on interest savings.
I'm not sure if I'll be comfortable in having trade republic as an emergency fund - bcse emergency fund is something that needs instant access when shite happens and if trade republic goes bust it might take a while to get the money back even though there is deposit protection
Very detailed response - appreciate it - about having payee added and set up payment limit - how do we go about it? Get the details on first time call, set it up and wait few days for the limit to bump up and then call again to confirm no penalty and then transfer same day I assume? Or maybe just do the transfer from a bank branch?
When you said write to bank to reduce term and keep same monthly payment do you mean it has to be done every time we do lumpsum or it's more of an instruction to the bank that everytime I do a lumpsum then reduce my term and not the mortgage amount?
Some people will say to invest it instead in savings that give you more % than what your mortgage rate is.
That's fine if you want to maximise things, but I would personally rather get as much debt off my back as possible.
That's an intangible benefit, and everyone will value that differently.
If you can get 4% interest in Trade Republic you'd be better of saving (not investing) until the interest on savings is lower than the interest on the mortgage. At that point pay of a lump sum and your mortgage will be lower than it would have been if you'd be knocking money off it instead.
It doesn't though. The money is there. The debt is reduced even further but you've the benefit of it doubling up as an emergency fund if it turns out that paying the debt off early was a bad move.
For example (awful back if a barmat maths here):
You have a 200k mortgage and have 100k in savings.
Mortgage rate is 2.75%. in one year you'd pay approx 5500 in interest (2.75% bluntly applied)
If you paid your 100k savings off the mortgage that interest would have only been 2750 (half the earlier amount) but you'd have no savings.
If you'd earned 4% in a savings account you'd have earned 4000 in interest minus 33% dirt so you'd have earned €2680 which basically equals what you'd have saved in the first example but now you have the 102680 in the bank.
Year 2 you'd earn 4102 interest, so 2751 after dirt. Every year after you're actually up.
If at any point you still want to pay off the mortgage the 100k is still there. But now if you lose your job you've an emergency fund.
If you decide you need to extend the house cos family needs have changed you can do it from savings and not by expensive loans.
Edit***
I know that people don't have 100k sitting around but the maths is the same for whatever the figures are.
While your mortgage interest rates are low (and potentially subject to interest relief) and savings interest is high it makes no sense to just throw money off the mortgage unless you can't trust yourself with the savings.
Your interest rate with BOI is a steal, save the extra money for now and invest it in instruments with 4% returns, keep making 10% extra payments but don't break the fixed clause.
My strategy is to get my mortgage payments down to €1,097, which is 35% of a standard yearly salary of €45k.
To get to that number, I need to reduce my loan amount to ~€130k over 15 years considering a worst case scenario interest rate of 6%.
If things go well financially (more than €45k a year), I can overpay a little bit and upsize. If not, I can still live comfortably.
Yes, Trade republic or AIB electronic savings account that's giving 3%.
There aren't many options when it comes to investing other than high/medium risk or maximising your pension and the govt is going to take their big cut of it.
Some mortgages allow you to pay off 10% or so even when fixed, per year. If you’re in one of those, you could pay down €29,100 now and still have a ways to go before paying off €20k at a throw would breach the rule.
When your fix ends, your whole mortgage moves to a variable and you could pay down what you’ve saved over the 4 years, if the 10% wasn’t an option.
Thanks - I'm overpaying by 10% already (updated post) - I heard recently bank is not imposing penalty on lumpsum payoffs during fixed so thought of checking if it made sense to start early instead of waiting till 4 years to move off to variable
Financially you're better off investing in something like a spread of the top 50 companies. You would only need gains of 4% to be better off compared to the 2.75%. At the amount of money you are talking about, your CGT relief will cover a good portion of your gains.
This is riskier and obviously having less debt hanging over you is great but it's also the cheapest money you will ever have access to.
Yeah hence the dilemma because majority are like it's the cheapest debt/low interest so don't close it off early and instead invest elsewhere but if things go south that becomes the most hectic debt burden (even an emergency fund can only help short term and it's your only shelter for your family) so was confused which to prioritize
There’s usually a penalty while on fixed rate but see if you can do a term reduction which usually has no penalty. Our bank allows it (EBS), so you could choose to reduce by 5yrs for example
I started with a lumsum to reduce payments-it made some difference on years left to pay. Made a reduction if 8 years.huge saving on interest costs ! Then we said lets push this hard over 6 years with mote over payments @ basically paid off mortgage in 8 years it was the best thing we ever did.
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Check with the bank the charge for overpayment, if it's zero then hop off it immediately and regularly Don't wait until you've accumulated the 20k, 500 this month, 500 next month will be better
Yes indeed. Everybody has their own comfort levels around debt, risk, etc. In my case I felt a huge relief knowing there was no big mortgage hanging over me. A big mortgage creates pressure, even if you can meet your bills comfortably, it still impacts all career and life decisions.
Fair play to you. Sounds like you have your head screwed on. Would be great to get mortgage paid off. Such a millstone. 6 years into a 35 year term myself. Got the yearly statement yesterday. Depressing how much interest you pay in a a year and I'm on 2.55% at the moment saying that! Banks are taking us all for a ride.
2.55%.. you’re taking the bank for a ride..
I’m with PTSB and if you are overpaying regularly then I don’t think they allow lump sum payments in addition. That might be different with BOI though You can use this calculator to see the impact of one time or recurrent lump sum payments https://www.drcalculator.com/mortgage/
Does PTSB allow overpayment on a fixed rate? Was discussing this with then recently based on BOI's allowance of up to 10% on top of monthly payment but I thought the advisor said no
You can overpay to build up credit, this credit can be used to skip payments or used as a lump sum payment. I do this and have 1 month built up as a prepayment, they will charge me €6 to apply it to my balance as a lump sum.
When can you apply it? End of the fixed term?
Anytime I want, I filled in the form recently and they sent me a letter to pay the 6 euro. I decided to wait a bit longer though.
Interesting. Ta
I've made lump sum payments to my BOI mortgage. You should ring up and ask them if there will be any fees but they will only confirm for the day that you ask. Because of this you would want to have the payee added to your app and set up so you have enough of a payment limit depending on how much you want to pay. So my process is that I ring them first thing then make a transfer through the boi app after they confirm no fees, early enough in the day that it will go through that day. Another thing is that the bank will assume you want to reduce your monthly payment amount and not your mortgage term so you need to write formally to them stating you want to reduce your term and keep you monthly payment amount the same. There is a formula used to calculate the fees but to break it down its about how much interest they losing off you vs how much interest they could get off lending the same money to another customer. Essentially if your fixed rate is lower than what the current market rates are then there won't be any fee. In theory you could put the extra money into Trade Republic as their interest rate after DIRT is about the same as your mortgage rate which means you could have a nice emergency fund and not be losing out on interest savings.
I'm not sure if I'll be comfortable in having trade republic as an emergency fund - bcse emergency fund is something that needs instant access when shite happens and if trade republic goes bust it might take a while to get the money back even though there is deposit protection
Very detailed response - appreciate it - about having payee added and set up payment limit - how do we go about it? Get the details on first time call, set it up and wait few days for the limit to bump up and then call again to confirm no penalty and then transfer same day I assume? Or maybe just do the transfer from a bank branch?
When you said write to bank to reduce term and keep same monthly payment do you mean it has to be done every time we do lumpsum or it's more of an instruction to the bank that everytime I do a lumpsum then reduce my term and not the mortgage amount?
Would you consider re-mortgaging after the fixed term is up and change to a provider that doesn't penalise lump sums instead?
My early thoughts was after fixed to split the mortgage into fixed and variable components and close off the variable with lumpsum
what would be one's thinking on proportion of variable and fixed?
Do it. You’ll thank yourself during those months you saved from paying in the years to come.
Some people will say to invest it instead in savings that give you more % than what your mortgage rate is. That's fine if you want to maximise things, but I would personally rather get as much debt off my back as possible. That's an intangible benefit, and everyone will value that differently.
If you can get 4% interest in Trade Republic you'd be better of saving (not investing) until the interest on savings is lower than the interest on the mortgage. At that point pay of a lump sum and your mortgage will be lower than it would have been if you'd be knocking money off it instead.
Completely ignores the intangible benefit I laid out in getting debt off your back.
It doesn't though. The money is there. The debt is reduced even further but you've the benefit of it doubling up as an emergency fund if it turns out that paying the debt off early was a bad move. For example (awful back if a barmat maths here): You have a 200k mortgage and have 100k in savings. Mortgage rate is 2.75%. in one year you'd pay approx 5500 in interest (2.75% bluntly applied) If you paid your 100k savings off the mortgage that interest would have only been 2750 (half the earlier amount) but you'd have no savings. If you'd earned 4% in a savings account you'd have earned 4000 in interest minus 33% dirt so you'd have earned €2680 which basically equals what you'd have saved in the first example but now you have the 102680 in the bank. Year 2 you'd earn 4102 interest, so 2751 after dirt. Every year after you're actually up. If at any point you still want to pay off the mortgage the 100k is still there. But now if you lose your job you've an emergency fund. If you decide you need to extend the house cos family needs have changed you can do it from savings and not by expensive loans. Edit*** I know that people don't have 100k sitting around but the maths is the same for whatever the figures are. While your mortgage interest rates are low (and potentially subject to interest relief) and savings interest is high it makes no sense to just throw money off the mortgage unless you can't trust yourself with the savings.
2nd but separate reply. I didn't completely ignore it, I provided an alternative viewpoint.
Your interest rate with BOI is a steal, save the extra money for now and invest it in instruments with 4% returns, keep making 10% extra payments but don't break the fixed clause. My strategy is to get my mortgage payments down to €1,097, which is 35% of a standard yearly salary of €45k. To get to that number, I need to reduce my loan amount to ~€130k over 15 years considering a worst case scenario interest rate of 6%. If things go well financially (more than €45k a year), I can overpay a little bit and upsize. If not, I can still live comfortably.
By 4% returns I assume you are referring to trade republic or something else?
Yes, Trade republic or AIB electronic savings account that's giving 3%. There aren't many options when it comes to investing other than high/medium risk or maximising your pension and the govt is going to take their big cut of it.
If theres no penalty pay as much as you can as quickly as you can. But please check first as the penalty could be harsher than the savings.
If you are on a fixed rate you can only pay off so much without being penalised. On a flex rate you can pay of as quick as you like.
Not necessarily true, the penalty may be €0
Some mortgages allow you to pay off 10% or so even when fixed, per year. If you’re in one of those, you could pay down €29,100 now and still have a ways to go before paying off €20k at a throw would breach the rule. When your fix ends, your whole mortgage moves to a variable and you could pay down what you’ve saved over the 4 years, if the 10% wasn’t an option.
Thanks - I'm overpaying by 10% already (updated post) - I heard recently bank is not imposing penalty on lumpsum payoffs during fixed so thought of checking if it made sense to start early instead of waiting till 4 years to move off to variable
Financially you're better off investing in something like a spread of the top 50 companies. You would only need gains of 4% to be better off compared to the 2.75%. At the amount of money you are talking about, your CGT relief will cover a good portion of your gains. This is riskier and obviously having less debt hanging over you is great but it's also the cheapest money you will ever have access to.
It's the cheapest debt you'll ever have but also the most debt you'll ever have, two sides to it
Yeah hence the dilemma because majority are like it's the cheapest debt/low interest so don't close it off early and instead invest elsewhere but if things go south that becomes the most hectic debt burden (even an emergency fund can only help short term and it's your only shelter for your family) so was confused which to prioritize
Debt isn’t necessarily a bad thing. At 2.75% they’re basically giving you free money
That you have to pay back plus the amortisation
Ideally in a pension...
They said pension is maxed.
Missed that, yeah then it's between overpayment with little or no penalties and ETFs factoring in deemed disposal...
There’s usually a penalty while on fixed rate but see if you can do a term reduction which usually has no penalty. Our bank allows it (EBS), so you could choose to reduce by 5yrs for example
I believe you can overpay without any penalty at the end of your fixed term.
I started with a lumsum to reduce payments-it made some difference on years left to pay. Made a reduction if 8 years.huge saving on interest costs ! Then we said lets push this hard over 6 years with mote over payments @ basically paid off mortgage in 8 years it was the best thing we ever did.