Overpayments on Tracker - a mistake?

Fruperman

Registered User
Messages
12
Lender: ptsb
Loan amt: 290K (LTV about 69%)
Rate: ECB + 0.8%
Overpayments of €150

Currently there's not much spare cash & a little in savings for bills & emergencies. I have no loans & the credit card is clean.

I fear for when the interest rates start to rise and so, have just started to overpay the mortgage by €150 pm. This is my way of carrying on paying (a fraction?) of what the payments will go up to. TRS running out is also an issue. The mortgage started off around €600 more than it is now. Household income has gone down a lot since the mortgage was taken out 3 years ago. The savings are only in rabo & so not earning any more than 2% interest.

Is it a good idea in my situation to overpay like this? I would love to over pay by more so that interest rises wouldn't affect me when they come along.. should I cut things even finer & do this?

Are the rates likely to soar?

Was thinking of opening a ptsb savings account & move the rabo cash to there. Maybe I should redirect the overpayments there instead but then, when would I pay it into the mortgage?

Any suggestions? Thanks in advance
 
you need to work the numbers
do you earn more by saving the money than you save by overpaying the mortgage
 
Thanks Norf Bank, I'm about 3 full weeks wages off that 3 month goal so I guess I need to prioritise the savings.

The amount in the savings account has been bouncing around at the same level for a couple of years now, being dipped into when we need something for the house. I thought I was doing well having no loan debts but obviously I need more savings before attacking the big one!
 
Well, I'm back!

and now we have 3 months income put to one side!

So I keep hearing that it doesn't make sense to pay extra onto the mortgage when you could potentially earn more by saving money. But surely debt is debt and it would be better to pay off the mortgage early? Am I missing something?

My thinking is that when the ECB rates do rise and (if) we did start to struggle, we would have a cushion on the mortgage account that we could potentially use to reduce payments again. As it stands I'm pretty sure PTSB still have this as an option.

Still struggling with paying off mortgage vs saving & improving the house!

Please show me some common sense - what would you do?!
 
There's nothing like chipping away at the mortgage. Money is gone, out of sight and can't be touched. Plus the joy of seeing the amount you pay back in interest being reduced.
 
Bronte, thanks - that is just what I wanted to hear.

Any arguments against? I just want to make sure that I'm not missing out on anything. If I was to put the overpayments into savings & put a lump sum on at the end of each year or before the interest rates go up, is there any benefit? Sorry to sound clueless but I'm not sure exactly how to work the figures out. Does anyone have a spread sheet which would help here?
 
You didn't write in to The Money Doctor on Newstalk today did you? He was talking about this exact thing!
 
No it wasn't me but I heard it. Didn't exactly answer my question though and I did wonder whether the caller was wondering the same as me!
 
Will Banks ever buy back tracker mortgages? I have heard rumours etc. and we all know that they are costing banks alot of money especially the way the cost of borrowing is.
 
do you think they would consider an incentive of some kind for people to pay off early?

or are you talking about them forcing us out of the contract?
 
I think it would be an incentive, but with Banks you just don't know what they might try. IMO if they could force people off trackers, it would have been done at this stage
 
I have an NIB tracker mortgage, ECB + 0.5% = 1.5%.

I fixed my repayment, and so as rates fell during 2009/2010, my overpayment increased.

However, with the tax increases, pay cuts, I decided to reduce my overpayment by 70 per fortnight.

I save that 70, and earn 3%.

Bear in mind, that if you lose your job, I don't think they take account of all the overpayments.
 
Protocol I have the same tracker.
Fruperman I have been toying with the exact same question as you for ages. After benefiting of more than a year of the lowest payments ever for me I have decided to pay off a lump sum and get the balance down before rates go up.
I am comfortable with the payment I am on now and don't want to have it drastically increased when rates go up. I paid a lump sum off last week and kept the monthly payments the same. I calculated what I would earn in interest on the accounts/investments I would be happy with going with and you know what, I decided now is what I want to think about and the next 12 - 24 months not 5/8/10 yrs down the line. I see debt as debt and just want it gone sooner rather than later. Then I can save aggressively once its paid off if I'm still around.
 
No it wasn't me but I heard it. Didn't exactly answer my question though and I did wonder whether the caller was wondering the same as me!

As someone already said, you are doing the right thing to be thinking about the future, but you obviously want to be sure that you are doing the right thing.

If you can get a higher saving rate than your mortgage rate, then putting the extra money into savings will make you more money.
but, at current interest rates and at 150 a month, the amount is marginal, so don't worry about it too much.

If you save €150 a month for 12 months at 3%, the total interest is only €27.

There is great peace of mind in knowing that your mortgage, the biggest and most stressful debt that you will ever take on, is safe, so if that is important to you, you should focus on that.

How are you overpaying the 150 a month ? Have you written to the bank and told them to take this off the capital. This is a good idea in the long term as it reduces the amount of interest that you pay over the lifetime of the mortgage , but does not help in the short term.

If interest rates rise, the money you have paid off the capital will not be available to you, to help with the higher payments.

So, I agree with you that you should build up a cushion of savings to help you pay the mortgage fore the next few years,

Good luck, you are working hard to make sure that your finances are in good shape.
 
I used to always overpay my mortgage but stopped because with my low tracker, it became more advantageous to save and put these savings against my mortgage at some later stage.

In these uncertain times even with state guarantees from different countries, who knows what could happen, I’m becoming increasingly uneasy with having savings while still having debt.

I now think the financial advantage of saving is outweighed by the security of lower debt.

I think I will now keep a modest emergency fund and pay the rest off the mortgage.

Better to have no savings and little debt than no savings and big debt.
 
Here's another question, if I called the bank & asked them to use the overpayments to lower my monthly payments by spreading them across the term, would they do that? How would that work? Would they be calculating the different amounts each month? And would it be advantageous doing this but still paying more manually each month?

Tell your bank in writing you want any overpayments paid off the capital, this will result in a lower outstanding balance, less interest paid and lower repayments when they recalculate over the remaining term.

I think NIB is one of the few who make overpaying transparent and effortless. There is no reason why they cannot all operate in this way.

I can make payments big or small at any time online to my NIB mortgage, I can see my outstanding balance drops instantly, as interest is charged daily any extra amount I pay is of immediate benefit to me.

NIB is supposed to recalculate my repayments every year or when there is an interest rate change.

Unless I specifically tell them otherwise, the new repayment is calculated on the current balance over what’s remaining of the original term.

If I had paid extra into my mortgage this would have the effect of reducing future payments when they recalculate over the original term, so overpaying now would help counter the effects of future interest rate increases.
 
I might be wrong about this but surely the question of whether it is better to overpay on a tracker or put your money in a savings account is dependent on time.

If we assume that you have a tracker mortgage costing 1.5% and a savings account that pays 2.5%. And that you have 1000 euro and you are trying to decide what to do with it. If you put it in the savings account you will make 2.5% a year on it. If you pay it off you mortgage you will save yourself 1.5% a year. So on the face of it, it seems like putting your money in the savings account seems best.

However, surely you will only make the 2.5% on your savings for the time that the money is in the savings account, whereas you would make the 1.5% saving on the mortgage for the rest of the term of your mortgage. On the assumption that the remaining term of your mortgage is probably a lot longer than the amount of time you will keep the money in your savings account, then the option to pay it off the mortgage will save you more money in the long term.
 
Back
Top