Mortgage early payment

johnny_adida

Registered User
Messages
21
Hi,
I have recently been diagnosed with a serious illness and have had a claim against my life protection approved for the full sum remaining on my mortgage.
1) Once the sum is paid out to me, am I required to pay off the mortgage immediately?

The reason I ask is the sum of my mortgage is in two parts (divided roughly 60/40). 60% of the sum remaining in on a tracker mortgage with a very low interest rate. The remainder is a variable mortgage which was taken out about 4 years ago.
I intend to pay off the variable sum immediately. In all honesty I would prefer pay it all off but someone asked me the following questions which I hadnt considered til now.

2) As the rate on the tracker is so low, would I be better off earning interest against this in a savings account? (continuing to pay tracker monthly as usual)
3) Should I be looking for a discount from the bank for paying off my mortgage early?
 
To answer in reverse you are unlikely to get any discount for clearing early.

The answer to 2 may be irrelevant if the answer to 1 is that the policy is assigned to the bank, if it is then the money goes to them first to pay off the mortgage with any surplus then going to you.

If it is not assigned then it will go directly to you and you can pay off what you want, rates on deposits are low enough at the moment and especially after DIRT so you may not make much profit by keeping it rather than clearing mortgage.
 
Thank you for the information. Being paid directly to me so will probably just pay it all off in that casr
 
Separate from your own standalone "life protection" policy is there also a mortgage protection life insurance policy assigned to the lender which would pay out here thereby leaving the mortgage cleared AND you with the lump sum from the other policy?
 
Sorry to hear about the bad news.

As Monbretia said, rates are really low and you pay DIRT at 41% on the tiny interest you receive. I'd prefer the peace of mind of knowing there's no mortgage than possibly making a few hundred extra.


Steven
www.bluewaterfp.ie
 
Separate from your own standalone "life protection" policy is there also a mortgage protection life insurance policy assigned to the lender which would pay out here thereby leaving the mortgage cleared AND you with the lump sum from the other policy?
Apologies, it's the mortgage life policy which is in question
 
UB for example did not assign policies at all for years, they just required a copy of it before drawdown so probably other banks did the same. Think they have now reverted to assigning them again.
 
Yes it's an ub mortgage from about 9 years ago. Was paid today so bank account looks extremely healthy tonight.
Think I've decided to pay off approx 10k in credit union loan and the rest off mortgage,retaining current mortgage payments for the remainder of the amount
That is of course until I meet with the bank manager. Wouldn't be surprised if they insist I clear the mortgage in full
 
Well tough for them, they can't insist. I would definitely pay off smaller more expensive debt first.

Pay off the lump sum off your mortgage, that will then give you the option to reduce the term and keep same repayments or reduce the repayments and keep same term. Personally I would go for reduce the repayments and keep same term as this will give you flexibility if for any reason you cannot keep up with the present repayments. There is nothing then to stop you continuing to pay the present repayments even though technically only the new lower one is mandatory and the mortgage will finish anyway as though you had shortened the term.

It just gives you more options and control over the repayments, if you have an expensive months or two then you can drop back your repayment once you keep above the new reduced payments based on the lower balance over the original term.

I actually did something similar myself, paid off the bulk of it from redundancy and reduced repayments over same term which are now around €100 p.m. but I pay way in excess of this every month so the loan will be finished long before the term on the computer but if for any reason next month I can't pay the higher amount I only must pay €100.
 
I see. I think I'd rather be completely clear sooner as hard to know what might be around the corner over next few years

Guess I'll clear the loan, variable mortgage and the whatever left against the tracker. Which would equate to a reduced payment anyway

Thanks
 
Yes but when you pay the lump sum off the tracker having cleared all the rest you will have the option to opt for reduced payments or reduced term. Now while I know it is your intention to go with reduced term keeping the payments the same I would still opt for reduced payments officially keeping the term the same.

You can then continue to pay the present repayments and the loan will finish in the reduced time anyway BUT should anything happen that would see you unable to continue the existing level of repayment you will be able to drop down to the official reduced payments without having to go back to the bank cap in hand to request any leeway or restructuring, you will have the control and not them.

There is no disadvantage to doing this, if you keep to the same repayments the loan will finish at the same time as it would if you had shortened the term officially, it's just giving you options should you need them.
 
I spent many years as a mortgage adviser and this is the advice I would give any customer in your situation whether the bank liked it or not :)
So, if I have a few extra quid handy every now and then (I'm expecting a few grand in the next few months for example) and I want to put it against my mortgage, your advice is to lodge it against the mortgage as a sort of advance monthly payment but I can still opt to maintain my monthly payments (which are quite manageable, in fact I could probably comfortably pay a bit more!) that is the way to go? As opposed say to requesting that the lump sum is put against the capital sum of ones mortgage to reduce the monthly interest portion of ones repayment?

Also, on a related issue do you have any thoughts requesting to pay the mortgage weekly or fortnightly as opposed to monthly?
 
Yes but most banks have a minimum amount that they consider a lump sum payment for the purposes of allowing a change in repayments anyway so a few grand may not be high enough anyway to give you the option of reducing the term or payments and may just as you say sit as a prepayment on your monthly payments.

Requesting that the lump sum is put against the capital to reduce the monthly *interest* is the kind of inaccurate part here, any payment to your account should reduce the interest being charged due to the interest being calculated on a lower outstanding balance, there isn't two separate parts to your mortgage of capital and interest, it's all in the one pot. This of course is assuming your mortgage holder calculates interest on a daily basis on outstanding balance, most do but ask anyway.

The answer to you last question lies again with the last line of above paragraph, if you lender calculates daily then paying fortnightly will save you interest as you will have be paying half the payment two weeks in advance of it being due which will give a reduced balance for interest to be calculated on. However the savings will be small if you are just splitting your existing monthly payment into 2 payments each month, but if you mean pay every 2 calender weeks then that will give in effect 13 monthly repayments which will result in a bigger interest savings and reduce the capital quicker obviously but this all hinges on whether your lender calculates daily.
 
Thanks Monbretia. I've also been looking at my various small savings accounts (apart from my main rainy day fund) and they are all earning less than 1% interest at the moment and I also have regular direct debits going in to them. It seems to me that I'm presently as well off reducing all them to about €10 each and putting that against the mortgage also, and re-diverting my direct debit savings also?
I just don't completely get where all this money goes though if your are paying it to the bank and you have requested that neither your term nor your monthly payment be reduced? Is it that officially you are not changing the terms of your mortgage, but unofficially this money is being used to shorten the actual term of your mortgage?
 
Yes exactly! You just don't officially shorten your term as per what the computer says but the paying extra and saving interest will cause the mortgage to finish early anyway.

As a simple example if you took out a 25 yr mortgage and paid the repayments based on what a 20 yr term would cost then the mortgage would finish in 20 yrs regardless of what the computer said.

Putting all your savings into your mortgage will save you money but remember your savings are then gone and you can't get them back (well with some banks you can but we won't complicate things :) ) so make sure you leave yourself enough savings for unknowns.
 
Back
Top