Mortgage Payoff V investing economics

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OrlaM

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I'm old fashioned in my thinking - if you have a debt pay it off.
We took out a 20 year mortgage 5 years ago but kept the payments static so as the interest rates fell, the overall term fell. Also we added the mortgage interest relief on to our repayments.

My logic is to pay it off as efficiently as we can - especially when interest rates are so low - so that we're eating into capital repayments. Then whenever the interest rates do rise - there's less capital upon which its calculated

We now have 13 years left on my mortgage - 180 K. We have a tracker rate of .6 above ECB so an interest rate of 1.6. We pay 1420 per month which is above the required amt by 120 euro

However - here's the thing. we were out at the weekend and I was told I was mad. That we should only pay the minimum at 1.6% and invest the rest at 3.1-3.7% depending. The net gain is more beneficial to you. Get your money working for you.

however when I argued the DIRT argument - that 25% be deducted from a net gain and that as we are eroding the capital sum, so when interest rates do rise, his proposal would have him paying interest at a higher rate on a greater amount.

I need convincing of the economics of his argument.
Any clarification much appreciated
 
Hi OrlaM. I was in the same situation as you. Overpaying on my mortgage with ECB +.95, whilst all the papers etc were saying to put it in a deposit account paying x amount. But any time I did the calculations and compared. it always came out favourably on the overpayment side. Because I could always see that once I put a certain amount, say €1000, against the mortgage, and then asked them to drop my monthly payments accordingly (staying to the same mortage term), I could see very easily how much money it was saving me a month. I'd then compared the interest I'd get in a deposit account and it was less (even before DIRT). I was confused...how could all the experts be wrong...so confused in fact I put an asking post on the aam here. didn't get any answers. But I'm certain my calcs are right. that's my experience.
 
If after Dirt the savings rate is higher than the mortgage rate, then it is more beneficial to save than overpay, if you are getting TRS it’s even more beneficial.

If/when rates change and it is no longer beneficial, then pay your savings off your mortgage and return to making overpayments.

It’s explained in more detail here;

http://www.askaboutmoney.com/showthread.php?t=101819

.
 
Hi Orlam, I am off the same thinking of you. I find with less debt I save more, any smalls loans I ever took out I accelerated payments and it led to me saving more it's all psychological for me anyway.

I had decided to pay off a lump sum this year but at this stage I am going to wait for the budget and see how my take home pay or additional outgoings are going to be. I will re evaluate in Feb.
 
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