Paying a lump sum into mortgage

M

Moggy

Guest
I have the opportunity to pay a large sum of money into my mortgage. The idea came out of necessity more than anything else, my mortgage is just far too expensive. My question is, will my money be safe? If the doom-mongers are right and there is a bubble about to pop will I be in danger of losing this money?
 
No matter what happens to the housing market, you are going to have to pay off the outstanding mortgage. Whether you reduce this amount today through a lump sum payoff or not is entirely up to you.
 
Moggy said:
My question is, will my money be safe? If the doom-mongers are right and there is a bubble about to pop will I be in danger of losing this money?
Click to expand...

Could you explain what you mean? How do you feel you will lose money?
 
I mean if the value of the house goes down will I lose money?
 
Moggy said:
I mean if the value of the house goes down will I lose money?
Click to expand...

??

The value of your mortgage has nothing to do with the value of your property. Whatever your home is worth, you still owe whatever you have borrowed less any payments made.
 
Thats not what I mean but never mind I can see the answer to my question now.
 
NorfBank said:
No matter what happens to the housing market, you are going to have to pay off the outstanding mortgage. Whether you reduce this amount today through a lump sum payoff or not is entirely up to you.
Click to expand...
You could give back the keys like many before in England, if you cant pay you cant pay, so they just take back keys as far as I can see
 
You could give back the keys like many before in England, if you cant pay you cant pay, so they just take back keys as far as I can see
Click to expand...

You can hand back the keys, however you still owe the money outstanding, and if the bank sells the house for less than the mortgage amount outstanding, you will owe the bank the balance and the costs for selling the property
 
Pay off your lumpsum and you will save alot of money in interest in the long run.

We paid off our mortgage of aprox €50k when the SSIA's matured (2 max ssia's & we saved along side these as well to have the extra required to clear mortgage) in 7 yrs instead of 20yrs and when we worked it out on the mortgage calculator I think we will have saved aprox €20k in interest repayments (thats without interest rate hikes even) in the 13yrs that we cut off the mortgage.
 
With the size of my mortgage it is definitely better than investing. But my plan is to reduce the repayments rather than reducing the term. At the moment it is dangerously close to being unaffordable. My slight worry was that if house prices went down I'd have basically blown this money.

Thinking from an investment point of view, if I was to sell my house for 100K and my mortgage had 60K left on it but I had put 50K lump sum into the mortgage then I will effectively have lost 10K of my "investment". Also in the case of having to hand back the keys its bye bye 50K what a waste of money. That's not going to happen unless the house price goes down below what I originally paid for it. But as has been pointed out its irrelavent as I have to pay the mortgage regardless of what goes on in the market.
 
Moggy said:
Also in the case of having to hand back the keys its bye bye 50K what a waste of money.
Click to expand...

The money ( the 50k) is not yours. You will loose it at some stage as you owe it to the person who gave it to you( the bank, very kindly). All you can do is reduce the interest that will be charged on this money by paying it back now.

As long as the house is your PPR, if you sell it for 100K and pay off the 60K mortgage,regardless of having already paid 50K lump, you will be in a position to purchase a similar property for 100K with.... a 60K mortgage. Same situation. The most important thing from your point of view seems to be avoiding default on the current mortgage. You can pay your 50K off, maintain the term and reduce the future monthyl payments, with the agreement of your lender of course.

IMHO people should not consider their own home as an investment as gains made on its disposal can be 'eaten up' in purchasing a replacement home. And vice versa.
 
Use the mortgage calculator to figure out how much interest you'll save by paying off the 50k now.
http://www.moneydoctor.ie/calculators/mortgagecalculator.htm
That money represents a real saving and should help with the affordability issue - which appears to be the main problem?

Decide how much you can afford to pay per month, plug in rates of 5% (as a conservative measure) and determine what's the shortest term you can afford. If you go for a tracker you'll be able to pay down further lump sums as you go along.

As Beaky says, don't look at your home as an investment - it's your home.
 
Moggy said:
My slight worry was that if house prices went down I'd have basically blown this money.
Click to expand...

Moggy, this is really strange logic. Don't you see what CCOVICH was trying to tell you: it doesn't matter if house prices go down, you still have to pay the mortgage. The value of your home does not matter unless you're selling it. The only thing that should concern you is the size of your mortgage, and the term of that mortgage.

To answer your question, if you feel your mortgage is too big, use your lump sum to reduce it. Why fret about the value of houses??? :confused:
 
kramer2006 said:
The value of your home does not matter unless you're selling it.
Click to expand...

Sorry I wasn't very clear. This is the scenario I'm talking about. I know my home shouldn't be considered as an investment but a very sizeable amount of money should.

Also just on the point about homes being investments - Alot of people make money by selling property. Couples that meet and move in together may want to sell one of their properties for example. A lot of people these days downsize to remove the burden and have a nice retirement fund. If it ever comes to selling my home I would like to think a lump sum (50K is an example) would give me a nice return. Who knows what will happen down the line.

I get the point made, I still have a mortgage to pay no matter what. Thanks for all the advice.
 
If your mortgage is with the EBS and not fixed you can credit your mortgage account with the lump sum. It will reduce the interest charged but you can take all or part of it back out as you wish so if you think it would be better elsewhere it is very easy to withdraw it.
I found it a very convenient option especially when deposit rates were so low in comparison, especially after Dirt.
 
DirtyH2O said:
If your mortgage is with the EBS and not fixed you can credit your mortgage account with the lump sum. It will reduce the interest charged but you can take all or part of it back out as you wish so if you think it would be better elsewhere it is very easy to withdraw it.
Click to expand...
Are you 100% sure about this in all cases? This suggests that EBS are operating offset/current account mortgages by default. I would be surprised if this was the case and that the customer did not need to make it clear what s/he wanted done with overpayments (e.g. keep them as a credit on the account, same but offset them against capital outstanding or actually pay them off capital thereby preventing you getting the money back without a top-up). As always I feel that it's important to put your instructions in writing and get confirmation in writing from the financial institution.
 
If your mortgage is with the EBS and not fixed you can credit your mortgage account with the lump sum. It will reduce the interest charged but you can take all or part of it back out as you wish so if you think it would be better elsewhere it is very easy to withdraw it.
Click to expand...

Are you 100% sure about this in all cases? This suggests that EBS are operating offset/current account mortgages by default. I would be surprised if this was the case and that the customer did not need to make it clear what s/he wanted done with overpayments (e.g. keep them as a credit on the account, same but offset them against capital outstanding or actually pay them off capital thereby preventing you getting the money back without a top-up). As always I feel that it's important to put your instructions in writing and get confirmation in writing from the financial institution.
Click to expand...

Yep, this is the case with EBS (for variable mortgages anyhow). I have been making overpayments for the last couple of years and while they reduce the mortgage balance and therefore interest, the repayments sit as a credit on the account and can be withdrawn at will. It's only if you want to use the credit balance as a capital repayment that you need to write to EBS stating if you want the repayments or the term reduced.
 
it's a good idea to pay some off, but don't pay off too much and get a 15K car loan a few months later at a higher interest rate. just remember that at present the mortgage is probably the cheapest money you will borrow unless you're bertie ahearn :)
 
Moggy,

Also remember that a lumpsum will reduce the balance of your mortgage but not neccessarily your mortgage repayments unless you renegotiate the terms with your mortgage provider.

You mentioned that your repayments are becoming a bit difficult so make sure you do actually discuss this with your Mortgage Provider & not just lodge the money to the account.

Sorry, maybe I've missed it but I don't think you actually said which institution your mortgage is with.

If you have the Mortgage on a Fixed rate there may also be penalties for paying in lump sums. You really do need to discuss it with your bank/BS. Not every mortgage is the same, so you need to see the effects on your specific mortgage. Maybe you might even want to switch to a different institution for a better deal ....
 
You must log in or register to reply here.
Back
Top