Paying off mortgage earlier

Gordanus

Registered User
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I'm confused. I thought that if I have some extra money, I can ask to have it taken off the principle rather than the interest. But when I went into the bank they didn't understand and said I could either have the term reduced OR have lower repayments. It's a standard variable rate mortgage. In the end I said that I just want to pay an extra €200 per month for the time being but want the option to stop doing that in case I can't, for whatever reason. (I've read the Key Thread)
Really I don't want a mortgage of €1400 pm coming out of my pension, and neither do I want to spend my entire lump sum paying off a mortgage... it may not cover it anyway.

Is it no longer possible to pay off against the principle? Or am I misunderstanding the idea?
 
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There is no separate principal account and interest account, it's all the one pot. You can pay extra off the pot which is the mortgage balance outstanding made up of the principal you originally borrowed, interest added on every month and payments taken off every month.

Just pay an extra 200 every month if that is what you want to do, don't do anything to the terms of the mortgage, the extra money will save you interest and reduce your balance quicker so the mortgage would end earlier than the agreed term if you kept it up. By not officially altering the term you are only obliged to pay the existing repayments so if at any stage in the future you want to stop the 200 there is no issue, just stop. This is the way it works with small extra payments as opposed to a large lump sum payment.

If you have a large lump sum then when you pay if off the mortgage you have two choices, keep the payments the same and reduce the term or reduce the payments and keep the term the same.

If you want more flexibility go for the reduced payments and keep term the same but then continue to pay the existing repayments, this give you and not the bank the flexibility to reduce down to the lower repayment if the need arises. If you pay off a lump sum and then continue with the existing repayments, regardless of what the bank computer says your new lower repayments will be, the mortgage will still end earlier again regardless of the end date on computer. If you officially reduce the term then your repayments stay as is but if you ever need to reduce your payments in the future you are depending on the bank allowing you to increase the term again. This is what happens with a large sum sum.
 
Any payment ahead of the original schedule will come off the principal outstanding.

The choice is whether to shorten the outstanding term of the loan or leave the term as it stands, in which case you will have lower monthly payments (as interest will accrue on a reduced outstanding principal amount).
 
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