Best Interest Rate: Paying Off Your Mortgage Early

eyesgreen_1

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Im planning to start overpaying my mortgage with lump sums and/or possibly monthly overpayments. I'm presently on a fixed rate of 3%. I've been offered 2.9% fixed and variable 3.30%.

Mortgage balance: €58,965
Remaining Term: 13 years
Repayments €452

Questions:
1. Ive been quoted low breakage fees (€36) so am I better to move to 3.30% variable rate or take fixed 2.9% option and just break when I need to pay off a lump sum and re-fix again?

2. In the long run is it there much financial difference in paying off lump sums or better to pay a consistent monthly overpayment, or both?

3. Overall, with these figures, which is the best financially prudent strategy?

Many thanks
 
2. In the long run is it there much financial difference in paying off lump sums or better to pay a consistent monthly overpayment, or both?

Will depend on amount of payment and how frequently you pay lump sums.

For example, if you pay €500 extra on the first of each month you will save €90 in interest by the end of that year on a 3% mortgage, which you won't get if you just make the €6000 lump sum payment at the end of the year. Obviously in subsequent years you will save an identical amount of interest on this €6000 overpayment regardless.
 
Thanks IIgon, Initially I was going to pay off a lump sum of €5000 and then possibly €100-€150 extra per month and then another €5000 when savings permit. In this scenario I'm presuming a variable rate would be best option?
 
Firstly, you're lucky to have such a small mortgage balance.

With BOI you can make regular overpayment of 65 per month without them checking if a break fee applies. Use that each month.

The difference between the fixed and variable rate is about 230 interest in year 1.
If you fix, and want to pay off a lump sum, you just pay breakage fee (if applicable) on the amount you want to overpay. You don't have to break the entire and refix.
So at the moment, to pay 5k your break fee would only be 3euro.

Personally, I'd fix, and aim to overpay regularly. Then pay the breakage fee on the amount of lump sum - it can never be more than the amount of interest you're going to save.
 
Thanks RedOnion, I didn't realise you could pay breakage fee on just the lump sum. So overall your suggesting:

(a) Fix at 2.9%
(b) OverPay €65 per month
(C) Pay off lump sums (with small breakage fee)...
 
That's it exactly.

If you're very comfortable with your finances for next few years, I'd be tempted to go a step further, and shorten the term to say 10 years before you fix. Your repayment would increase by about 100 per month, and you could still overpay by another 65.
WARNING: This would be a permanent change to your contract. If you get into financial difficulty, you won't be able to just extend the term back to 13 years.

If you're looking to save money, make sure to also review your mortgage protection insurance. You might be over covered if you've paid off lump sums.
 
Interesting RedOnion,

I think for financial flexibility I'll most likely keep the term as it is, at least that leaves me wiggle room and a healthy emergency fund in case of any unforeseen issues.

I think your suggestions are prudent (2.9%, €65 and lump sums), so I think I'll probably use that strategy.

When I was trying to work it out over the last few days, I just wasn't sure wether in the long run the variable rate (3.30%) And Blitzing as many overpayments at the mortgage as I could or the fixed rate (2.9%) with smaller overpayments and lump sums would be the best going forward.

I thought the penalties of paying off lump sums on a fixed rate may have cancelled much of the benefit. But if the penalties are as small as you say then it would be fine. I will ring BOI on Monday to double-check the breakage cost of paying a lump sum of €5000 off the principle on the fixed rate of 2.9%.
 
Another option is the break and move to the variable rate. Then set an overpayment amount e.g. tell BOI you want to overpay the variable payment by €100 per month. Once that is sorted you can fix the mortgage and BOI keep your overpayment in place without penalties. I just wrote about this happening to me in the Switchers Forum. That way you are not restricted to only overpaying by the 10% per month.
 
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Firstly, you're lucky to have such a small mortgage balance.

With BOI you can make regular overpayment of 65 per month without them checking if a break fee applies. Use that each month.

The difference between the fixed and variable rate is about 230 interest in year 1.
If you fix, and want to pay off a lump sum, you just pay breakage fee (if applicable) on the amount you want to overpay. You don't have to break the entire and refix.
So at the moment, to pay 5k your break fee would only be 3euro.

Personally, I'd fix, and aim to overpay regularly. Then pay the breakage fee on the amount of lump sum - it can never be more than the amount of interest you're going to save.
Damn, didn't realise I didn't have to break out entirely. Redonion you're a goldmine! Is this the case with all banks( I'm with Ulster)?
 
@Eoghan

Yes, the same with them all.
With Ulster you can overpay by 10% of the BALANCE every year before this even becomes a question.
 
Thanks bluecup,

yeah I read your post, it definitely is worth thinking about. It seems a clever way of getting the best of both worlds- variable and fixed, which is what I'm after. Food for thought. I'm going to ring BOI today and see what happens.
 
Update: I rang BOI and indeed as you said RedOnion they quoted a small break figure of €5 if I wanted to pay €5k off the principle.

So I'll fix at 2.9% for 3 years for now, and will pay the permitted €65 overpayment per month and lump sums with small breakage fees as and when I can. I think this leaves enough flexibility around consistent monthly overpayments and intermittent lump sum payments while also utilising the cheaper fixed rate option.
 
Firstly, you're lucky to have such a small mortgage balance.

With BOI you can make regular overpayment of 65 per month without them checking if a break fee applies. Use that each month.

The difference between the fixed and variable rate is about 230 interest in year 1.
If you fix, and want to pay off a lump sum, you just pay breakage fee (if applicable) on the amount you want to overpay. You don't have to break the entire and refix.
So at the moment, to pay 5k your break fee would only be 3euro.

Personally, I'd fix, and aim to overpay regularly. Then pay the breakage fee on the amount of lump sum - it can never be more than the amount of interest you're going to save.
So I rang Ulster and made it clear I just wanted the break fee for overpaying by 6000. This is after already overpaying 10 % for the year. The letter says ' you are on a fixed rate of 2.3% until 30 sept 2020. To break out of this fixed rate early, you would have to pay a fee of 219. This amount is valid until 24 June 2019'. I only received the letter today the 25th and also should it be this high?
 
@Eoghan
Honestly, I've no idea. I would normally say the letter should be clear, but those UB letters confuse me. If you call them they should be able to answer that for you.

You might be better off just paying the lump sum rather than waiting for letters that seem to be delayed - the break fee won't be anywhere close to the amount of interest you'll save.
 
@Eoghan
Honestly, I've no idea. I would normally say the letter should be clear, but those UB letters confuse me. If you call them they should be able to answer that for you.

You might be better off just paying the lump sum rather than waiting for letters that seem to be delayed - the break fee won't be anywhere close to the amount of interest you'll save.
Thanks redonion. Would you guess that 219 is wrong then? So in future when I ring them initially and they say they'll send out the letter I should tell them I want to pay it now knowing the fee should be around 5 euro like you previously said? Just trying to wrap my head around all this.
 
@Eoghan
Honestly, I've no idea. I would normally say the letter should be clear, but those UB letters confuse me. If you call them they should be able to answer that for you.

You might be better off just paying the lump sum rather than waiting for letters that seem to be delayed - the break fee won't be anywhere close to the amount of interest you'll save.
Went ahead with that. Only 15 euro instead of 219. I'll know the craic for next time. Thanks again
 
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