Here to answer my own question and ask several more
I requested and received the original offer letter and it confirms: Where your financial situation has improved or remains the same, the repayment structure will continue as detailed within this agreement.
Review has also completed and they have said that as our circumstances have improved, they feel that we can afford additional (effectively full) payments. They suggest that we pay this directly to the active part of the account to reduce the term and in the meantime, the warehoused amount will remain unchanged. This is a departure from the original agreement as any additional payments, over the standard monthly repayment used to have to go to the warehoused part (which is obviously not attracting any interest) before any payments are applied to the active part.
I want to know what the best way to approach this is
purely from a financial point of view.
- We're approaching year five (hence the review) and at that point if I do nothing, the warehoused part will reduce by 5%. This would happen again at the 10 year mark.
- Any repayments which we make currently to the warehoused part are topped up by 30% (we haven't made any yet) i.e. we pay €7 they reduce balance by €10. Post the 5 year mark, which is in April, this changes to 20% top up.
- An additional change mentioned on the call but not detailed in the review letter is that the minimum payment to warehoused part used to be €1000 but now is any amount and top ups still apply.
So from what I can see, there doesn't seem to be any case for doing as they suggest. What I'd save on interest over the remaining terms (currently on 3% fixed, 16 years remaining on mortgage) would be less than I would gain by aggressively paying against the warehoused part?
Additionally the original letter says that once active part is paid down, then warehoused part gets moved to active part.
Considering I have in writing that I don't have to change anything, any additional payments are voluntary, they've confirmed this in their review letter, what incentive would there be for changing?
Leaving aside credit ratings / ICB / CCR etc. from a € point of view, is there a case for what they're suggesting?
My plan was to get the 5% reduction at year 5 and then start aggressively paying down the warehoused amount to avail of the 20% payment top up.
Income has improved greatly, we're currently doing some work on the house but once that's complete, I could pay €800 off warehoused amount monthly as well as the standard montlhy payment.
Current balance on Active is approx €210k and WH (before 5% reduction) is €136k.
Appreciate feedback.
Thanks