Extra money after sale of house.

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Debracd

Registered User
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We're so used to being broke that we don't know what to do about this! We will have an extra 12000 left over after the sale of our house. Should we reduce our initial mortgage amount before our purchase goes through? Or pay a lump sum off the mortgage after it goes through? Will either of these make a huge difference??

We intend on over paying the mortgage by €500pm anyway. We're just wondering what kind of impact this will have on the term of our mortgage really.

Thanks,

Deb
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Debracd said:
We're so used to being broke that we don't know what to do about this! We will have an extra 12000 left over after the sale of our house. Should we reduce our initial mortgage amount before our purchase goes through? Or pay a lump sum off the mortgage after it goes through? Will either of these make a huge difference??
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If you have no other pressing need for the money and would not end up borrowing at personal loan rates later on for something then reducing your borrowings on the new house would make sense. Reducing the amount you borrow rather than reducing the mortgage after drawing it down would make most sense since this would also reduce the level of mortgage protection life assurance cover that you need and hence your monthly premiums for this.
We intend on over paying the mortgage by €500pm anyway. We're just wondering what kind of impact this will have on the term of our mortgage really.
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Definitely consider borrowing up to €12,000 less and then plug the overpayment figures into Karl Jeacle's mortgage calculator to see the savings attributable to your accelerated repayment of the mortgage.
 
Thanks for that Clubman, that makes alot of sense! We won't need to borrow any more after that. That's how much we will have left after paying off all other debts, old mortgage, huge deposit, paying legal fees etc and doing up the new house and having over 10,000 left over to put into a savings account.

We will be freeing up alot of cash monthly with the lower mortgage and no personal loans to pay, so it seems to make sense to over pay the mortgage with at least €500 of that!

I'll have a look at that mortgage calculator now too.

Thanks again,

Deb
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OMG! That will shorten the term of our mortgage by 22yrs according to that calculator. That can't be right???:confused:
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Assuming you borrow €12K less than initially planned please post the amount to be borrowed, the term and nominal rate (as opposed to the APR) and the monthly overpayment (€500 I presume from the above).
 
The borrowed amount will be 128000 over 30yrs first 2yrs at 3.99%(unsure after that) and monthly payments will be €1010.35
 
If you can afford a €500 p.m. overpayment then why not reduce your overall term such that the "normal" repayment will take account of this excess anyway (if you get what I mean). For example knock 5 years or so off the mortgage term and see what the repayments are and look towards choosing a term that involves repayments up to of x + €500 where x is the amount that you would pay with your currently planned mortgage term.
 
Believe it or not they insisted that due to my husbands earnings that we take a 30yr mortgage and can reduce it at a later date. We can definitely afford to reduce to a 15yr mortgage as our current mortgage payments are almost €300pm more than the new mortgage payments, plus we have no personal loads(home improvement loans on current home) so the plan is to at very least over pay the mortgage for the fixed rate period then reduce the term.

Thanks for you help.

Deb
 
Debracd said:
OMG! That will shorten the term of our mortgage by 22yrs according to that calculator. That can't be right???:confused:
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It is as far as I can see. €129K is not a huge mortgage and the repayments (note that the calculator does not take account of owner occupier mortgage interest relief, mortgage protection life assurance, home insurance etc.) at around €600 are not excessive (although that depends on your monthly income). As such you might want to reduce the term and make the overpayment of €500 part of your "normal" repayment and thus also reduce your mortgage protection life assurance costs even further. You might also want to check that (a) you are getting the best mortgage rate deal for your circumstances and (b) you shop around for mortgage protection life assurance and home insurance cover.

Hope all this helps you to save money and own your home outright sooner.
 
Debracd said:
Believe it or not they insisted that due to my husbands earnings that we take a 30yr mortgage and can reduce it at a later date. We can definitely afford to reduce to a 15yr mortgage as our current mortgage payments are almost €300pm more than the new mortgage payments, plus we have no personal loads(home improvement loans on current home) so the plan is to at very least over pay the mortgage for the fixed rate period then reduce the term.

Thanks for you help.

Deb
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Sorry - playing catch up here composing and posting while you do the same!

What are your (combined) monthly earnings? Who (what lender) "insisted" on the 30 year term? This sounds dodgy to me especially if you can obviously afford higher repayments. What is the montly (net) household income? Is your husband self employed or PAYE?
 
Total (net)earnings are approx 2,600pm(plus 458pm child benefit which is not considered 'earnings' but is currently paying ONE of our loans!). The bank is PTSB and my husband is a PAYE worker.
 
Debracd said:
so the plan is to at very least over pay the mortgage for the fixed rate period
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This might not be a good idea! Making accelerated capital repayments on a fixed rate loan could lead to penalties.

Also - on a more general point when making overpayments which you want used to reduce the capital sum outstanding you need to make this explicit to the lender - possibly in writing - otherwise they may simply lodge the overpayments as a credit on the mortgage account to be used if you ever missed normal repayments.
 
Debracd said:
Total (net)earnings are approx 2,600pm(plus 458pm child benefit which is not considered 'earnings' but is currently paying ONE of our loans!). The bank is PTSB and my husband is a PAYE worker.
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What additional loans are you referring to (type, term, rate, institution etc.)? This is all a bit confusing because you have not posted all details in one go. My previous comments were predicated on the assumption that you did not have any other loans (in particular unsecured personal loans at higher than mortgage rates). Please post details of these. In general spare cash should be used to reduce the most expensive borrowings so it may be that you should be reducing/clearing other loans before reducing your mortgage borrowings or initial need for same.

As ever - if in doubt get independent professional advice. Since you have mentioned other loans PTSB may be correct in suggesting a 30 year term (although I still wonder) but they are not a source of independent professional advice and are more inclined to just sell you their own products for their own gain.
 
The sale of this house is covering our loans, so there will be NO other loans in addition to the new mortgage(see post above).
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OK - sorry about that. It really seems to me that you can afford to take a shorter term and thus reduce your overall interest costs and mortgage protection life assurance premiums. This may mean that some or all of your planned c. €500 monthly overpayment becomes part of the "normal" mortgage repayment. If PTSB are insisting on a 30 year term then you should ask them why. No matter what they say you should shop around because you cannot trust them (or any tied agent) to give you independent advice. You should shop around for the best deal on mortgage protection life assurance and house insurance too. You should also crunch the numbers and make sure that consolidating existing debts into your mortgage will result in savings. It can be that paying higher rate repayments over a shorter period of time can be less expensive than paying lower rate repayments over a longer period of time. For example paying for that holiday, car, kitchen etc. over 20-30 years of a mortgage term can work out significantly more expensive the paying an unsecured personal loan for the same amount over 2-3 years.

Hope this helps.
 
Thanks Clubman, I'll ring around tomorrow and will be sure to pay the extra 12000 off the house up front rather than off the mortgage later.

Thanks again,

Deb
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Notwithstanding the extra costs of life assurance, I personally don't think its a bad idea to go for the longer term with overpayments rather than shortening the term due to the flexibility it gives you should you find yourself in circumstances which might limit your ability to repay the mortgage. The net effect is the same, but it's a lot harder to get the bank to agree to reduced repayments where the main breadwinner is out of work, for example, than it is to simply return to the minimum repayment of a longer term mortgage. Maybe holding over sufficient savings to make the minimum repayments for a year or two could also save the need to have serious illness cover etc.

All of the above depends on your personal circumstances, and of course your self-discipline in making the overpayments.
 
conor_mc said:
Notwithstanding the extra costs of life assurance, I personally don't think its a bad idea to go for the longer term with overpayments rather than shortening the term due to the flexibility it gives you should you find yourself in circumstances which might limit your ability to repay the mortgage.
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Fair point. There's no one size fits all answer here. Personally I prefer to minimise costs but for somebody who might have concerns about future ability to meet higher repayments the breathing space of a longer term might be useful. However 30 years for €129K seems a bit excessive on the face of things but it obviously fdepends on the household income and other debts etc.
 
Debracd said:
The borrowed amount will be 128000 over 30yrs first 2yrs at 3.99%(unsure after that) and monthly payments will be €1010.35
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Debracd said:
Sorry! The total amount we'll be paying per month is 1110.35
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This does not make sense. For €129K at 3.99% over 30 years Karl Jeacle's calculator gives approximate repayments of €615.12. Do you mean that the repayments will be c. €1,100 when the €500 overpayment is added?
 
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