Is it better to overpay mortgage or save?

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Lingua

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I have 12 years left on my mortgage (taking me up to 65) and never thought until now about the benefits of overpaying the mortgage (being a thicko in financial matters) - hence my question. I could probably afford to pay double the amount Im paying now(€650 monthly) which would probably pay off the mortgage in 5 years instead of 12 (mortgage balance is 69.200). I usually try to save about 400 monthly anyway. My question is would i be better off saving or overpaying the mortgage?
Thanks
 
Theres a lot of debate on here about not paying off a tracker sooner and leaving money on deposit instead. The tracker interest rates while low at the moment are not insignificant. I also would like to start overpaying if and when i can afford it. I cannot see how the banks are "losing money" on these products - the interest amount on mine is very high every month (Im in year 6 of NIB tracker mortgage). If somebody had a calculator to work out how much could be saved by overpaying say 100 euro per month it would be a help.
 
Im on a 3 year fixed soon to come to term. Sorry that link Karls mortgage calculator doesnt work.
 
If you can get a higher interest rate by putting your money on deposit than the interest you are paying on your mortgage then its more profitable putting it on deposit. If not its more profitable to overpay your mortgage.

You could put money on deposit and overpay your mortgage by lump sum periodically which gives you some felxibility but it mightnt be as profitable
 
shigllgetcha said:
If you can get a higher interest rate by putting your money on deposit than the interest you are paying on your mortgage then its more profitable putting it on deposit. If not its more profitable to overpay your mortgage.

You could put money on deposit and overpay your mortgage by lump sum periodically which gives you some felxibility but it mightnt be as profitable
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Thanks for that. The interest Im paying now on mortgage is %4.99 which is the same as a high interest savings a/c... Probably the best bet is your suggestion to spread things out a bit even if its not the most profitable way. Personally I think this would suit best as I prefer the flexibility... If I were 10 years younger I think the option of paying off the mortgage in a 5 year period would be much more advantageous.
 
well youll lose DIRT aswell though but yeh atleast if you need the money in a pinch you can get at it
 
Assuming you have a sufficient emergency fund built up (around 6 months' after-tax income if you have dependents), you would be mad not to double your mortgage repayments to EUR 1,300 p.m. if you can afford to do so. You're paying a very high rate of interest, 4.99% is about the highest on the market at the moment. To put that in perspective, you'd need to be earning interest on your savings of over 7.1% in order to make the same return, once you allow for DIRT! In reality you'd be doing very well to make even half that on your savings after tax. Not to mention the peace of mind and extra financial security of being mortgage-free well before retirement :eek: You can always reduce your repayments again later if things get tight.
 
Apologies I've just noticed your comment about coming off a 3-year fixed rate, I assume that explains the high interest rate, or will that be your new rate once the fixed rate ends?
 
Prancer said:
Assuming you have a sufficient emergency fund built up (around 6 months' after-tax income if you have dependents), you would be mad not to double your mortgage repayments to EUR 1,300 p.m. if you can afford to do so. You're paying a very high rate of interest, 4.99% is about the highest on the market at the moment. To put that in perspective, you'd need to be earning interest on your savings of over 7.1% in order to make the same return, once you allow for DIRT! In reality you'd be doing very well to make even half that on your savings after tax. Not to mention the peace of mind and extra financial security of being mortgage-free well before retirement :eek: You can always reduce your repayments again later if things get tight.
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Yes I have 30000 in a 12 month term savings a/c at EBS since March last (interest %5) Must say I forgot about the DIRT in all my calculations! Also have about 7000 in Boi (dual and easy saver) Had hoped to use these savings as a deposit on a house but increasingly the prospect of selling my own house looks bleak so looking into alternative ways of dealing with my financial affairs.

I agree that overpaying the mortgage seems wise.
 
Prancer said:
Apologies I've just noticed your comment about coming off a 3-year fixed rate, I assume that explains the high interest rate, or will that be your new rate once the fixed rate ends?
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Thats the rate of the past 3 years - about to change next month. No idea about tracker mortgages only ever had fixed rates. Works well for me.
 
Fair play on the healthy savings habit, 37k is a substantial sum. However, it really doesn't make sense to hold onto such large savings while continuing to pay down more expensive debt. If you're thinking of trading up in the future you will need to sell your house anyway, so you should recover any extra equity you build up in your home by overpaying your mortgage.

I'm no expert but in your situation I'd be considering the following:

-> Hold onto your 7k in BoI as an emergency fund
-> Stop saving and increase your monthly mortgage repayments to whatever you can afford (look at it as just another type of saving)
-> Keep your mortgage on a variable rate to allow you the freedom to make extra lump-sum contributions without penalty
-> Once your term savings a/c matures next March I'd pay a lump sum of around 25k off the mortgage, leaving savings of around 12k. Keep half those savings in an instant access a/c and the other half in a 30-day notice a/c (shop around for best rates)
-> This should leave you with a mortgage balance of <40k

Paying off your mortgage faster has major advantages
- It's a tax-free investment
- It's risk-free
- If your interest is calculated daily you'll see an immediate interest return, i.e. you'll be paying less and less interest and more and more off the capital
- It gives you additional peace of mind and financial security. Your reduced exposure means you'll need less insurance, for instance you may be able to reduce your life cover, saving you more money.

The downsides are
- You won't see your money again until you sell your property
- Newer/younger buyers may forfeit some of their govt. tax relief on their mortgage interest. That won't apply in your case.
- The opportunity cost of being unable to make potentially more lucrative investments. However, remember that such investments invariably involve a) risk and b) tax

Re. fixed vs. variable rates, this is a personal choice and depends on your attitude to risk and the rates on offer. However, bear in mind that you do not have a big mortgage, so the risk to you from future interest rate rises (the main argument in favour of fixing) is relatively modest. Also, fixed rates can be quite expensive. Personally, I wouldn't be bothered fixing, especially as you're in a position to pay such a large lump sum off the mortgage next year.

Disclaimer: the above are the views of a non-expert. It's always a good idea to get professional, independent financial advice.
 
Prancer said:
Fair play on the healthy savings habit, 37k is a substantial sum. However, it really doesn't make sense to hold onto such large savings while continuing to pay down more expensive debt. If you're thinking of trading up in the future you will need to sell your house anyway, so you should recover any extra equity you build up in your home by overpaying your mortgage.

I'm no expert but in your situation I'd be considering the following:

-> Hold onto your 7k in BoI as an emergency fund
-> Stop saving and increase your monthly mortgage repayments to whatever you can afford (look at it as just another type of saving)
-> Keep your mortgage on a variable rate to allow you the freedom to make extra lump-sum contributions without penalty
-> Once your term savings a/c matures next March I'd pay a lump sum of around 25k off the mortgage, leaving savings of around 12k. Keep half those savings in an instant access a/c and the other half in a 30-day notice a/c (shop around for best rates)
-> This should leave you with a mortgage balance of <40k

Paying off your mortgage faster has major advantages
- It's a tax-free investment
- It's risk-free
- If your interest is calculated daily you'll see an immediate interest return, i.e. you'll be paying less and less interest and more and more off the capital
- It gives you additional peace of mind and financial security. Your reduced exposure means you'll need less insurance, for instance you may be able to reduce your life cover, saving you more money.

The downsides are
- You won't see your money again until you sell your property
- Newer/younger buyers may forfeit some of their govt. tax relief on their mortgage interest. That won't apply in your case.
- The opportunity cost of being unable to make potentially more lucrative investments. However, remember that such investments invariably involve a) risk and b) tax

Re. fixed vs. variable rates, this is a personal choice and depends on your attitude to risk and the rates on offer. However, bear in mind that you do not have a big mortgage, so the risk to you from future interest rate rises (the main argument in favour of fixing) is relatively modest. Also, fixed rates can be quite expensive. Personally, I wouldn't be bothered fixing, especially as you're in a position to pay such a large lump sum off the mortgage next year.

Disclaimer: the above are the views of a non-expert. It's always a good idea to get professional, independent financial advice.
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Many thanks for your ideas - and your time! You have built up a complete picture which actually makes sense! Until now I must say mortgage payments (to me) were just big black holes where your money dissapeared - the last place I would put a chunk of my hard earned savings. Even the thoughts of putting 25000 out of my 30000 savings scares the hell out of me. Especially because doing this forces a rethink of current plans ...
As I said my house is on the market (without any apparent interest - its just another new 3bed s/d . Best selling point is the area) Have been approved a mortgage from same lenders for 'dream house' -selling at a knockdown price of 140000 (repossession) same area but slightly rural (detached large grounds) and most importantly for me large workshops with plumbing etc.
For the price, it would be difficult to find a similar property. The mortgage offered is a 12 year term and cost region of 800 monthly - but subject to sale of my house. Yesterday the suggestion was made from the lenders that i might qualify for a bigger mortgage based on the renting of my current house. In this case I would borrow 115000 and with my savings be able to buy the house, paying off approx 1200 monthly for 12 years. The lenders have still to get back to me in next few days to let me know if i have approval for this.
Now that I have come so close to actually 'having' the dream house, Im beginning to look at the figures and wonder about the wisdom of having your dream house but being stuck with 2 mortgages and all the implications...
There are just 2 of us - a 20 year old who is currently at college living away from home during college term, works part time. I suppose a lot of my thinking now is governed by age and thinking down the road to retirement age and all the issues that go with it.
Thanks so much for your help. Dont know what I would do without this site. I find when it comes to financial issues, family /friends are too emotionally involved.
 
Lingua said:
I have 12 years left on my mortgage (taking me up to 65) and never thought until now about the benefits of overpaying the mortgage (being a thicko in financial matters) - hence my question. I could probably afford to pay double the amount Im paying now(€650 monthly) which would probably pay off the mortgage in 5 years instead of 12 (mortgage balance is 69.200). I usually try to save about 400 monthly anyway. My question is would i be better off saving or overpaying the mortgage?
Thanks
Click to expand...

At 4.99%, it seems it would pay to overpay the mortgage. Have you any kids that will/are going to college? Car changes, holidays, major home improvements? If not, then maybe pay down some of the mortgage.
 
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