Mortgage Overpayment Calculation

L

lledlledlled

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Hi all,
someone might be able to assist with this calculation...

I recently bought a house with mortgage value is €308,000 over 30 years @3.5% interest. I have set up a standing order of €100 to overpay the mortgage each month.
Following advice read elsewhere on this forum, I have instructed my lender to apply this to reduce future payments, rather than to reduce the term of the mortgage.

I have just received a call from my lender advising that the reduction in future repayments will be so negligible that even if I was to overpay by €300 per month, the following month's repayment would only reduce by approx €1.70. Apparently the lender's in-house calculator doesn't even give a recalculated figure for a €100 overpayment but the following month would reduce by less than a euro!

Do these figures sound accurate? If so, the stretch to put aside an extra €100 hardly seems worthwhile.

All comments welcome and appreciated...
 
Hi, yes that sounds accurate unfortunately. You have 360 remaining repayments, so divide out 100 over that amount...

However, overpayments are worth it if you can afford it. Paying 100 now will save you over 100 in interest when compounding is factored in.

What I did was set up a standing order to a regular savings account, and every so often transferred the entire balance to the mortgage. That way I wasn't commited to the transfer if I realised I needed money for something else.
 
I just put your details into a mortgage overpayment calculator.
By overpaying by 100 per month, your Mortgage will be paid off 3 years and four months earlier and you will save 23,990 in interest alone
 
You should probably look into switching to Ulster Bank if possible

308,000 @ 3.5% over 30 yrs = 1,383

308,000 @ 2.6% over 30 yrs (fixed first 4) = 1,233
 
Is there anywhere else you can put €100 that will save you .5% a month :)
Or 7% a year.
My maths may be wonky there. If it is, feel free to correct me.

It's small in the grand scheme of the mortgage. But it's chipping away in the long term.

I've had mortgages with two lenders so far. I didn't bother giving them instructions to overpay. I just overpay whenever I have a few quid and the monthly repayments reduced appropriately.
 
gh0676 said:
I just put your details into a mortgage overpayment calculator.
By overpaying by 100 per month, your Mortgage will be paid off 3 years and four months earlier and you will save 23,990 in interest alone
Click to expand...

I have chosen to use the overpayment to reduce future payments rather than the term, so I don't think this applies to me.

bren1986 said:
You should probably look into switching to Ulster Bank if possible

308,000 @ 3.5% over 30 yrs = 1,383

308,000 @ 2.6% over 30 yrs (fixed first 4) = 1,233
Click to expand...

I got an exemption on the central bank loan to income limits.
I believe this disqualifies me from this rate with Ulster Bank. I also like the idea of being able to overpay the mortgage when I have spare funds available, which I don't think I can do on a fixed rate.
However, I do have <80% LTV so I am aware that I could be getting a better variable rate. I only went with my lender for the cashback offer. I recall mentioning to my solicitor that I would probably change lenders in the near future. My solicitor indicated that there would be legal costs involve in changing lenders. Is this true?
 
qwerty5 said:
Is there anywhere else you can put €100 that will save you .5% a month :)
Or 7% a year.
My maths may be wonky there. If it is, feel free to correct me.

It's small in the grand scheme of the mortgage. But it's chipping away in the long term.

I've had mortgages with two lenders so far. I didn't bother giving them instructions to overpay. I just overpay whenever I have a few quid and the monthly repayments reduced appropriately.
Click to expand...

I wish it were that simple with my lender. I need to notify them in writing each time I want the overpayment applied to the mortgage to reduce the future payments. I would not need to do this if I wanted the overpayments to reduce the term.

willyfones said:
If you got a call from your lender saying reduction in future repayments will be so negligible that even if I was to overpay by €300 per month
They need to stop telling you porkies... (300 euro would save you about 54k in repayments). Check out a decent repayments calculator at https://www.ccpc.ie/consumers/tools-and-calculators/mortgage-calculators/
Click to expand...

The lender in question seems very keen that I use the overpayments to reduce the term rather than to reduce future payments. However, given the number of mistakes they made in my mortgage application (including several pieces of misleading information), I find it difficult to trust them. I suppose that was my reason for posting the question here.
 
lledlledlled said:
I wish it were that simple with my lender. I need to notify them in writing each time I want the overpayment applied to the mortgage to reduce the future payments. I would not need to do this if I wanted the overpayments to reduce the term.
.
Click to expand...

Can I ask why you don't want the payments to reduce the term?
 
lledlledlled said:
My solicitor indicated that there would be legal costs involve in changing lenders. Is this true?
Click to expand...

Of course it's true. Any excuse to get a few quid extra out of you. It costs about €1000 -> €1500 in legal fees. Most banks will cover this now.
 
blured said:
Can I ask why you don't want the payments to reduce the term?
Click to expand...

I read a number of threads on this forum which advised that reducing future repayments (as opposed to reducing the term) gave more flexibility if something unforeseen were to happen. I like the idea of the reducing repayments and being able to increase (or decrease) the overpayment depending on how difficult I am finding it. If I reduce the term, I won't feel any benefit until the mortgage is fully paid off.
 
qwerty5 said:
Of course it's true. Any excuse to get a few quid extra out of you. It costs about €1000 -> €1500 in legal fees. Most banks will cover this now.
Click to expand...

Wow, probably not much point changing from 3.5% to 3.3% then, as i'd pay approx €1500 to save approx €390 per year. I think I'd be better off waiting to see if rates fall further.
 
3.3%???
I'm on 3.1 with Ulster Bank on a LTV of < 80%. You'ld get that rate wouldn't you?

And my €1500 was the higher end. My solicitor cost €980 (they were hugely incompetent and slow though, but got there in the end).
 
lledlledlled said:
I read a number of threads on this forum which advised that reducing future repayments (as opposed to reducing the term) gave more flexibility if something unforeseen were to happen. I like the idea of the reducing repayments and being able to increase (or decrease) the overpayment depending on how difficult I am finding it. If I reduce the term, I won't feel any benefit until the mortgage is fully paid off.
Click to expand...

I think, although I may be wrong, that this is slightly different. You want the repayments to come off the capital of your mortgage, i.e. reduce the term, but retain the flexibility to revert to your normal repayment level if circumstances change. I think that's what the bank was getting at rather than an official reduction of your mortgage terms?
 
@lledlledlled
In terms of switching, as it's a new mortgage you might not be able to switch. Anecdotally I've heard you need 12 months mortgage statement before other lenders will consider your application.

Overpaying your mortgage is definitely worth it in the long run. If you look at each over-payment of 100 individually, it's tiny, but cumulatively they add up. Other posters have done the calculations for you. Every time you make an overpayment, your bank must contact you to confirm it. Most have a default rule to reduce the repayment amount, but either way they must write to you confirming that they have made a permanent reduction in your principle, and telling you the new repayment amount.

flmayo said:
I have been told that if you make one extra monthly payment each year on a 30 year mortgage it will be paid off in 22 years. If you do the same on a 15 year mortgage it will be paid off in 13 years. I live in the US so not sure if the same logic applies in Ireland.
Click to expand...
The higher the interest rate, the bigger the impact. At a rate of 3.5% you'd reduce a 30 year term to 26 years.
 
@lledlledlled
All lenders handle over payments differently. You said you set up a standing order to make the regular over payment. Is this the way they recommended you to do this?

I have done regular over payments with both BOI and KBC - both cases they had specific forms to fill out and they changed the amount of the mortgage direct debit payment taken by them. I just had to write to them in the event I wanted to cancel. In both cases I was asked if I wanted to reduce term or reduce payments on the form.

That said, with BOI, I set a static monthly repayment amount (above the required one) and they took this same amount out each month
With KBC, I informed them of the amount I wanted to overpay each month, so the amount dropped slightly each month

You are in effect making lump sum repayments each month via bank transfer. I know one of the above banks (cannot remember which one) told me I had to pay at least 500 euro in a lump sum for it not to be taken off the term, and then it based on my request.

I suggest you contact the bank, discuss how to make a regular monthly over payment, fill in the form and let them do the work !

I ran your numbers through the calculator as well
Regular monthly over payments of 100 euro would mean an interest saving of 23,990 and mortgage paid off 3 years 4 months earlier
Lump sum annual over payments of 1200 euro would mean an interest saving of 23,149 and mortgage paid off 3 years 3 months earlier

Either way, it is a good thing to do if you have the funds available to do it.
 
blured said:
I think, although I may be wrong, that this is slightly different. You want the repayments to come off the capital of your mortgage, i.e. reduce the term, but retain the flexibility to revert to your normal repayment level if circumstances change. I think that's what the bank was getting at rather than an official reduction of your mortgage terms?
Click to expand...

Over payments always come off the capital of the mortgage. If I have a mortgage of 100,000 and make a payment of 10,000 euro, my new mortgage capital is now 90,000.
The question is whether the original term remains the same - and the monthly repayments reduce OR the monthly payments remain the same and the term reduces.
If you continue to overpay until the end, it has the same net effect - the mortgage will end up at 0 earlier than the original term.

The advantage of keeping the term the same is if circumstances change your monthly repayments are lower and more manageable.
 
qwerty5 said:
3.3%???
I'm on 3.1 with Ulster Bank on a LTV of < 80%. You'ld get that rate wouldn't you?

And my €1500 was the higher end. My solicitor cost €980 (they were hugely incompetent and slow though, but got there in the end).
Click to expand...

I think i'd need to switch my current account to UB to get that rate.
My limited experience of solicitors leads me to think that any attempt to find value is rewarded with very slow service.
 
RedOnion said:
@lledlledlled
In terms of switching, as it's a new mortgage you might not be able to switch. Anecdotally I've heard you need 12 months mortgage statement before other lenders will consider your application.

Overpaying your mortgage is definitely worth it in the long run. If you look at each over-payment of 100 individually, it's tiny, but cumulatively they add up. Other posters have done the calculations for you. Every time you make an overpayment, your bank must contact you to confirm it. Most have a default rule to reduce the repayment amount, but either way they must write to you confirming that they have made a permanent reduction in your principle, and telling you the new repayment amount.


The higher the interest rate, the bigger the impact. At a rate of 3.5% you'd reduce a 30 year term to 26 years.
Click to expand...

As far as I know, I am free to switch. Although I might struggle on the stress tests as my bank account may indicate that I haven't been quite so well behaved since getting the mortgage as I was in the run-up to the original mortgage application.

Regarding any overpayments I make to the mortgage account, I need to instruct the bank what to do with them or else they will just sit there idly. I can either (a) send them one letter instructing them that my regular set repayment amount is to be applied to reduce the term every month or (b) send an individual letter whenever I want some/all of the overpayment to be applied to reduce future repayments. In both scenarios, the bank will not notify me of the overpayment until it has been applied to my mortgage according to whichever option (term or future repayments) I choose. It appears to be an unnecessarily cumbersome system but, as you and others have said, it will be worth it in the long-run.
 
All lenders handle over payments differently. You said you set up a standing order to make the regular over payment. Is this the way they recommended you to do this?

See post above for the two options available from my lender. They have strongly recommended that I use the overpayment to reduce the term, and not to reduce future repayments. The lender doesn't have a preference for how I transfer the overpayment; I set up the Standing Order so it leaves my account shortly after I get paid and I (hopefully) hardly notice it.

I have done regular over payments with both BOI and KBC - both cases they had specific forms to fill out and they changed the amount of the mortgage direct debit payment taken by them. I just had to write to them in the event I wanted to cancel. In both cases I was asked if I wanted to reduce term or reduce payments on the form.

That said, with BOI, I set a static monthly repayment amount (above the required one) and they took this same amount out each month
With KBC, I informed them of the amount I wanted to overpay each month, so the amount dropped slightly each month

You are in effect making lump sum repayments each month via bank transfer. I know one of the above banks (cannot remember which one) told me I had to pay at least 500 euro in a lump sum for it not to be taken off the term, and then it based on my request.

I suggest you contact the bank, discuss how to make a regular monthly over payment, fill in the form and let them do the work !

I have discussed this at length with the bank. As with my original mortgage application, I have been given multiple pieces of incorrect information. As things stand, the procedure for overpayments is as I have outlined above. There are no forms to fill in.

I ran your numbers through the calculator as well
Regular monthly over payments of 100 euro would mean an interest saving of 23,990 and mortgage paid off 3 years 4 months earlier
Lump sum annual over payments of 1200 euro would mean an interest saving of 23,149 and mortgage paid off 3 years 3 months earlier

Are these calculations the same if I choose the reduce the future monthly repayments, as opposed to reducing the term?
 
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