overpaying mortgage

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miriammary

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My mortgage is with EBS and I intend overpaying a little each month off the amount I borrowed from now on-- I'm just wondering as my mortgage goes out on the 7th of the month , should I overpay a few days before that to make sure I get the most benefit from my overpayment?

Also would I need to send a letter each month clarifying exactly what I'm doing?

I hope I've put this question correctly.
 
I don't think the date really matters. If you put in writing to EBS they will increase the DD accordingly. Be clear with them that you want to increase your repayments off the capital amount. I have been overpaying this way for years and really makes a difference. Just be careful that you make it clear that at any stage you can simply revert to original payment/schedule by simply writing to them outlining same. Have this in writing as I had a lot of aggro when I wanted to change back (had posted extensively about this.... Sorted but after lot of unnecessary hassle ).
 
aido71 said:
I don't think the date really matters. If you put in writing to EBS they will increase the DD accordingly. Be clear with them that you want to increase your repayments off the capital amount. I have been overpaying this way for years and really makes a difference. Just be careful that you make it clear that at any stage you can simply revert to original payment/schedule by simply writing to them outlining same. Have this in writing as I had a lot of aggro when I wanted to change back (had posted extensively about this.... Sorted but after lot of unnecessary hassle ).
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I have been in to them already and verbally it's agreed so if I write the letter as you said and perhaps add at the end that I intend doing this only when I 've the extra cash(even though I intend doing it each month), that would probably be ok I suppose??

Thanks
 
A better way to do it is to pay €1,000 in lump sum instalments a few times a year whenever you have the spare build up of cash,This way you do not have to make any adjustments to your orignal DD
 
5thwheel said:
A better way to do it is to pay €1,000 in lump sum instalments a few times a year whenever you have the spare build up of cash,This way you do not have to make any adjustments to your orignal DD
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Is this worthwile or is it just going off the interest
 
foxylady said:
Is this worthwile or is it just going off the interest
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Your question doesn't quite make sense.

As you are currently paying your full mortgage payment every month ( I assume), you are paying off all the interest due this year under your mortgage agreement.

If you pay off an extra lump sum to your mortgage company, you should state in writing that you wish this money to be taken off the capital of the mortgage.

If you simply transfer extra money into the mortgage account with no instructions, the mortgage company may do nothing and leave it there as a buffer in case you ever miss a payment.

As 5thwheel says, this way you do not have to change your mortgage agreement in any way, and you can stop doing it any time you like with no negotiation or notice to the bank, it is completely in your control.
 
5thwheel said:
A better way to do it is to pay €1,000 in lump sum instalments a few times a year whenever you have the spare build up of cash,This way you do not have to make any adjustments to your orignal DD
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But if the interest on your mortgage is calculated daily, as many are, then you're better off making your overpayments as frequently as you can, as you'll get the benefit of reduced interest.
 
LDFerguson said:
But if the interest on your mortgage is calculated daily, as many are, then you're better off making your overpayments as frequently as you can, as you'll get the benefit of reduced interest.
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Depends on what interest rate hes on though, if he can get a higher rate on savings than he is paying on his mortgage, then saving and doing an overpayment once a year would be better than regular overpayments

it also gives more flexibility in the event you might need the money
 
Thanks for all the replies, I have decided to overpay each month and send letter with it.

One further question on this --does it make much difference financially if I use it to reduce the term or payments?? Is there a significant advantage money wise one way or the other? I'm thinking of reducing the payments??
 
miriammary said:
One further question on this --does it make much difference financially if I use it to reduce the term or payments?? Is there a significant advantage money wise one way or the other? I'm thinking of reducing the payments??
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miriammary said:
My mortgage is with EBS and I intend overpaying a little each month off the amount I borrowed from now on
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Unless I'm misunderstanding, these two quotes contradict each other. If you're thinking of paying extra each month, how can you be reducing the payments?
 
If EBS allow you to overpay without reducing the term, then you have the option of reducing the payments without going into arrears down the line. This is usually the preferred method as you never know what life holds over such a long period.
 
ryaner said:
If EBS allow you to overpay without reducing the term, then you have the option of reducing the payments without going into arrears down the line. This is usually the preferred method as you never know what life holds over such a long period.
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You seem to be suggesting overpaying but not paying this money off the mortgage. Instead you allow this money to build up in your mortage account in case you ever dont have the money to pay your monthly payment.

I would consider this the worst option,

You do not the get the benefit of paying off the mortgage early and you don't get any interest on the money,and you dont have access to the money if you have have a financial emergency in any other aspect of your life.

If you want to have money to cover future emergency expenses, it is better to save in a bank account which pays interest but offers access to your savings when you need them.
 
huskerdu said:
You seem to be suggesting overpaying but not paying this money off the mortgage. Instead you allow this money to build up in your mortage account in case you ever dont have the money to pay your monthly payment.
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Not at all, the banks (used to?) allow you to pay extra off the mortgage reducing the capital balance but not reducing the term, aka restructuring the loan. So if after a year you needed to reduce your payments, you could, they'd just be the amount required to pay off the remaining capital in the remaining term.

To give an example, 200k @ 5% over 30 years = 1073.64. Lets say you decide to start overpaying every month by 100 Euro. This comes off the capital and reduces the amount outstanding.
If the term doesn't change and you want to lower the amount, you can then drop to a figure below the original 1073pm.
 
This is what I'm going to do----
I'm going to pay a little, whatever I can afford each month, off the capital but the term will remain the same and my payments will reduce. The bank have already said I can do this if I want.
This will save interest in the long run and in the event of wage reduction & extra taxes which are coming down the line I'll still be able to make the payments. At least this is my thinking on it? I'll also save on interest won't I. ??
This is a good idea isn't it?
 
Hello,

I had a similar query but I want to do something slightly different. The option I want to consider hasn't been covered in this thread so I wanted to ask.

I have a variable rate home loan. I would like to lodge a lump sum into the mortgage account but NOT pay this off the capital (as I would like access to this money at some point). I want to keep my monthly payments the same. From what I understand, most banks calculate the interest using the "end-of-day" balance on the mortgage account therefore a lump sum sitting in the account would "offset" the loan capital and since the payments are the same the loan capital would reduce more quickly.

For example:
- lets say my homeloan is 100K
- lets say pay 5% mortgage meaning I pay 800 monthly (e.g. 400 interest and 400 capital)
- lets say I lodge 40K into the mortgage account (dont pay off the capital)
- now the end of day balance is 100k-40K=60K (interest is less)
- the payments stay the same and therefore more capital gets paid from my monthly payment
- I can ask for this 40K back out of the account at a later time
- The whole time my agreed monthly payments stay the same.

I know that this is technically possible and the banks do not like this. But technically I understand they cant stop it

Has anyone done something similar? Are there some basic questions I can ask the bank so that I can confirm this is possible (without telling them the whole plan)? For example, should I ask them:
- Is the interest calculated on end of day balance on the mortgage account?
- Can lodge in advanced my payments and still continue to make monthly payments?
- How does that effect the loan balance?
- Will the balance be accessible to withdraw later?

Thanks in advance and sorry for the long post - I just wanted to provide as much clarity to my question as possible.
Bovis
 
This was quite common but will depend between lenders whether or not they offer the option to take back the lump sum. I can only speak for the bank I have experience of but to do that the amount had to be lodged as an ordinary repayment, which I understand some banks will not do, if it is lodged and coded as a lump sum then it will trigger the options of whether to reduce term or repayments and essentially it will come off the balance and will not be available for future draw down again. If it is lodged as an ordinary repayment it just sits there as a credit on the account, as though you had prepaid years of repayments.

Otherwise your plan works quite well and yes if interest is calculated daily then you would have a much lower interest charge and by paying the same repayments the capital element of the repayment would be higher than usual thus paying down your mortgage quicker. Assuming of course your bank allows this.

This was the theory behind offset mortgages when they were offered.
 
I thought the term for what you want is "paying future payments" rather than an overpayment, ive heard it mentioned here before
 
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