Partial Redemption - Can't get details from provider

[SCA911]

I'm getting so frustrated with my mortgage provider. Situation is this:

Our PPR has an outstanding balance of €270K, term to repay is 21yrs approx.
We wish to pay €125k off the amount outstanding as we have just come to the end of our fixed term. We also want to reduce the term from 21yrs to 15yrs. We have asked our provider, EBS, multiple times to confirm to us what this will mean in monthly repayments going forward. They have bounced us from Head Office to Local Branch multiple times and we still don't have any answers. We have done the figures ourselves so have a good idea but wanted something in writing prior to paying off such a large amount.

The EBS keep telling us this is not possible as we can only pay down the lump sum and reduce the monthly repayment amount or else reduce the years and keep the same level of monthly repayments but not both. I could understand this to be the case if we were looking to reduce the terms to 10 yrs but not 15yrs. Surely by reducing the amount owed and the years from 21 to 15 the monthly repayments will reduce automatically or am I missing something?

Any advice greatly appreciated.

 

[RichInSpirit]

If you type or paste this into Excel or Google Sheets etc and just change the 3.65 to whatever %rate you are on, it will give you your monthly payments for a 15 year term.

=-PMT((3.65*0.01)/12,(15*12),(270000-125000),,)

 

[Paul F]

The EBS keep telling us this is not possible as we can only pay down the lump sum and reduce the monthly repayment amount or else reduce the years and keep the same level of monthly repayments but not both.

You have, I believe, the legal right to pay a lump sum of any amount off your mortgage at any time. (If you are on a fixed rate, there may be an early repayment charge, but that does not apply in your case.)

But if you pay a lump sum off your mortgage, your lender is not obliged to allow you to shorten the remaining term. (Some lenders allow this but it's not a legal right.)

EBS might allow you to do the following:

• Ask them to reduce the term to 15 years while keeping the monthly payment the same
  • This will require you to pay a lump sum
• Once that is done, pay off another lump sum
  • This will keep the term the same but reduce the monthly repayment

One risk with all this faffing about is that EBS could increase their fixed rates before you re-fix (assuming your plan is to re-fix with them).

Overpaying your mortgage/reducing your balance may not be the best use of your money. Your priorities should usually be:

• Paying off expensive debt (credit cards, personal loans, car loans, etc.)
• Building up an emergency fund in a savings/current account (3 to 6 months' living expenses)
• Saving money for any expenses you will have over the next few years (kids; buying a car; childcare; home renovations; adult children going to college, etc.)
• Maxing out your pension contributions (very large tax relief is given)
• Overpaying your mortgage

in approximately that order. Consider posting a thread about your situation in the Money Makeover forum.

 

[nephster]

Obviously, your monthly repayments if you shorten the term to 15 years would be higher than if it remains at 21 years after the luimp sum payment. But you want to pay it off sooner and save a load of interest payments, right?
But, if you don't refix - though you very probably should!! - you can normally make monthly overpayments without penalty. Some providers will allow certain overpayments even on a fixed term.
This will have the practical effect of shortening the remaining term without penalty - as it will be paid off quicker! - BUT with the important quirk that you are not *obliged* to make those overpayments. So if you prefer to use the overpayment cash one month for a treat, it's not a problem; you aren't in a contract to pay the higher amount.

 

[SCA911]

You have, I believe, the legal right to pay a lump sum of any amount off your mortgage at any time. (If you are on a fixed rate, there may be an early repayment charge, but that does not apply in your case.)

But if you pay a lump sum off your mortgage, your lender is not obliged to allow you to shorten the remaining term. (Some lenders allow this but it's not a legal right.)

EBS might allow you to do the following:

• Ask them to reduce the term to 15 years while keeping the monthly payment the same
  • This will require you to pay a lump sum
• Once that is done, pay off another lump sum
  • This will keep the term the same but reduce the monthly repayment

One risk with all this faffing about is that EBS could increase their fixed rates before you re-fix (assuming your plan is to re-fix with them).

Overpaying your mortgage/reducing your balance may not be the best use of your money. Your priorities should usually be:

• Paying off expensive debt (credit cards, personal loans, car loans, etc.)
• Building up an emergency fund in a savings/current account (3 to 6 months' living expenses)
• Saving money for any expenses you will have over the next few years (kids; buying a car; childcare; home renovations; adult children going to college, etc.)
• Maxing out your pension contributions (very large tax relief is given)
• Overpaying your mortgage

in approximately that order. Consider posting a thread about your situation in the Money Makeover forum.

Thanks for this response Paul. Your 2 points above are exactly what we are trying to do however it seems the EBS are making us do it in 2 steps rather than 1. Frustratingly inefficient by them IMO! That said your outline gives me a bit more clarity on how to do it however despite telling EBS what our goal was they never gave us this option.

Re the use of the funds, what you have outlined above is pretty much exactly what we're doing as I've seen similar posts of yours on this in the past and looked at all those areas first - have funds away for 5 months expenses if needed, a savings fund for kids third level, etc. and all loans, credit cards, etc are paid off and were maxing out spouse's pension as I'm told mine is ok. The €125K we plan on paying off the mortgage is what is left after all that. We had originally taken out quite a long mortgage as we had to cover 2 for a period of time and the plan was always to reduce the term once able...I don't want to be paying a mortgage after I retire.

 

[SCA911]

Obviously, your monthly repayments if you shorten the term to 15 years would be higher than if it remains at 21 years after the luimp sum payment. But you want to pay it off sooner and save a load of interest payments, right?
But, if you don't refix - though you very probably should!! - you can normally make monthly overpayments without penalty. Some providers will allow certain overpayments even on a fixed term.
This will have the practical effect of shortening the remaining term without penalty - as it will be paid off quicker! - BUT with the important quirk that you are not *obliged* to make those overpayments. So if you prefer to use the overpayment cash one month for a treat, it's not a problem; you aren't in a contract to pay the higher amount.

nephster, thanks for reply. Yes I had thought of this but the constant juggling of overpayments and having to deal with those who answer the phone in EBS is infuriating, had hoped to tidy it all up in one go but they are not playing ball as they have said "that's not how our system works". Have seriously considered switching just so that I don't have to deal with them anymore but fearful of a couple of interest hikes in the time that would take.

 

[SCA911]

If you type or paste this into Excel or Google Sheets etc and just change the 3.65 to whatever %rate you are on, it will give you your monthly payments for a 15 year term.

=-PMT((3.65*0.01)/12,(15*12),(270000-125000),,)

Thanks RichinSpirit. That gave me the figure I had also come to when doing my sums and ideally where we want to be monthly on our mortgage repayments. Seems have to jump through multiple hoops to get there!