Paying Mortgage off early Vs Cash Deposit

As far as I can see, deposit rates are at an all time high vs mortgage rates so in pretty much all cases it makes very little sense to do it

Although you pay DIRT tax at 23% on deposit interest you would lose somewhere between 0%-25% (depending on year of mortgage, FTB etc.) on the corresponding Mortgage TRS relief.

Seeing as demand depsoiy rates of 3.5% are easily available,
I think it only makes sense even in the most extreme case (TRS = 0) if your mortgage interest rate is above 2.7%. In this case you shoul dbe looking to move provider anyway

Another major negative is if you pay off part of your mortgage early you may not be ale to remortgage it back if you need for say an event like losing your job.

If mortgage rates were to move above deposit rates, you could always make the decision to pay down the mortgage then.

Am I missing something here?

There is just the temptation to spend a big lump sum on something instead of paying off the mortgage. Apart from that - you're right.

You are correct as long as the difference is minimal or indeed up to about 1 to 2% of difference, its probably better to have cash available as oppose to rely on getting a loan at a (probable) higher rate. I would be willing to pay that much on ability to have cash at hand should you need it. One thing to remember though, you cannot pay off a fixed rate so if you decide on fixing you would (possibly) not be able to pay off early without a penalty.

Cheers for you comments. Confirms what I had thought!

Incorrect - Clear you debts as soon as you can !

LouthMan said:

Incorrect - Clear you debts as soon as you can !

Click to expand...

Would you care to back up your comments rather tan throwing out simple cliches.

In what situation does paying down a mortgae now better than depositing the extra cash?

Its not about whats best on paper, you have to consider the risk. Job loss etc.

In theory, it currently makes sense; however, human behaviour means that there is always the temptation to spend that cash deposit on something which you do not actually need or which is more expensive then what you would normally spend.

In addition what is the actual gain? Assume 2% benefit for 2 years on 1000 per month. By my estimation that would amount to approx gain of €240 euro. Is your spending so disciplined that that you would not dip into your savings by this amount.

In my experience the discipline of paying down the mortgage forces you to address your spending needs and to appreciate the burden of debt. In my experience this is key to achieving financial goals.

Overpaying off your mortgage to reduce the amount of interest you pay over the lifetime of the mortgage is a very good way of saving money in the long term. It also imposes discipline, if you have a problem with saving, as you cant dip into the savings.
However, this is a long term saving strategy. It is slow and expensive to liquidate those savings if you really do need them, adn there is a risk that the bank would refuse you a remortgage, leaving your savings completely inaccessable.

It is only appropriate if you have enough short term, relatively accessible savings for issues like car purchases, house repairs, and rainy day money for emergencies.

In short, Its a great idea, once you dont leave yourself with no other savings.

Cheers for your comments but in both cases the only reasonable argument is if you are not in control of your spending. Not all people spend what they can and I think that is certainly true of a lot of AAM members.

I argue if you are in control, the long term play is to not pay it down. Currently I make it a saving of at least 1.75% on an ECB + 0.75% tracker (depending on how I shop around for deposit rates). That equates to €175 per year per €10,000. It is quite possible that deposit rates will drop below mortgage rates in the future but in that case I still have the option to reduce the devt. There is also the possibility that the spread may also increase.

Corkgal, if I lose my job, surely I would be in a better situation having the cash on deposit. I can imagine having a tough time and needing cash to get me through it. If I paid down the mortgage a bit, the way things are at the moment most banks would be unlikely to lend the money back or even allow interest only.