Shortening a mortgage term

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DamC82

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2007 mortgage with approx 270k left on it.. Celtic Tiger mortgage taken over 35 years so 25 years term left. No tracker, but as the rate is 3.1 as opposed to 5.45 , pressure is easing a bit. No creche fees any longer and both on better incomes, so we had hoped to attempt to shorten the term so mortgage would be clear by age 50-55.
Whats the best way to go about this?
 
Just overpay it ensuring that the overpaid amounts are treated as capital payments. Don't look to get the official term changed as your circumstances might change and you might need the leeway.
 
michaelm said:
Just overpay it ensuring that the overpaid amounts are treated as capital payments. Don't look to get the official term changed as your circumstances might change and you might need the leeway.
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Agree 100% and have done the exact same myself.

None of us know what the future has in store for us and its better that we have the option to reduce payments if we need to, than rely on our friendly banks to help us out when we need them.
 
All depends on how the banks system works. Sometimes they have a minimum amount that can be considered a lump sum payment so over payments just sit as a credit on the account until officially applied but that's not necessarily a bad thing. Officially applying them usually means you have to pick an option of shortening the term or reducing the repayment, to give yourself the most flexibility you should choose reducing the payment but then continue to pay the original amount plus overpayments if you want.

Best to check with your bank what they do with the overpayments, if they are applied to the balance for the purposes of calculating interest daily then it doesn't matter whether they sit as a credit or are applied officially to the balance as once they are saving you interest that's what you want.
 
michaelm said:
Just overpay it ensuring that the overpaid amounts are treated as capital payments.
Click to expand...

Do overpayments not automatically get treated as capital payments? I've been overpaying but don't recall specifying anything like this.

EDIT- (sorry above post crossed my post)
 
Have a slightly different question, hope OP does not mind asking here, can add new thread if needed.

I have split mortgage, one is tracker, one is standard variable. I want to lodge a lump sum against the standard variable. I understand that lodging this as a capital payment reduces my term, therefore the amount of interest I pay, assuming my monthly payments remain the same. However, in the next year or so I want to either take a 3 or 4 month break from payments while moving out temporarily. I may possibly also need to reduce my payments for a few years. Any thoughts on how best to proceed?

Thanks.
 
I tested Ulster bank on this. We have been overpaying by a few 100 a month but the Direct Debit monthly repayments havent changed Month to month. i was concerned that they were reducing the term so i rang. The response i got was "the term was a contractual agreement at the time the mortgage was taken out and any changes to this would have to be agreed in writing between us and the bank". I tested why the monthly repayments were not reducing and i was told that only overpayments in excess of €1000 would trigger a recalc of the monthly repayments. I am going to test that with an overpayment of over 1k to see if the re-calc happens.. this way i can see the agreed term remains and the monthly repayment is reducing to offset the over-payement..
 
There is a difference between what you mean by capital payments and what the interest is being calculated on. There is just one amount outstanding on a mortgage, a daily running balance as such and that is made up of the capital amount and the interest charged. This amount changes every time a payment is made or interest is added. If the overpayment is being taken into account against this balance overnight when interest is being calculated then it doesn't matter whether or not the amount has been applied as an overpayment officially against the outstanding mortgage unless you actually want to change the term or repayment.

It's like saying I owe 1,000 and I have a credit on the account of 100 and monthly repayments are 50 meaning there should be 20 payments to clear the loan (to keep it simple). I overpaid 100 at some stage so now there is a credit on the account, once the interest each night is being calculated on the actual amount owed of 900 then that's fine, if the interest was still being calculated on the full 1000 with a credit of 100 sitting somewhere separately then that is a problem. The computer may still show an outstanding balance of 1000 with credit of 100 but once it's calculating on 900 then it's fine.

As I took a loan for 1000 with 20 repayments of 50 p.m. the fact that I am 100 in credit does not alter the original amount or term on the computer as such, if I want to get the bank to apply that overpayment officially then they will do that and either reduce the payments down from 50 to keep the initial term the same or reduce the term to whatever term it takes to clear the 900 left.

But if I just left well enough alone then the loan will finish early anyway as once the 1000 minus 100 balance is paid off then the loan is finished even if the computer thinks there are still two payments left.
 
Miley to the best of my knowledge what will happen when you pay that 1k it will trigger a report showing a lump sum payment has been made which your small overpayments are not doing so you will get a letter or a call asking you if you wish to recalculate the payments or the term. I don't think the computer is going to automatically do that, small overpayments just sit as a credit on the account as the original contract still remains the same as they explained but the interest is calculated on the net outstanding balance every night so any overpayments do reduce the interest charged.

There are basically two columns to the right of the account, one showing outstanding balance and the other whether agreed payments are behind or ahead. Ahead means you have a credit 'arrears' (makes no sense I know but it's just a term) so the interest is charged on the net outstanding.
 
David - I would agree with michaelm advice, you can't count on getting a payment break or reduced payments when you need them so I wouldn't lodge the lump sum assuming they will facilitate you in the future.
 
Thanks for the replies folks, apologies for sidetracking the OP but it looks like you have good advice on that matter already.
 
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