Key Post Should I overpay my SVR mortgage?

elcato said:
Maybe so but the interest on the mortgage is calculated daily so you are paying a bit more interest by holding off for the 6 months.
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I cant disagree with that, and its a good point.

It was more to make the point of not going to the bank every month with an out of course payments. The same scenario could apply for doing it every 3 months.
 
Thanks LS400 and elcato for the feedback. Separate bank account makes sense.I’m even more confused now. I based my thinking re the reduce term or reduce monthly repayment quandary on Brendan’s OP from January 2009. See extract below. Is this incorrect....? Can anyone give me a definitive steer as it’s the core question I want answered.

“Should I reduce the monthly repayment or the term?

Always reduce the monthly repayment and not the term.

Some people have reduced the term of their mortgage and kept the samemonthly repayment. They subsequently got into difficulty with the mortgage and had to apply to have the mortgage rescheduled.

If you keep the same term, your contractual mortgage payment will bereduced. But you can overpay your mortgage without penalty at any time. So keep the same term, but set up a standing order to make the fullpayment if that is what you want to do.”
 
LS400 said:
You should not reduce the monthly payments, unless you are having difficulty meeting these repayments....
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Hi LS

You are confusing garbanzo here or maybe my original post was not clear.

If you make a capital repayment, the bank will ask you
Do you want to reduce your repayment or reduce the term?

If you reduce the term, your contractual repayment will remain the same. Then if you get into difficulty in the future, you could go into arrears.

If you reduce the contractual repayment, and keep the term the same, you will have more flexibility. In other words, you can reduce the contractual repayment, but keep making the same actual repayment.

Brendan
 
QUOTE="Brendan Burgess, post: 1568514, member: 1"]Hi LS

You are confusing garbanzo here or maybe my original post was not clear.

If you make a capital repayment, the bank will ask you
Do you want to reduce your repayment or reduce the term?

If you reduce the term, your contractual repayment will remain the same. Then if you get into difficulty in the future, you could go into arrears.

If you reduce the contractual repayment, and keep the term the same, you will have more flexibility. In other words, you can reduce the contractual repayment, but keep making the same actual repayment.

Brendan[/QUOTE]

Thanks for coming back Brendan.

I get the “flexibility” argument re: reducing the monthly repayment. And I like it.

What I’m trying to get my head around is, mathematically, is there any implication for saving by doing one over the other. Do you save more interest by a) reducing the monthly but overpaying to your original monthly payment or b) reducing the term and continuing repayments as normal.

I think that’s the crux of what I need clarified.

garbanzo
 
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garbanzo said:
What I’m trying to get my head around is, mathematically, is there any implication for saving by doing one over the other.
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If you reduce your loan balance from €200k to €150k and continue paying €1,000 a month, what you tell the lender does not matter.

If you have a mortgage of €150k and you repay €800 a month instead of €1,000 a month, you will pay more interest as your balance will be higher.

Brendan
 
garbanzo said:
It sounds like it could get complicated and the building society will get a pain in the ass with me. Plenty of scope for confusion.
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This was the reason for my reply, and I still recon its the right move to do it the way I suggested.

Brendan Burgess said:
If you make a capital repayment, the bank will ask you
Do you want to reduce your repayment or reduce the term?
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I agree, my reply to garbanzo is based on reducing the term, and not to complicate his original repayment structure. This gives him flexibility if, and when he has the extra funds.

To me, Capital repayments are long term savings.

garbanzo said:
reducing the term and continuing repayments as normal.
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Absolutely, but one size does not fit all. If im wrong, I've made a few mistakes then.

Brendan Burgess said:
If you reduce your loan balance from €200k to €150k and continue paying €1,000 a month, what you tell the lender does not matter.
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Again Absolutely, and probably explained better in fewer words than my post.

Complicated is working out interest on this repayment now, and if changed to another repayment amount, recalculating this again and again over years of adjustments.
My head-space anyway couldn't cope with that.
 
LS400 said:
Complicated is working out interest on this repayment now, and if changed to another repayment amount, recalculating this again and again over years of adjustments.
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It's much simpler than that.

The interest on a loan of €100k is less than the interest on a loan of €80k

You don't need to work out the details to establish the principle.

Brendan
 
So if you make a lump sum payment and go with the reduce the term option instead of the reduce the payment option you would pay less interest over the term of the loan? Is that correct?
 
Hi I'm trying to get m head round this.
I've 30 years left on mortgage, repayments are €840 pm rate is 2.6%
I have €10k that I will take off when I switch provider. Which will bring my loan to 230k new rate is 1.9%

My question is, should I reduce my monthly repayment. Or should I pay same amount. Aim here is to give as little of my money to the bank over the next 30 years.
Thanks
 
Thanks for reply

Would you mind dumbing it down, it's quite difficult to understand.

What will my options be and which one will lead to most savings.

Thanks
 
Dweller$ said:
My question is, should I reduce my monthly repayment. Or should I pay same amount. Aim here is to give as little of my money to the bank over the next 30 years.
Thanks
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They can only charge you interest in what you owe them. The faster you pay them back the quicker your mortgage shrinks and the less interest you'll pay.

If you can afford to keep your repayments at the higher level even though your rate has reduced you will knock months/years off your mortgage.

€840 pm on a balance of €240 over 30 years @2.6% seems a bit low. It looks more like what you would pay after you switch.

To give you a an example though. €240k borrowed for 30 years @ 2.6% will cost you about €106k in interest over the life of the loan. Monthly payments will be about €960 a month.

The same amount borrowed at 1.9% will cost you €75k in interest i.e., a savings of €26k over 30 years. Your monthly repayments would be €875.

Now assume you overpaid and committed to paying back €960 a month even though your mortgage rate is 1.9%. It would shorten your mortgage by almost 3.5 years and the interest cost would fall to under €66k over the life of a mortgage.
 
Thanks very much for reply. If going for a fixed rate I won't have option to over pay each month, is that right?

In that case what will be best way to make max savings over term?
Thanks
 
The flexibility to overpay a fixed rate - without incurring a break fee - depends on the provider but most offer some flexibility.

For example

"Avant will allow borrower to overpay 10% of their balance"

Reported in today's Irish Times https://www.irishtimes.com/business/personal-finance/could-you-save-money-with-a-20-year-mortgage-1.4571485 A spokeswoman for Avant Money says it will allow borrowers to overpay up to 10 per cent of their mortgage balance per calendar year “very shortly”.
www.askaboutmoney.com

Regardless of flexibility on offer you will always have the right/option to overpay, however, it might incur a break fee.

Such fees change by the day with interbank rate changes. There might not be a break fee depending on market movements.

Also remember you don't have to break the fix on all of your mortgage just the part you want to overpay.

Key Post - It may be much cheaper than you think to break out of a fixed rate early...

Many lenders have reduced their fixed rates Many people regret fixing at higher rates a few years ago. Many people think that because they have some time to go in their fixed rate, they cannot switch to another lender and get a lower rate or 2% cash back. However, since 2016, lenders can no...
www.askaboutmoney.com
 
Thanks for reply
We switched from PTSB in 2019 to UB

My figures are corrected below
LTV Less than 40%
Term left 30 years
Loan left €205,859
Rate 2.6%
Monthly repayment €825.32

Have option to pay off 10% without fees

What option would give me greatest savings.

Thanks a mil
 
Brendan Burgess said:
Hi LS

You are confusing garbanzo here or maybe my original post was not clear.

If you make a capital repayment, the bank will ask you
Do you want to reduce your repayment or reduce the term?

If you reduce the term, your contractual repayment will remain the same. Then if you get into difficulty in the future, you could go into arrears.

If you reduce the contractual repayment, and keep the term the same, you will have more flexibility. In other words, you can reduce the contractual repayment, but keep making the same actual repayment.

Brendan
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RE: If you reduce the contractual repayment, and keep the term the same, you will have more flexibility. In other words, you can reduce the contractual repayment, but keep making the same actual repayment.

I am on a 3 year fixed and say I overpay for the 3 years then I instruct the bank to use my over payment funds to reduce the contractual repayment and keep the term the same. My question is I want to switch after the 3 year fixed is up will the overpayment be for noting or does it come off the borrowed money.
I want to be at month 37 with the new mortgage lender as to avoid paying the higher variable rates after the fixed are is up in month 36.
How do I get my balance after factoring in the over payment at the end of month 36 so I know how much i need to borrow from the new lender.
Also what happens if I don't instruct the bank to do anything with the overpayment money and switch at month 37- What happens to the overpaid money
 
@Nowronganswer by overpaying you will have reduced the outstanding balance. This is the benefit. When you come to switch you will be looking to borrow a lower amount.

There are online calculators you can use or spreadsheet formulas but the easiest thing would be to ask your bank for a redemption figure in the run up to switching. Many providers now offer online access to balances or via the phone.

As for what happens if you don't provide instruction to the bank it really depends on the provider. It's likely to be a reduction in principal rather than term but best to check with your lender.
 
skrooge said:
@Nowronganswer by overpaying you will have reduced the outstanding balance. This is the benefit. When you come to switch you will be looking to borrow a lower amount.

There are online calculators you can use or spreadsheet formulas but the easiest thing would be to ask your bank for a redemption figure in the run up to switching. Many providers now offer online access to balances or via the phone.

As for what happens if you don't provide instruction to the bank it really depends on the provider. It's likely to be a reduction in principal rather than term but best to check with your lender.
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Thank you.
 
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