Updated - Save over €2,500 on your mortgage over 2 years using Regular Savings Accs

[ronaldo]

Let's say you have a mortgage and your house is valued at double your mortgage or more, i.e. You are mortgaged at <50% LTV. The current rate on offer by NIB is 4%. Therefore, in order to profit by paying into a savings account as opposed to paying off your mortgage, you need to be earning 4% net - which equates to 5% gross.

If you look at the best buys tables:

http://www.askaboutmoney.com/showthread.php?t=20747

You will see that there are four accounts paying in excess of this. Therefore, you can profit nicely if you open any or all of these accounts and pay into them as opposed to paying off your mortgage.

The maximum benefit that can be derived from this technique (as non FTB's) is in the scenario below (although anyone with any size of a mortgage can benefit from it):

Let's assume you are:

• a married couple,
• your mortgage is €150,000 or more,
• your house is worth more than double your mortgage,
• you can afford to save €3,050 per month on top of whatever your mortgage would cost if it was interest only.

You should now transfer your mortgage to NIB who offer the best rates at 4%. Your TRS allowance as a married couple is €6,000 per year. Therefore, the first €150,000 of your mortgage is only costing you 3.2% in interest (as you get a refund of 20% from the taxman).

€3,050 per month savings equates to €36,600 per year. The first €6,000 of this is costing you 3.2% and the remaining €30,600 is costing you 4%. Therefore, the total cost of this money is €192 + €1224 = €1416.

You can save €300 per month @ 6.34%, €750 per month at 6.2% and €2,000 per month @ 6%. After DIRT, these figures are as follows:

• €3,600 p/a @ 5.1%
• €9,000 p/a @ 5.0%
• €24,000 p/a @ 4.8%

• €300 monthly @ 5.1% - Account A
• €750 monthly @ 5.0% - Account B
• €2,000 monthly @ 4.8% - Account C (made up of Anglo Irish and BOI)

The interest received on these savings will be as follows:

.................Account A....Account B....Account C
Month 1........€01.28.........€03.13.........€08.00
Month 2........€02.56.........€06.26.........€16.04
Month 3........€03.84.........€09.41.........€24.10
Month 4........€05.13.........€12.58.........€32.20
Month 5........€06.43.........€15.76.........€40.32
Month 6........€07.70.........€18.95.........€48.48
Month 7........€09.04.........€22.15.........€56.68
Month 8........€10.35.........€25.37.........€64.90
Month 9........€11.67.........€28.60.........€73.16
Month 10......€13.00.........€31.84.........€81.46
Month 11......€14.33.........€35.10.........€89.78
Month 12......€15.66.........€38.37.........€98.14
TOTAL.......€101.02......€247.51......€633.24

Therefore, the grand total of interest earned per person saving the maximum of €3,050 into each of the above four accounts is €981.77. This means that a married couple could open one of the accounts each and save €6,100 per month earning €1963.54.

If their mortgage is €150,000 or less, they are paying 3.2% interest on their borrowings (as TRS is refunded). Otherwise, they are paying 4% (assuming < 50% LTV). Lets assume now that you could, as a married couple save €6,100 per month on top of the interest of your mortgage (most people can't do this but this is just to show the maximum that can be saved using this technique). The interest paid on the mortgage by not paying this €6,100 of it instead will be as follows:

.............Mortgage < €150,000......Mortgage > €150,000
Month 1.........€16.27..........................€20.33
Month 2.........€32.53..........................€40.67
Month 3.........€48.80..........................€61.00
Month 4.........€65.07..........................€81.33
Month 5.........€81.33..........................€101.67
Month 6.........€97.60..........................€122.00
Month 7.........€113.87.........................€142.33
Month 8.........€130.13.........................€162.67
Month 9.........€146.40.........................€183.00
Month 10........€162.67.........................€203.33
Month 11........€178.93.........................€223.67
Month 12........€195.20.........................€244.00
TOTAL...........€1268.80......................€1586.00

Summary:
Compare the above amounts of interest paid with the amount earned by saving €6,100 per month and you will, as a couple, save either €694.74 or €377.54 depending on how much your mortgage is. These savings will, of course increase in subsequent years. These savings are quite small compared to the potential the stockmarket offers. Nevertheless, if you have a mortgage at < 50% LTV, you should be switching to NIB anyway (provided you are on a variable rate at the moment). This will offer additional savings. Then it's just a matter of asking NIB to switch your mortgage to interest only, opening the savings accounts and setting up direct debits. All-in-all, probably half a days work.


Additional Note:

I'll not show the workings for this one but after two years of saving the €6,100, the total savings amount to €2641.56 or €1421.56.


Please note that these savings are the amounts you need to save each month in addition to paying your mortgage on an interest-only basis.

If you think that you could do better than these savings accounts by investing in the stockmarkets, you can use the same technique. See the following thread for details:

http://www.askaboutmoney.com/showthread.php?t=41034

 

[Frank Grimes]

Dumb question. If I had €3000 available to save, why not use it to pay off the capital sum of the mortgage? Similarly, if I had €6000 to save.

FG

 

[Superman]

Re: Updated - Save over €2,500 on your mortgage over 2 years using Regular Savings Ac

Dumb question. If I had €3000 available to save, why not use it to pay off the capital sum of the mortgage? Similarly, if I had €6000 to save.

You have to pay interest of 4% on money in your mortgage and you get 6% on money in the savings accounts. You get to pocket that 2% (or whatever it ends up as after DIRT tax etc.)