# Lump sum payment off mortgage or not



## Not2Sure (24 Nov 2008)

*Age*
Myself: 40
Spouse: 34

*Employment*
Myself: Engineer
Spouse: Recently unemployed

*Gross Income*
Myself: 55k
Spouse: 30k

*Property*
Family home: worth 500k, 145k tracker @ 4.2%, 23 years left on mortgage approx €760 after interest relief

*Borrowings:* None. 2 credit card paid in full each month

*Savings*
9k in Halifax saving/deposit account

20k in IPBS saving

5k in Credit Union 




*My Question/s:* 

I would like advice whether or not to pay a lump sum off the mortgage.
Just received 30k inheritance and not sure whether to hold onto it in deposit/saving a/c (cash is king at the moment as another poster stated) or pay off lump sum. I suppose what I really like to know is how best to make this cash work for us given we are hoping to start a family shortly and my spouse most likely will be out of work for approx. 9mths to a year.


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## Stapeler (24 Nov 2008)

€30K lump sum off your mortgage will save you approx €30K in interest over the life of the mortgage. It also reduces your mortgage by approx 6yrs. 
That would be my choice and in the event that things get tight later on you could possibly take a payment break as you'll be ahead in your payment schedule.
It's nice to have cash for a rainy day but there's also that temptation to spend it (new car etc.). A compromise would be to put half into mortgage and half into a savings account with a good rate of return.


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## Guest116 (24 Nov 2008)

Would it not make more sense to put the 30k into a savings account earning 5% or more in interest rather than paying it off the mortgage which is at 4.2% ?


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## NHG (24 Nov 2008)

They say 'What you never had you never miss' - pay the 30K off your mortgage, you will always be glad that you did.


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## NorfBank (24 Nov 2008)

Cash is king but you have 34k in cash already. Having 64k in cash would mean all your eggs are in the one basket with the threat of inflation eating away at the cash.

For this reason if it was a choice between the two, I would pay it off the mortgage.

Why not  try and diversify a little bit more though. You may not like risk and the equity market has been pummelled recently but at these lows it could be a good time to invest. I'm not advising some high risk leveraged fund but something with some exposure to equities.


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## LouisCribben (24 Nov 2008)

aristotle25 said:


> Would it not make more sense to put the 30k into a savings account earning 5% or more in interest rather than paying it off the mortgage which is at 4.2% ?


 

Not really Aristotle

You must pay tax of the savings interest (called DIRT)

When you pay off the mortgage principal, it's equivalent to a 4.2% nett return (tax free of course).

Where else are you likely to get a 4.2% guaranteed tax free return ? Not from a savings account usually.

Best to reduce the mortgage, and if you need the cash at a later date, withdraw some equity from your property. 
OK, I know sometimes it's hard to withdraw equity from a mortgage i.e. if you are unemployed, or your house falls in value, but paying the money into the mortgage will usually increase your overall wealth (if not wellbeing).


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## killybram (24 Nov 2008)

We decided today to increase our mortgage payments as interest rates are dropping. trying to eat into a 300k mortgage so we decided to give the bank an extra €130 a month. will try it for a while until int rates start rising! Wise or Not????


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## Stapeler (24 Nov 2008)

killybram said:


> We decided today to increase our mortgage payments as interest rates are dropping. trying to eat into a 300k mortgage so we decided to give the bank an extra €130 a month. will try it for a while until int rates start rising! Wise or Not????


 
Makes perfect sense to me. On a €300k mortgage over 30yrs,  €130 a month would save you over €35k in interest and knock the last 5years off your mortgage.


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## PM1234 (24 Nov 2008)

I would also pay a lump sum off the mortgage. Make sure that you tell your lender that you would like to keep your mortgage repayments at the current repayment level. If you don't specify, they may keep your current term and reduce the repayments accordingly in line with your decreased capital amount.  

Depending on your rate (if you are not on a fixed rate), you could also ask them if you can keep your original term so you will essentially now be overpaying. This gives you the option of reverting to your original term if your circumstances change in the future.  If you can, get this in writing from your lender.


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