# Mortgage overpay/overpayment reduce term or monthly repayment help



## Nowronganswer (10 Mar 2021)

Hi sorry i have posted this in another post, first time using this site so apology's.

Hi

Can anyone tell me what is best.
I am with ptsb i have a 3 yr fixed and want to overpay.
Is it best to reduce term or reduce monthly amount?

With ptsb its sits as credit on the account until I instruct them that I either was to reduce term or reduce monthly repayment amount.
If I am overpaying by 300 euro per month for 3 years and then switch lenders after the 3 years what happens to the overpayed money?.
If I had elected to reduce the term then does that reduce term carryover to the new lender?
If I had elected to reduce my monthly repayments then what happens when i switch to the new lender?
So if i overpay for 3 years and then switch after the 3 years where does the money go.
My mind is boggled from this.
PLEASE HELP!!!

ME: 35
Spouse’s/Partner's age:30

Annual gross income from employment or profession:58K
Annual gross income of spouse: 32K

Monthly take-home pay: 5,400 after tax

Type of employment: e.g. Medical Devices
Spouse: HSE

In general are you:
(a) spending more than you earn, or
(b) saving?

Answer: b.SAVING

Rough estimate of value of home: 330K
Amount outstanding on your mortgage: 285k
*What interest rate are you paying? 2.95%

Repayment 1,194
30 year term
2 months into mortgage.*

Other borrowings – car loans/personal loans etc : None

Do you pay off your full credit card balance each month? Don't have one
If not, what is the balance on your credit card?

Savings and investments: 15K savings

We will appreciate any advise. Thank you

Do you have a pension scheme? YES 4 % of pay and employer matches.

Do you own any investment or other property? No

Ages of children: No children.

Life insurance: no MPI 44 per month dual life.


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## _OkGo_ (10 Mar 2021)

Nowronganswer said:


> Is it best to reduce term or reduce monthly amount?


Always reduce the monthly payment. This gives you more flexibility with your finances. It is good practice to overpay your mortgage but as your situation changes (e.g. if kids come along) it is much better to have a smaller minimum payment that you are obliged to pay. You then have the choice to overpay or use the difference for living expenses/pension contributions



Nowronganswer said:


> If I had elected to reduce the term then does that reduce term carryover to the new lender?


In general yes. There may be situations where you can extend it again but for a straight switch, it is easier for everything to stay the same so if you reduce the term now, then the new reduced term is what you will use for switching

If you are overpaying by €300/month, then you are on course to reach an 80% LTV after 2 years. Even though you have fixed for 3, you should be checking what the break fees are as you approach 80% LTV and consider switching to a better rate if the break fee is small or zero. Going with PTSB was fine because of the 2% cashback but be careful not to get stuck at those rates. Again, if you are to have kids, your affordability may change in the next 3 years so you may not have the option to switch. It would be better to be on a low interest rate (lots in the 2.2% range at LTV) rather than relying on cashback. So target 80% LTV as soon as reasonably possible and switch

Use this calculator to play around with scenarios





						Karl's Mortgage Calculator
					

Mortgage calculator with graphs, amortization tables, overpayments and PMI




					www.drcalculator.com


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## RedOnion (10 Mar 2021)

Actually, with PTSB you don't have to do anything.

On their system it just sits as a credit, but the interest is calculated on the net balance owed.

There's one benefit of this - if you get into financial difficulty in future, the credit will be utilised before you go into arrears.

Re switching in future. You'll switch based on the net balance you owe at that time. You apply for whatever term suits you, the remaining term on your existing mortgage is irrelevant beyond being able to demonstrate affordability.


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## Nowronganswer (10 Mar 2021)

_OkGo_ said:


> Always reduce the monthly payment. This gives you more flexibility with your finances. It is good practice to overpay your mortgage but as your situation changes (e.g. if kids come along) it is much better to have a smaller minimum payment that you are obliged to pay. You then have the choice to overpay or use the difference for living expenses/pension contributions
> 
> 
> In general yes. There may be situations where you can extend it again but for a straight switch, it is easier for everything to stay the same so if you reduce the term now, then the new reduced term is what you will use for switching
> ...


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## Nowronganswer (10 Mar 2021)

Hi.
Re: reduce repayment amount.
Lets say after the  3 years i contact ptsb and instuct them to use the credit to reduce my monthly repyament going forwards. Doe that overpayment come off principle. (Net mortgage amount)
What i was thinking of doing was overpaying for 3 years, then switch to a lower interest rate which would make the monthly payment less by default.
Ptsb 2.95% Monthly repayment= €1194 (30 years)
Over pay for 3 years to reduce the monthly repayment then
AIB 5yr green ltv 50 to 80% at 2.15%. MR is €1042. (27years) overpayment from previous 3 years factored in.
Anyone that i know in work that has a mortgage they all keep saying overpay and reduce the term and so on.
What are the interest savings gains between overpaying to reduce term and overpaying to reduce monthly repayments.
What is the safest most efficient way to get this mortgage off my back as most people think.
Thanks


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## RedOnion (10 Mar 2021)

Nowronganswer said:


> What are the interest savings gains between overpaying to reduce term and overpaying to reduce monthly repayments.


There is no difference, so long as you are repaying the same amount per month.

Take an example.

You're paying 1,194 per month.

Say you make an overpayment of 50k now.  That'll reduce your *contractual* repayment to 984 if you keep the term the same.
So long as you actually repay 1,194 per month, it's the same net interest savings as if you had shortened the term.  So you'd be making an overpayment of 210 every single month.

The problem is that most people don't have the discipline to continually overpay their mortgage each month, so they don't get the benefit.


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## RedOnion (10 Mar 2021)

Have a look through the following 2 threads which should answer all your questions:






						Key Post - "Overpaying my mortgage - should I reduce the term or the monthly repayment?"
					

This question comes up in a variety of ways and the threads often go off topic with irrelevant calculations.  The interest charged each year is exactly the same - we will return to this.  Reducing the repayment is simply reducing the payment you are contractually obliged to make under your...



					www.askaboutmoney.com
				




Re PTSB specifically:





						Key Post - How overpaying a ptsb mortgage works
					

I was vaguely aware of this but it was brought to my attention this morning by someone who is choosing ptsb because of this facility.  https://www.permanenttsb.ie/globalassets/pdf-documents/mortgages/mortgage-arrears/bmk3625..-flexible-mortgage-options-aug-19..-1.05mb.pdf    In simple terms, if...



					www.askaboutmoney.com


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## Nowronganswer (10 Mar 2021)

In one post Brendan Burgess says
(The earlier you pay off a loan the better, irrespective of the rate - unless it's a cheap tracker.

Brendan)


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## Nowronganswer (10 Mar 2021)

Re ptsb specifically..
Quote:
In simple terms, if you overpay your ptsb mortgage, the overpayments go into a separate credit account.
The interest is charged on the net balance.

If you need cash in the future, you can't get the money back, but you can use the overpayment account to fund the monthly payments.

So if you are taking out a €200k mortgage for the first time and you don't know whether to go for a 20 year mortgage or a 35 year mortgage?
Or you are not sure about how much you should have in rainyday fund?

Take out a 35 year mortgage where the scheduled repayment will be €800 a month.
But pay it as if it were a 20 year mortgage, €1,100 a month.

You will pay the same interest as a 20 year mortgage.
But if your circumstances change after 2 years, you will have build up a fund of €7,200 which will keep up your repayments for 9 months.

If you had taken out a 20 year mortgage, you would be in the same net position, but you would now be going into arrears.


Pay it as if it were a 20year mortgage.
My question  is.. does that mean you still repay it over 35 years and have the interest payed off in 20 years or will the whole mortgage be paid off in 20 years???


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## RedOnion (10 Mar 2021)

Nowronganswer said:


> Pay it as if it were a 20year mortgage.
> My question is.. does that mean you still repay it over 35 years and have the interest payed off in 20 years or will the whole mortgage be paid off in 20 years???


It would be fully paid off in 20 years.


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## Nowronganswer (10 Mar 2021)

Hi red onion. You say it would be paid off in 20 years.
So if you take out a 35yr term and pay it as if it were a 20 year term it would be paid off in 20 years.. Are you using the overpayment to reduce the term then? which goes againsts the ""its better reduce the monthly repayment vs reducing term debate""??


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## skrooge (10 Mar 2021)

Nowronganswer said:


> Hi red onion. You say it would be paid off in 20 years.
> So if you take out a 35yr term and pay it as if it were a 20 year term it would be paid off in 20 years.. Are you using the overpayment to reduce the term then? which goes againsts the ""its better reduce the monthly repayment vs reducing term debate""??


Overpaying will reduce the term. If you make it all the way to the end without running into financial difficulty both approaches are the same i.e., mortgage paid off in 20 years.

The argument for leaving the term at 35 years is you are not locking in the higher repayments.  €984 had to be paid while €210 is the extra bit you top it up by. This can be useful if you suffer a financial shock e.g. a pay cut.  The extra 210 can be diverted elsewhere if needs be e.g. day to day living.

If you agreed to reduce the term to 20 years and at a later date wanted to use the €210 for something else you couldn't. At least not without having to go back and negotiate with the bank.

The destination is the same but one is more flexible.


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## johnjoe1990 (10 Mar 2021)

I have a similar query.
I am with boi 2yrs left on 3 per cent fixed. 

I have 40 k saved up. If I pay 40k up front off the mortgage now I'm charged a break fee or early payment fee of 800e. 

I could however increase my monthly payments by reducing the term and use the 40k to pay it through my monthly payments and avoid the break fee. 

My monthly repayment would go from 700e to 2000e odd a month with the 40k included in the payment. 

I intend to move to cheaper mortgage when the 5 years is up and switch. 

What should I do? Pay off the 40k in one go and be charged 800e to do this or increase my monthly repaymenta for the next 2 years. 

Then when I switch reduce them again.


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## RedOnion (10 Mar 2021)

johnjoe1990 said:


> I have 40 k saved up. If I pay 40k up front off the mortgage now I'm charged a break fee or early payment fee of 800e.
> 
> I could however increase my monthly payments by reducing the term and use the 40k to pay it through my monthly payments and avoid the break fee.
> 
> My monthly repayment would go from 700e to 2000e odd a month with the 40k included in the payment.


You'd need exact figures to calculate it properly.
But it looks like you'd save more by paying the lump sum now, even factoring in the break fee.

It'd be interesting to look as a case study if you get the exact numbers involved.

Paying 40k now, over 2 years you save 2,470 interest
Paying an extra 1666 per month over 2 years (40k in total), you'd save 1,170 interest.


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## Nowronganswer (10 Mar 2021)

skrooge said:


> Overpaying will reduce the term. If you make it all the way to the end without running into financial difficulty both approaches are the same i.e., mortgage paid off in 20 years.
> 
> The argument for leaving the term at 35 years is you are not locking in the higher repayments.  €984 had to be paid while €210 is the extra bit you top it up by. This can be useful if you suffer a financial shock e.g. a pay cut.  The extra 210 can be diverted elsewhere if needs be e.g. day to day living.
> 
> ...


Sorry now im half confused here, i have dyslexia.
You say "overpaying will reduce the term".
If i overpay and tell the bank to use the overpayment to reduce my monthly repayments while keeping the term the same then "how does the overpaying reduce the term if you had instructed the  bank to reduce the monthly repayments only.. Im so confused.


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## bish123 (10 Mar 2021)

Eventually, overpayments over a period will reduce your term in either case. That simply means you are paying more monthly and therefore you pay off your mortgage early. 

One way of doing that is to ask bank to reduce term of mortgage to match overpayment. However for PTSB, you don't have to do it. They keep accumulating it for you in a separate pot. As soon that pot has enough money to pay off your mortgage in lump sum, you have paid it off mortgage which will be earlier than original term..


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## Nowronganswer (11 Mar 2021)

bish123 said:


> Eventually, overpayments over a period will reduce your term in either case. That simply means you are paying more monthly and therefore you pay off your mortgage early.
> 
> One way of doing that is to ask bank to reduce term of mortgage to match overpayment. However for PTSB, you don't have to do it. They keep accumulating it for you in a separate pot. As soon that pot has enough money to pay off your mortgage in lump sum, you have paid it off mortgage which will be earlier than original term..


I only plan to overpay for 3 years with ptsb so what happens after the 3 years.


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## skrooge (11 Mar 2021)

Nowronganswer said:


> I only plan to overpay for 3 years with ptsb so what happens after the 3 years.



If you overpay by €300 a month in three years time your mortgage will be approximately €255,175. This will be the same regardless of which approach you take. 

If you plan to switch then this is the amount you will look to remortgage for. A new mortgage will possibly have a different rate and a different term depending on what a new bank is willing to offer and what you want. 

If you stay with PTSB then this is where your choice of reducing the term or reducing the repayment will impact what you pay in the future.  For the sake of argument say the interest rate available remains 2.95%.

Scenario 1: If you've reduced the term you will continue to pay €1,494 per month. The mortgage will have an term of 19 years 7 months. 

Scenario 2: If you've reduced the balance (and left the term the same) your monthly repayments will be recalculated based on the €255k outstanding, the prevailing mortgage rate 2.95% and the remaining term of 27 years and 2 months. You'll pay approximately €1,139 a month. 

Under scenario 1 you have locked in the overpayment for the whole of the time your mortgage remains with PTSB, not just 3 years. Under scenario 2 you have greater flexibility as your repayments will reduce after the 3 years. 

Just because you've decided based on current rates that you plan to switch in the future it doesn't mean that you will be of the same view in 3 years time. Given that the future is uncertain the argument you will get from people here is to go with reduced repayments rather than reduced term.


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## Nowronganswer (11 Mar 2021)

Thank you Scrooge. You have helped with making it easier to understand.
I have another question.
Our mortgage is a joint mortgage.
Say in 3 years time before its time to switch, say we had a child and partner is scenario 1. On maternity leave
Scenario 2. Decides not return to work and become a stay at home mom.

What are the implications of switching in both scenarios. Would i have to apply as a single applicationt when switching.
Thanks for all your help.


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## _OkGo_ (11 Mar 2021)

Nowronganswer said:


> Say in 3 years time before its time to switch, say we had a child and partner is scenario 1. On maternity leave
> Scenario 2. Decides not return to work and become a stay at home mom.



Both scenario's will impact how the bank will assess your affordability. It will still be a joint mortgage

Scenario 1 (maternity leave): The banks will request a letter from your spouses employer confirming when they will return to work and whether there are any changes to salary when they return (e.g. if you decided to work a 3 day week). If your spouse returns to work, you will have childcare costs that will be included when assessing your ability to pay. It will make it more difficult to be approved but you might be ok

Scenario 2 (stay at home parent): In this scenario, you are now a single income family with €58k salary and €255k outstanding. This would put you above the central bank loan-to-income ratios (~4.4 LTI) and you effectively have 2 dependents (spouse and child).

You are very unlikely to be considered for a switch with a single income and high mortgage balance (>3.5LTI) so if you plan to switch to a better rate, you really need to do that before your spouse stops working and ideally before you have children.

As previously mentioned, you do not have to wait until the end of the 3 year fixed period to switch. You might face a break fee but it will be better for you in the long run to be on a lower interest rate. The general rule is that you need to be with your current provider for 12 months before another bank will assess you for a switch. You are already 2 months in so you should really start considering a switch in Jan/Feb 2022.


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## Nowronganswer (12 Mar 2021)

-Okgo- thanks you.
I took out my mortgage with ptsb via a broker. Are there implications for the broker if i were to switch. As in they were paid a commission for siging me up to ptsb would that be clawed back. I didnt pay any broker fees.
Thanks


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## RedOnion (12 Mar 2021)

Nowronganswer said:


> -Okgo- thanks you.
> I took out my mortgage with ptsb via a broker. Are there implications for the broker if i were to switch. As in they were paid a commission for siging me up to ptsb would that be clawed back. I didnt pay any broker fees.
> Thanks


Yes, technically the bank can claw back some of the broker commission if you switch within 3 years.  Some brokers have a clause that thy can try to recoup it from the borrower.


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## Nowronganswer (12 Mar 2021)

They say its better to go with a broker. In this case it is not better.
Thanks.


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## Laughahalla (12 Mar 2021)

This is the wording from PTSB about regular overpayments on variable mortgages

"These overpayments will be credited to your mortgage account once you instruct us to do so. It will enable you to benefit from any interest savings as well as funding future payment holidays or underpayments. Although the scheduled term on your mortgage will not be reduced, by continuing to pay the regular overpayment, a credit will accumulate which should be sufficient to redeem your loan at an earlier date. If you choose to cancel the overpayment option then you will need to inform us in writing that you wish to cancel the overpayment and to use the credit on your account to either reduce your term or to reduce your repayment amount. Certain conditions apply when making overpayments to fixed rate loans. See the important information at back under ‘Fixed Rate Loans’ for full details. No refunds of lump-sum payments will be made to the applicant when payment thereof is received by permanent tsb"


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## Nowronganswer (12 Mar 2021)

Thanks you Laughahalla.
I have that read. They had said when i rang them that the "certain conditions re fixed rate loans" only apply to interest only and other types of mortgages but not the type i am on.


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## Nowronganswer (12 Mar 2021)

LTV current value is 330k. Could i get the valuer to value it higher say 350k and id have a less than 80% LTV in less than one year then switch.


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## Nowronganswer (12 Mar 2021)

PTSB do a 3 yr fixed high value mortgage at 2.8% for mortgages over 250k LTV 80 to 90%, I drew down a 285k mortgage, curious to know why I was not offered this. i did get the 2 % cashback. I was thinking maybe the high value mortgage doesn't include the cashback. Can anyone clear this up.
Can anyone tell me of the PTSB did not offer me this rate.


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## RedOnion (12 Mar 2021)

Nowronganswer said:


> PTSB do a 3 yr fixed high value mortgage at 2.8% for mortgages over 250k LTV 80 to 90%, I drew down a 285k mortgage, curious to know why I was not offered this.


It looks like you should have been offered it. It includes cashback.
Did your broker advise you on the rate options?
When did you apply?


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## Nowronganswer (12 Mar 2021)

No way! that is scandalous.
I drew down January 2021, Applied back in October 2020
No it was only 2.95% on the table with ptsb.


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## Nowronganswer (14 Mar 2021)

Can i switch to the Lower Rate? Am i entitled to switch to the Lower Rate now. Has anyone any feedback in this.
Thanks everyone.


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## RedOnion (10 Apr 2021)

Nowronganswer said:


> Can i switch to the Lower Rate? Am i entitled to switch to the Lower Rate now. Has anyone any feedback in this.
> Thanks everyone.


@Nowronganswer as discussed in the other thread, I gave you some incorrect advice regarding the rates that should have been offered to you when you drew down your mortgage.  Thanks to @Paul F for correcting my error.

I've taken a look at this again, and based on the timeline of your application / drawdown the rate of 2.95% is the best that was available to you from PTSB at the time.

I am assuming that you received cashback on drawdown, and that you have opened an current account with them also so that you receive cashback on every repayment made to your mortgage?

What you might not be factoring in is the effect of the cashback, and that might be why your broker recommended PTSB to begin with.  If you are getting the 2% cashback on every repayment, the actual cost to you over 3 years is the same as getting a 2.2% rate (even better if you're making overpayments and getting cashback on them).

Unfortunately, PTSB have separate rates for 'New Business' vs existing customers, so there are no options currently available for you to switch to a better rate with them.  No other lender will consider you as a switcher on a new mortgage.
Keep an eye on PTSB rates, as things might change over the next few years if they want to keep existing customers.

And apologies again for the incorrect guidance previously.


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## Nowronganswer (11 Apr 2021)

@RedOnion
Thank you very much and thank you @Paul F for your help and feedback greatly appreciated. you have a wealth of knowledge, I love this forum.


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