Advice re overpaying mortgage

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Cavan_King

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I have just moved from a 2.75% variable interest rate mortgage with AIB to a 5 year 2.35% fixed rate mortgage starting from 1st March. I owe 96,449 at present over 13 years and 4 months. That translates into a payment of 701 a month. However, according to the calculator on CCPC, I could clear my mortgage in the five year fixed term by increasing the payments to 1700 a month. I am in a position to do this at present but, with Covid and other external factors such as Brexit, working for a UK based company, I am wary of committing to anything that is fixed.

Will there be any huge financial disadvantange if, rather than increasing the repayments monthly, or paying lump sums off every once in a while, I just place the 1000 euro extra into a savings account myself and save it for the five years, continue the 700 monthly repayment and use the 60k I'll have saved over the 60 months (all going well) to clear the mortgage in five years when the fixed term ends?

That would also mean that, if anything does wrong, the funds are available if I needed them rather than gone to the bank. AIB have also said they will allow me to increase the monthly repayment but they will charge a breakage fee where I transfer lump sums off the mortgage.

I have cleared all other loans so have no car loans etc.. My only loan is now the mortgage. My wife has 40k in savings from a redundancy she got but we have left that as a buffer. I am also very strict with my spending so feel I would commit to the saving each month unless the money was absolutely needed. I just cleared a 3 year car loan by doing this where I saved an extra 500 a month on top of the 400 repayment and cleared the PCP when the 36 months was up.

5 years cost of credit is €5,871.62 vs 13 years 15,575 so there's a 10,000 saving in clearing the mortgage in the five years. I would also like to have the financial piece of mind of the mortgage not hanging over us as our eldest child is 11 so we'd have the mortgage cleared ahead of him possibly moving to college or post secondary education of some type.
 
Cold hard finance says put the money to work and clear (a large chunk of) the mortgage but you can't put a price on the peace of mind of knowing you've a buffer there. Regardless of what you do it sounds like you're in a good position now.

The question for me is how much of a buffer is it you need. Again the right answer is likely a mix of circumstance and risk aversion. Though the typical number mentioned is enough to cover six months living expenses.

Perhaps posting your details on the moneymaker thread might give you more informed.
 
50% of my pre tax income is bonus based though. My worry is that the company would need to change the bonus structure and my income would take a large hit.
I’m also very risk averse. My main goal at the minute is to clear debt rather than make money work. I’m just gone 37 so my view is I have time in my career to make money work after I clear my mortgage because I’d be 42 if I clear it in 5 years.
 
In terms of hard numbers:
Paying 1,000 per month off mortgage for 5 years will save you 3,718 in interest in those 5 years.
Putting it in a savings account at 0.1% will earn you 152, before DIRT

That's the price you're proposing paying for peace of mind.

Re Break Fee: AIB can only charge you a break fee if they reduce their rates below 2.35%. This is unique to AIB contracts.

Personally, I'd set up a standing order to overpay, which you can cancel at any time if your circumstances change. A 40k buffer sounds extremely adequate, or even a bit too much.
 
RedOnion said:
In terms of hard numbers:
Paying 1,000 per month off mortgage for 5 years will save you 3,718 in interest in those 5 years.
Putting it in a savings account at 0.1% will earn you 152, before DIRT

That's the price you're proposing paying for peace of mind.

Re Break Fee: AIB can only charge you a break fee if they reduce their rates below 2.35%. This is unique to AIB contracts.

Personally, I'd set up a standing order to overpay, which you can cancel at any time if your circumstances change. A 40k buffer sounds extremely adequate, or even a bit too much.
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AIB are telling me they can charge a break fee on any lump sum I pay if I am on a fixed rate? They do have a green interest rate at the moment of 2.25 but I can’t get that as I don’t have an up to date BER cert.
 
Cavan_King said:
AIB are telling me they can charge a break fee on any lump sum I pay if I am on a fixed rate?
Click to expand...
My poor phrasing. AIB will check if a break fee is due each time you repay a lump sum.

But one of the calculations they perform looks at their own interest rates, so unless they reduce them, then there won't be a break fee.

I think the following thread explains it:

Calling AIB customers who fixed before the latest fixed rate cuts in September 2020

Any customer currently on their 3 or 5 year fixed rates can break for free, and refix now at the lower rates. This is because of an extra calculation that AIB do looking at their own interest rates, so because they provide 2 & 4 years rates higher than the existing 3 & 5 year rates, they cannot...
www.askaboutmoney.com
 
The other option could be split mortgage, say 50% fixed and 50% variable for comfortable terms like 9-10 years. If you can save you can clear off variable amount in 5 years. It will allow you some flexibility in case you need money for car etc. during that period. If not, you can break fixed mortgage and clear off mortgage when enough savings.
 
bish123 said:
The other option could be split mortgage, say 50% fixed and 50% variable for comfortable terms like 9-10 years. If you can save you can clear off variable amount in 5 years. It will allow you some flexibility in case you need money for car etc. during that period. If not, you can break fixed mortgage and clear off mortgage when enough savings.
Click to expand...
I would not split it in that percentage nor would I fix for more than 3 years with AIB.
You will need to overpay significantly to make it worthwhile. Also OP is able to pay it off most likely in 5 years or less with the planned overpayments - doesn't make sense to fix for 9/10 years at all.

See as well the discussion here https://www.askaboutmoney.com/threa...n-they-could-fix-at-a-much-lower-rate.220915/

It makes for now most sense to fix all for three years and overpay monthly (and asking monthly for the break fee) - second best option to splitt but at a smaller ratio
 
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