6 month moratorium on switcher mortgage.

T

tom1ie

Registered User
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Hi all
We are in the process of switching from ebs to aib.
We were given the option of a 6 month moratorium on the mortgage payments.
I’ve run some figures to see if it is beneficial to take this moratorium and using the ccpc calculators I’ve come up with the following:
Outstanding mortgage: 278000@2.75%, payment= 1134.91pm on a 30 year mortgage.
During the 6 month moratorium I will save 6x 1134.91= 6809.46
Now the moratorium will have to be spread over the remaining term of the mortgage.
Therefore 12 months x 30 years = 360 payments- 6 month moratorium= 354 payments.
Therefore 6809.46/354=19.23pm extra for the life of the mortgage after the 6 month moratorium. Which would make my monthly payment 1134.91+19.23=1154.14pm.
Now according to ccpc calculators if I throw the money I have saved via the moratorium (6809.46) off the mortgage in a lump sum my new monthly payment is 1107.11.
So 1134.91 (the original payment)- 1107.11 (the new payment)= 27.80.
So 27.80- 19.23 (the resultant extra from the moratorium) = 8.57.
This is showing I’ll be 8.57 better off per month by taking the moratorium, saving it, and throwing it off the mortgage in a lump sum.
Is this correct? Are my maths making sense? I just wanna check with you guys before I commit to anything.
Thanks all!
 
Hi, it doesn't make any sense that you'd be better off by delaying repayments by 6 months. There's something off with the calculation. Possibly ignoring the 6 months interest that accrue at the beginning?
 
are you getting the moratorium at 0% interest, or are you still accruing 2.75% interest on the balance ?

ie is it a moratorium from interest or just a moratorium from repayments?
 
A moratorium on payments. The difference is then spread over the remainder of the mortgage.
 
RedOnion said:
Hi, it doesn't make any sense that you'd be better off by delaying repayments by 6 months. There's something off with the calculation. Possibly ignoring the 6 months interest that accrue at the beginning?
Click to expand...

Yeah. I suppose I am saving the moratorium money and putting that off my mortgage balance, thus reducing monthly payments into the future.....if that makes any sense?
 
tom1ie said:
Yeah. I suppose I am saving the moratorium money and putting that off my mortgage balance, thus reducing monthly payments into the future.....if that makes any sense?
Click to expand...

Not really. I think you are confusing cash flow with total repayment cost.

The fastest and cheapest way to pay off a mortgage is to do so with one big lump sum today. That is not practical for most people, so they need to borrow money and incur interest on the amount outstanding. Each mortgage repayment reduces the amount outstanding, and therefore the next month they pay slightly less interest.

If you don't pay anything for 6 months, you are incurring interest on the full balance +interest for that period. This will cost you marginally more in the longer term. There is absolutely no financial benefit to you for not paying your mortgage for 6 months and then paying a lump sum of the same amount after 6 months. The interest cost will be slightly higher in this case. There can be cash flow benefits etc, but it would not reduce overall cost

What you are missing out in your calculation is in 6 months time your mortgage is not 278,000 - it is 278000 + 3825 (roughly) in interest charged over that period at 2.75%.

So the simple answer is - if you are doing it for cashflow reasons, then it may make sense. If doing it to reduce overall cost of the mortgage, the only want to do that is either overpay or reduce the interest rate. The current proposal will not reduce the overall cost.
 
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