Best option for reducing neg equity when lump sum not an option.

I have seen the posts looking at reducing mortgages via a lump sum but I was wondering is there a best option where a lump sum isn't available. We have been overpaying our mortgage by a small amount in part to cushion against the impact of rate rises. Unfortunately we don't have a tracker and like a lot of people find ourselves with a good chunk of negative equity. Ideally we would like to reduce this as much as possible. Is it better to pay the small amount extra each month or should we save that amount and approach them with a larger sum every so often? Or is there a better option! We are lucky that with the exception of a car loan we have no outstanding loans or credit card debt that would be better off paid first.

It depends on your mortgage but with nearly all mortgages the sooner you pay off more of the mortgage, the sooner you benefit from that. There is no difference to overpaying in sections or saving those up and overpaying in one lump sum.

The only difference would be if you earned interest on the savings, which was more than the rate of the mortgage (unless you are very lucky, your mortgage rate will almost certainly be higher than any rate you could get on savings especially after DIRT).

Overpaying a monthly amount with your mortgage is also a good idea in that it gets you used to the higher mortgage amount - which you will most likely have to pay when rates do rise. Also once it's paid you won't have access to it so won't be tempted to dip into it.

Saying that it's sometimes useful to have a lump sum in case of emergency so while you are being incredibly sensible in trying to reduce your negative equity and should benefit from this later when you will have more options to remortgage if rates do rise, be careful not to overstretch yourself and put everything into overpaying. An emergencuy fund could be used to pay off more of the mortgage if you need it, but in the meantime kept for other emergencies if needed.

Another thing worth considering is how much you can overpay without penalty. BOI for example have the following on their website: "Restrictions apply to Fixed Rate loans. If your mortgage is on a fixed rate the maximum monthly overpayment amount allowable is €65.00 above your standard mortgage repayment." So if you're lucky enough to be able to afford more than the maximum amount then you can still save that separately and use it to pay off in one lump sum if you ever want to remortgage, so your new mortgage would be for a lesser amount.

Thank you so much bazzadp.

Definitely not able to earn more on the savings instead.

We do keep some back for emergencies etc as we have a young family and this overpayment would only be what we could manage on top of it. What's a good rule of thumb as a back up? 3-6 months worth of the household expenditure?

I must look into any limits that might apply as a condition of the mortgage. I know when we increased the amount there was no problem but that might as we were under the cap.

Thank you again for your advice .

Good rule of thumb is to have 3 months wages spare. But few can afford that much.

Depends on your circumstances really. Do you both work or are you dependent on one breadwinner? How secure is your job? How old is your house (e.g. expensive repairs like the boiler or roof collapsing are more likely on older houses)? How reliable (and necessary!) is your car(s) (e.g. could you survive a few days without it or would you need to repair and/or replace it immediately in case of issue)? What insurance do you have for any of these and other emergencies (e.g. medical)? Do you have friends/family you could borrow off at short notice if the worst happened and you absolutely had to?

You could drive yourself mad worrying about every eventuality so try not to do that! You sound very sensible from your posts so far so am sure you'll be able to set an appropriate amount for your circumstances.

Both working full time permanent. Larger earner would be in a more secure role thankfully. One family car under warranty and with a service plan and the other is a company vehicle so we are very lucky. We have medical insurance and very good family and friends. Having spent quite a bit on the house in the last few years we hope that's the end of the major spends there!

I'm a bit anal about the family budget as we would have been guilty of not knowing where our money went in the good old days so are being grown ups now.

This site has been fantastic for best buys and budget tips. Thanks again for all the help.

Had a chat about something similar recently with a friend who works for a large multinational and has been doing well the last few years.

Any time he gets a raise, he ups his mortgage payment to keep it at 40% of his net income.

Say for example he was on 4,000 net per month, he'd set his mortgage payment to 1,600.

If he got a pay rise to 4,500 per month, he'd up his mortgage payment to 1,800.

It's just one way of looking at it and there is something that appeals to my sense of logic about it.

I had to ask though if he'd do it in the other direction. The git has never faced a pay cut so he couldn't answer

Interesting take on it I'm very jealous of your friend! We have been using any small salary increases to balance all the extra Enda and co have been taking!

Looked into our terms a bit more and will hopefully increase the over payment when the fixed term is up in the next while by keeping it at the same level of repayment.

Thanks again for all the help.

I could never understand people who overpaid at the start of the mortgage. That is when costs are most high in terms of rebuilding savings, setting up home (sensibly), paying high childcare costs. To me it makes more sense in the middle years. That is where I am now. No more childcare costs, but a gap before college costs enter the equation.
I can afford to fire money at the mortgage without living too penurious a life.

Of course I am lucky in that I bought before the madness and don't toss and turn at night thinking of the NE, but I think if you are in your home for the long haul the same principle applies.

I know there will be people who can tell me I will pay more interest this way, but in terms of lifestyle and living the young family years without too much sacrifice it was worth it.