Early payment on mortgage

[pat1019]

I have €20k of savings that I could use as a lump sum repayment on my mortgage (€300k/20 years/ currently 2 and a half years into a 5-year fixed rate at 3%).
Of course, there would be a penalty for making a lump sum payment during a fixed rate, but I think this is <€200. So, the benefit of interest saved and an earlier finish date on the mortgage, would far outweigh the penalty. But my question is this: notwithstanding the penalty, am I better making this €20k payment now rather than waiting until the end of the 5 year fixed rate and making it then?

 

[RedOnion]

Yes, absolutely. The interest saved is always more than the break fee, because the fee is only calculated on the amount you are overpaying, not the entire balance.

Using your numbers, you'll save about 1500 interest over the next 2.5 years by paying it now.

 

[Zenith63]

an earlier finish date on the mortgage, would far outweigh the penalty.

You're generally better off asking them to use the overpayment to reduce your monthly payments, rather than reducing the term. You can pay more each month afterward, so you end up paying the same amount of interest over the term of the mortgage, but if something happened in life that you needed to reduce the payments you could.

Also just to state the obvious, have you checked if you can make some sort of overpayment without a penalty? For instance I'm with KBC and can pay off 10% during a fixed term without penalty.

 

[_OkGo_]

Not the question you asked but are you in a position to switch your mortgage?

3% is relatively high in today's market and there are quiet a few options available at 1.95 - 2.4% depending on your circumstances.

Best Buy - Best Buy Tables after Avant's entry

www.askaboutmoney.com

Assuming that your LTV and LTI are good and you are in a financial position to switch, you could save a lot of money in addition making the lump sum payment. If the break fee is ~ €200 for €20k, then I'll assume it will be ~ €3k for your full €300k mortgage

Over the next 3 years, you will pay €27k in interest (€300k x 3% x 3yrs)

If you can switch to Avant at 1.95%, this figure becomes €17.5k. Plus the break fee (€3k) and some switching costs (€1.5k), you could comfortably save €5k over the next 3 years

Or if you can get AIB's 5 year green rates at 2.1/2.15%, the interest figure becomes ~€19k. Plus break fee of €3k and again you can save approximately €5k over the next 3 years. In this case, AIB offer €2k cashback to cancel out your switching costs

Definitely worth checking what rates are available to you here

Compare mortgages - ccpc.ie consumers

Whether you are a first-time buyer, or you're looking to switch or move home, use our mortgage comparisons to find the best mortgage for you.

www.ccpc.ie