Key Post How overpaying a ptsb mortgage works

Brendan Burgess

Brendan Burgess

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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.


4148


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.


Brendan
 

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This is a great facility for people who are thinking about their children's education.

So many people save up their money in a separate account earning nothing while paying 4% mortgage interest.

With the ptsb account, they can overpay their mortgage with their education fund and then in 15 years,take a long payment holiday to fund the college fees.

Brendan
 
This looks like an excellent facility. One slight catch is that the 2% monthly cashback is not available on the Overpayments but that is only €6 a month in your example, so seems worth the price for the flexibility. Would the the €300 not be better off in a pension policy, but let's not go there as it is covered adequately in other threads.
 
Duke of Marmalade said:
This looks like an excellent facility. One slight catch is that the 2% monthly cashback is not available on the Overpayments but that is only €6 a month in your example, so seems worth the price for the flexibility. Would the the €300 not be better off in a pension policy, but let's not go there as it is covered adequately in other threads.
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Whilst you would lose out on the 2% back on overpayments there are additional savings to be made. It is common advice that people hold an emergency fund of 6 months expenses. It would make sense to overpay your mortgage by 6 months if you have a mortgage with TSB rather than holding it in a current account. Using Brendan's example this €4,800 overpayment would save you €144 p/a (assuming a mortgage rate of 3%).
 
you can only access one monthly mortgage payments worth at a time though right (i.e. take a mortgage holiday for that month)
 
Blackrock1 said:
you can only access one monthly mortgage payments worth at a time though right (i.e. take a mortgage holiday for that month)
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No you can take a mortgage holiday for as long as your accumulated overpayments will fund it. You are talking about the "emergency" holiday where there is no credit for overpayments.
 
sorry i wasnt clear, what i mean is the most you can access per month is the amount of your mortgage repayment (i.e. the only way to liberate funds is to take a mortgage holiday)

so if your monthly mortgage repayment is 2k and you need 15 in a hurry, even if you have it in here you cant get at it.
 
Blackrock1 said:
sorry i wasnt clear, what i mean is the most you can access per month is the amount of your mortgage repayment (i.e. the only way to liberate funds is to take a mortgage holiday)

so if your monthly mortgage repayment is 2k and you need 15 in a hurry, even if you have it in here you cant get at it.
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That's true but as Brendan's example shows it still makes for a quite flexible arrangement. I can't see why the approach should not be to take the maximum term available to you thus minimising your "contractual" payments and then put as much as you can afford monthly into your mortgage account via the Overpayment option. It seems quite a bit more flexible than going for the shortest term you can afford with no downside that I can see (other than that 2% monthly cashback).
 
Downside is paying the variable rate versus a fixed rate with overpayment like KBC, UN or BOI.
 
misemoi said:
Downside is paying the variable rate versus a fixed rate with overpayment like KBC, UN or BOI.
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That is a very good point. But I have read the brochure entitled Mortgage Repayment Options and it is not forbidden on Fixed Interest mortgages. It is forbidden on Annual Interest mortgages, Endowment mortgages and Interest Only mortgages. It does say in the small print that if you cancel an Overpayment on a Fixed Interest mortgage "certain conditions" will apply. But these seem to me to be fair conditions driven by changes in the swap rates.
 
Duke of Marmalade said:
It seems quite a bit more flexible than going for the shortest term you can afford with no downside that I can see (other than that 2% monthly cashback).
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Mortgage Protection life insurance will be dearer for a longer term. Example: €250,000 mortgage, male and female aged 40, non-smokers. Policy for a 15 year mortgage would cost €25.37 per month. Same policy over 25 years would cost €36.04 per month. Not a huge difference and the difference for younger bucks will be smaller.
 
i overpay my ptsb tracker mortgage rightly or wrongly. margin is 2% due to tracker portability product. my overpayment all things being equal will repay my mortgage 10 yrs early.

i have cancelled the overpayment once and set it up again 1 month later. it was very easy to do but not available to setup or cancel online as far as i know.
 
Hi Duke
What does this actually tell us that we don't already know?

That the mortgage will be repaid in 24 years.
That we will have a credit of €4,800 a year?

Brendan
 
Brendan Burgess said:
Hi Duke
What does this actually tell us that we don't already know?

That the mortgage will be repaid in 24 years.
That we will have a credit of €4,800 a year?

Brendan
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Nothing, but personally I like to see things in numbers. One thing it illustrates rather well is that the contractual term is an irrelevance. Folk may be afraid to take out a 35 year term. Yes they are vaguely aware that they can change that and that they can shorten it by paying in lump sums. But I think this facility of the permo places the contractual term in its correct setting.
So my recommended strategy is.
Chose the amount you are going to borrow.
Go for the longest term available.
Put the maximum amount of residual monthly savings capacity into the Overpayment plan.

(Its also a mortgage calculator but I know these are in ample supply on the internet)
 
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Duke of Marmalade said:
So my recommended strategy is.
Chose the amount you are going to borrow.
Go for the longest term available.
Put the maximum amount of residual monthly savings capacity into the Overpayment plan.
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With this facility wouldn't it also make sense to borrow more than you actually need (assuming you have financial capacity to do this), then make a lump sum overpayment straight after drawdown but keep the same mortgage term. This would both increase the 2% cashback amount and give you a big buffer that you could use to take a payment holiday without going into arrears.

For example, I want to buy a house for 300k, I have 100k deposit, so I only need a mortgage of 200k (assume 35 years @ 3%). But if I get a mortgage for 240k, then pay a lump sum of 40k off the mortgage right after drawdown, I'll get an extra 800 in cashback and would have a large overpayment that would allow me to take a payment holiday for over 4 years without going into arrears. I'd maintain the mortgage term when overpaying so the the monthly payment would be same as if I'd just borrowed the 200k.

I feel like I'm overlooking something here, this seems to good to be true.
 
Coldwarrior said:
With this facility wouldn't it also make sense to borrow more than you actually need (assuming you have financial capacity to do this), then make a lump sum overpayment straight after drawdown but keep the same mortgage term. This would both increase the 2% cashback amount and give you a big buffer that you could use to take a payment holiday without going into arrears.
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ColdWarrior

That is brilliant. I don't see any flaw.

You are nearly as creative as Seán Og!

Brendan
 
Coldwarrior said:
With this facility wouldn't it also make sense to borrow more than you actually need (assuming you have financial capacity to do this), then make a lump sum overpayment straight after drawdown but keep the same mortgage term. This would both increase the 2% cashback amount and give you a big buffer that you could use to take a payment holiday without going into arrears.

For example, I want to buy a house for 300k, I have 100k deposit, so I only need a mortgage of 200k (assume 35 years @ 3%). But if I get a mortgage for 240k, then pay a lump sum of 40k off the mortgage right after drawdown, I'll get an extra 800 in cashback and would have a large overpayment that would allow me to take a payment holiday for over 4 years without going into arrears. I'd maintain the mortgage term when overpaying so the the monthly payment would be same as if I'd just borrowed the 200k.

I feel like I'm overlooking something here, this seems to good to be true.
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I think in your example the monthly payment is for 240k, the original mortgage.
The cashback anomaly is an obvious one. Taken to extreme, say I am a cash buyer. May as well mortgage first, immediately pay off the mortgage and pocket the 2% cashback. I presume the permo have rules to prevent this, though I don't see them.
 
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