Increasing repayments, etc

[Nostradamus]

Hi. I have a 35 year mortgage owe 370k house worth maybe 350k which I bought in '06. (Spent 30k incl. SD on it so probably lost 50k but that's besides the point) Was looking at ways to reduce my interest, etc. I heard of a friend of a friend who is paying an extra 500 quid a month on top of his repayments and I was thinking of doing the same (well maybe 3-400) Am I better doing this (1) or (2) saving up lump sums to knock off the mortgage? If I go with option 1 does this mean my my monthly repayments are going to be reduced every month because the principal owed will 500 less each time? Also I have a good tracker rate of .9 above the ECB so would knocking lump sums off it or even reducing the term down to 25-30 years affect this rate? Any advice from you finance guru's most appreciated!!...

 

[ClubMan]

Making accelerated capital repayments sooner (e.g. gradually) rather than later (e.g. only when you have accumulated a lump sum) will yield more savings. Especially if you stick to the normal repayment schedule if/when you stop making such accelerated repayments thus shortening the effective term (rather than dropping to lower ongoing repayments and leaving the term as is). Karl Jeacle's mortgage calculator is useful for modelling the potential savings achievable with different accelerated capital repayment strategies. If you are going to make accelerated capital repayments then make sure to agree this in writing with your lender. Your tracker rate should not be affected by accelerated capital repayments. You might qualify for a better tracker rate when your loan to value ratio drops to a certain level but ECB + 0.9% sounds pretty competitive already?

 

[Eithneangela]

We decided to repay more than the required amount on our mortgage payments at the same time, we are also paying fortnightly which also reduces the interest paid over the period.

 

[ClubMan]

Paying as frequently as possible yields greater savings as long as you don't pay more frequently than interest is calculated by the lender. For example if you are with a lender who persists in calculating interest monthly rather than daily then paying more frequently than monthly yields no benefits.

Also remember that if you normally pay, say, €1K p.m. and switch to €500 every two weeks then instead of 12 months x €1K = €12K p.a. you are actually paying 26 fortnights x €500 = €13K p.a. so the extra amount will also help accelerate mortgage redemption.