Is it possible to pay off the mortgage interest -

S

Sonna

Guest
This is probably a stupid question -
As the mortgage interest rate is low - the interest on the entire loan is low - so is it possible to pay off the entire interest at the current rate - and then just pay off the capital - over the remaining life of the mortgage.

I know that when we were paying off extra against the old mortgage some years ago with the EBS - we were asked if we wanted to pay off the capital or the interest - so is there any reason why now we could not chip away at the interest in the hope of paying the lot off before the interest rates go up.

It would be such a relief to know exactly how much you were going to need every month and not be in fear of interest rates -
 
Simple answer is no.

You have a capital balance outstanding which the bank applies interest to periodically (at the rate you have chosen; fixed or variable) and this increases your capital balance outstanding.

Some mortgages allow you to keep a constant capital balance, these are called interest only mortgages.

In most cases your repayment is set that you reduce the capital balance over time, for this to happen your repayments each month need to be higher than the interest you are charged.

There is a misleading concept that you can direct a lump sum payment to pay either interest or capital, this really confuses me as the concept is simple:
interest increase the balance owed whilst repayments reduce it.

Sometime the banks do not apply overpayments to your mortgage account, keeping them in some separate account but this is another issue.
 


I really wish this could be the case it would certainly help a lot of people struggling to hold on out there,me included! It seems that while you pay interest only ,you will never bring the capital down,just another way the banks screw you legally,
In my opinion, I feel its about time banks were made to become a lot more creative in their approach to their clients who are in difficulty,I really like the idea of chipping away at the interest and then repaying the capital,it cant be impossible just not the will to implement it,(greed greed greed) . I also dont see why we cannot introduce Generational mortgages as is possible in other eurozone countries. In effect what this means is you can pass on your home to your children when you die,of course when the chain is broken the banks will get the property,but the term can be so long that the repayments are much more mangeable. I am not employed right now but when I do get back on my feet and start to pay taxes again I will be demanding better solutions from the very institutions that the taxpayer will have bailed out.
 
ivor james said:
I also dont see why we cannot introduce Generational mortgages as is possible in other eurozone countries.
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Most civilised countries do not allow mortgage terms longer than 30 years.

In effect what this means is you can pass on your home to your children when you die
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In your late eighties. You children are in their mid fifties and their inheritance consists of your unpaid debt. No thanks.
 
Robin Banks said:
Most civilised countries do not allow mortgage terms longer than 30 years.



In your late eighties. You children are in their mid fifties and their inheritance consists of your unpaid debt. No thanks.
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So you would not consider Switzerland or Japan to be civilised countries? Intergen mortgages are very common in these and other countries.

To be fair it is a suggestion that means the family home can be kept IF and onlt IF there is an agreement in place ,it is an option in these difficult times,perhaps you would just like to see 10s of thousands boarded up homes?
 
Japan has them as an artifact of their ridiculous 1980s property bubble - which their economy still hasn't recovered from 20 years later.

I've never heard of intergenerational mortgages in Switzerland. However I did find a link that says a Swiss mortgage is max 80% LTV and the max term is 35 years. http://www.mortgagearrangers.co.uk/foreign/switzerland_mortgage.html

ivor james said:
perhaps you would just like to see 10s of thousands boarded up homes?
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I'd like to see any empty unused homes sold on the open market to the highest bidder. And I'd advocate imposing a hefty annual property tax on vacant residential property to encourage this.
 


Effectively what you are asking for is a fixed rate interest for the entire duration of the mortgage! (As in you want to pay off your interest first as a specific amount of money) Fixed rate mortgages are expensive for a reason... the bank is taking on the risk of the money they are borrowing becoming more expensive relative to the interest you pay. The longer the fixed period generally the greater the risk to the bank and consequently the higher the interest rate. A 30 year fixed rate would be considerably higher than the current low tracker and variable rates and even the current fixed rate deals. Because you can be very sure that the rates will go up again over that sort of time frame. It isn't a stupid question, it is wishful thinking ...
It isn't, as Ivor James declares, simply greed or the banks screwing you or not being creative. The banks are businesses and like all businesses it is their job to ensure the they get the best return possible for the money they invest. Fixed rate mortgages are probably the only mortgages that they are actually making money on at the moment.



That, to me, is a mad position. For one thing, longer term mortgages have already boosted the property bubble that has finally burst. Generational mortgages just extend and enhance that boost. Also it ties your offsring to honour financial committments that you made possibly even before they were born! You effectively front load their life with debt! It is like indentured servitude, in India, whole families are beholden for generations to moneylenders. Not something I would advocate at all, even in the relatively mild model that you propose.
 
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Don't know if this is any help to you or not but you can pay your morgage repayments on a weekly basis. By keeping to the same repayments you have been used to it means that obviously you'll be paying less interest as more money will be going off the principle loan. To my knowlege there is no law that states you must pay your morgage monthly. I've been paying my morgage weekly for over a year now and have saved thousands.
 
We are about to start a bi-weekly repayment. It works out an extra months payment a year - which will knock a couple of years off the life of the loan.

So paying off the entire interest is wishful thinking - but it would make a lot of sense even for the banks now - they would still make a profit - have that cash in the banks - have a more stable and less fearful society - give the taxpayers some credit for bailing them out - take away TRS - a saving for the government/taxpayer - Utopia- dream on.

A form of debt forgivness that David McWilliams has spoken about. Of course paying off the interest would depend on having some savings/redundancy money - maybe the interest rate won't go up so the banks could be in a win win situation anyway.....

But meanwhile in the real world of no happy endings - or justice -I suppose we will just have to keep chipping away at the principal instead and hope the interest rates stay low for a lot lot longer - and that taxes do not rise......
 
Sonna said:
So paying off the entire interest is wishful thinking - but it would make a lot of sense even for the banks now - they would still make a profit - have that cash in the banks
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While I usually would not defend the banks, this point is completely wrong.
The bank would not make a profit in your scenario.
If your mortgage provider would be willing, as you want ,to fix the interest for the entire mortgage at this historically low rate, where do you think they will get the money to fund the rest of your mortgage.

They borrow this money on the international money markets and will have to pay the market rate for the next 20 years, thus making a loss.

As we, the tax payer, are currently propping up the banks financially,
it would be financial madness to allow this to happen.

We are all at the mercy of the international money markets, and fluctuating interest rates, the Irish government and the Irish banks do not have nearly as much power as you seem to think.
 
It wouldn't make a lot of sense for the banks and make even less sense for you - The rate you'd have to pay at would probably be in the region of at least 50% of the loan up front! Frequency of payments and overpayment are the best ways to cheapen your credit for yourself.

The word "justice" implies that you have been wronged in some way. You haven't. You have taken out a long term loan which I am assuming you are now having some difficulty repaying. The privilege of accessing such large sums of money at such favourable rates is something that we have lost sight of. Please remember when you speak of "justice" the sorts of usurious rates that money lenders are charging (and in some countries they rates that are charged by financial institutions!), the difficulty of access to credit that people in certain parts of the world have, the difficulty of accessing credit without collateral and the historical cost of debt. If you are feeling hard done by I would recommend you search out a book by a man called Muhammad Yunus called "Banker to the Poor". There is a particular story in the first few chapters which brings crashing clarity and perspective to the rights and privileges we enjoy compared to a huge proportion of the world.
 
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