Lump Sum off Mortgage - Variable with no penalities or Fixed with penalty?

P

Peggy

Guest
Going round in circles here so I hope someone can point me in the right direction.

- Four years into a 35 year mortgage.
- Have 2 mortage accounts as split into half fixed & half variable at inception.
- Currently fixed portion stands at circa €170k and rate is 4.7%. Fixed term due to end in 12 months.
- Variable portion stands at €155k and rate is 1.95%.

I have €50k to work with so should I;
1) Take it off the variable and incur no penalty & reduce the overall term.
2) Take it off the higher fixed rate but incur a penalty of circa €1,400. (Already checked if they will waive this but no joy).
3) Put the €50k somewhere else and try to earn a few percent on deposit?

Thanks for any advice you can offer.
 
I wouldn't give into the banks and pay a penalty for taking it off the fixed.
Is this variable portion you talk of a tracker? If so I would invest the 50K in a one yr product and then pay if off the fixed amount when it end in 12 months.
You should look at what the payments reduce by if you pay it off the fixed and this will probably equate to the 1400 or less so not worth paying the penalty thus your as well saving it.
 
Invest it for the year and pay it off the fixed when term is up.
 
Is the variable portion a tracker rate? Also what rate will the fixed portion revert to?

Presuming the variable is a tracker, and the fixed will revert to SVR, it will be the more costly part of the loan and you should make the reduction from it.

You need to work out if the difference in the interest income you could earn on the 50k for a year and the interest you will pay at 4.7% for a year on the 50k. If the difference is greater than 1400 teh saving on interest paid will outweigh the break fee and you should go ahead and redeem now. Otherwise deposit the cash for a year and then repay
 

Option 1) Are you sure the variable is 1.95%? Seems v low for a variable. Not so for a tracker though.

Option 2) Coming off the fixed rate will cost €1,400. But by paying 50K off the fixed mortgage (thus reducing it to 120K) you would save far more than €1,400 in reduced mortgage interest costs. This is because the term would be reduced & well as the capital amount.

What rate would you go onto if you do break out of the fixed term? Variable c. 4% I'd imagine, saving you a bit more in the short term.

This option also saves more than Option 1 because you pay less interest on this 1.95%, 155K mortgage.

Option 3) The best 1 year fixed lump sum deposit rate. Currently 3.6%.

So 50K x 3.6% less DIRT (27%) = c. €1,315


So I'd recommend Option 2.
 
Can you clarify that the penalty of 1400 is to pay the lump sum off the mortgage but means remaining on the fixed rate for the next 12 months but with lower repayments.
 
Yes, that's correct niceoneted.

There's a higher penalty of circa 4,000 euro to opt out of the fixed rate for the final 12 months.
 
Re Option 2 on a previous post, do you intend to reduce the term after paying off the lump sum or sticking with existing term and reduced repayments?

Are you getting TRS? If so the loss of the % of that on the 50k should be factored in to the comparison with the net return on investing as per example given.

If there is TRS loss the figures will be near break even not allowing for long term savings if mortgage term is going to be reduced.
 
You can get 3.5% with the ulster bank at present, look up the thread on best deposit rates on here to see where you can get the best rate. At the end of the fixed term you pay down 50K with no penalty. You have not clarified but your variable must be a tracker as it's so low so it makes no sense to pay that down. What does your fixed revert to at the end of the term? Which bank is it?

Even if keeping money on deposit earns you more than you pay on mortgage based on the fact you have 31 years remaining you should pay down your mortgage with this lump sum as that is way too long a term for a mortgage (in my opinion). If you can you should also increase your repayments.

Mortgage rates are only going one way and this is up. If you reduce your term you give yourself lee way in relation to negative equity, moving house and also if you get into trouble (lose a job or whatever) with a reduced term you can always increase it again if you need to.
 
Main objective is to reduce the term as I have no intention of having a mortgage in 2042! I think I'll find the best 12 month deposit rate I can and leave it there until the fixed term is up and take it off that.

I must review the paperwork and see what the fixed portion will revert to but I'm guessing it won't be pretty.

Thanks for the input everyone.

Forgot to add....am already paying off a few hundred extra every month to get to the goal. Thanks Bronte.
 
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