Lump sum to mortgage to reduce term :tracker mortgage with a +0.5% above ECB NIB

[devil]

I have a tracker mortgage with a +0.5% above ECB, this is with NIB.
I have made 2 separate lump sum payments over the last 2 years.
The purpose of paying lump sums was to reduce the term of the mortgage.
Each time before paying the lump sum I requested and received from the bank what the new end date for the mortgage was.
Now I am looking to put another lump sum to the mortgage to further reduce the term, however the bank really has me confused, they say.....
Their system cannot accommodate a requirement whereby
The end date of the mortgage is changed from the original date.
and monthly payments are kept at the current rate but would have to change if the ECB rate changes.

They say that if I want the above option then each time the ECB rate changes I have to contact them to remind them that their system shows the original end date which is not correct and in fact the end date is earlier and can they calculate the new monthly payment based on the earlier date.

Has anyone else experienced this issue with this bank or any other ?

 

[Brendan Burgess]

With many deposit accounts paying more than .5% above ECB, you should consider puttin ghe money on deposit rather than paying a lump sum off your mortgage.

This is discussed here:
Should I use a lump sum to reduce my mortgage?

 

[j26]

Don't forget the DIRT tax involved in deposit accounts. Savings certs or bonds would give a guaranteed return of 10% over 3 years or 21% over 5.5 years (IIRC - an Post website is down) tax free.

Since you're only paying 1.5% at the moment, you'd be making a benefit of 1.5-2% per annum by investing in them.

 

[twofor1]

They say that if I want the above option then each time the ECB rate changes I have to contact them to remind them that their system shows the original end date which is not correct and in fact the end date is earlier and can they calculate the new monthly payment based on the earlier date.

Has anyone else experienced this issue with this bank or any other ?

I have the same NIB ECB + .5% mortgage. My experience has always been when lump sum payments were made, it was taken off the principal, immediately reducing the interest. Repayments would not be recalculated until the next interest rate change, when it would be calculated by taking the current balance at the new interest rate over the remaining original term.

I believe a lot of banks will not take lump sums or over payments off the principal unless specifically told to do so in writing, so this maybe only applies to NIB.

Through overpayments and falling rates my repayments kept falling, so I just increased the additional amount I paid directly into the mortgage every month, rather than having to write with each rate change or extra payment.

Now though as Brendan’s post above explains I only make the required repayment and any spare cash is transferred into a NIB eSaver account which pays 2.25% after Dirt (even better rates are available elsewhere). Apart from being more beneficial by .75% this fund gives more flexibility if there are problems making repayments in the future.

 

[serotoninsid]

I'm on the same deal - and following the suggestion in Brendans post. I would imagine theres even more reason to do this if within the 7 year (is it 7 or 5, i forget) TRS period.

One question for j26 though. Whilst there is no DIRT on bonds, are the rates still not as good as the best fixed (deposit savings) available even after the DIRT is accounted for??
If not, maybe I need to change..

 

[devil]

Thanks for your reply twofor1.
I want to pay off the mortgage as quickly as possible by reducing the principal and reduce the term which I have pay back the bank.
Otherwise if they keep the longer original end date and calculate monthly payments based on that then I end up paying more in the long term.

To all others who posted replies thanks for your advise, however thankfully for the moment as least I am in the lucky position of being able to make small lump sum payments to the mortgage and being able to save for the medium/long term.

 

[serotoninsid]

To all others who posted replies thanks for your advise, however thankfully for the moment as least I am in the lucky position of being able to make small lump sum payments to the mortgage and being able to save for the medium/long term.

I think your missing the point. You can save more money by sticking your lump sums/savings in a deposit account ie. the interest (even after dirt - or without dirt if you go for the products j26 suggested) is more than the interest you would have to pay on that same amount - were it part of your mortgage.

 

[Lightning]

Now though as Brendan’s post above explains I only make the required repayment and any spare cash is transferred into a NIB eSaver account which pays 2.25% after Dirt (even better rates are available elsewhere). Apart from being more beneficial by .75% this fund gives more flexibility if there are problems making repayments in the future.]

Why are you saving with NIB? You are not getting the best return on your money.

Have you checked out the savings best buys here?

 

[rory]

I have the same NIB ECB + .5% mortgage. My experience has always been when lump sum payments were made, it was taken off the principal, immediately reducing the interest. Repayments would not be recalculated until the next interest rate change, when it would be calculated by taking the current balance at the new interest rate over the remaining original term.

I believe a lot of banks will not take lump sums or over payments off the principal unless specifically told to do so in writing, so this maybe only applies to NIB.

Through overpayments and falling rates my repayments kept falling, so I just increased the additional amount I paid directly into the mortgage every month, rather than having to write with each rate change or extra payment.

Now though as Brendan’s post above explains I only make the required repayment and any spare cash is transferred into a NIB eSaver account which pays 2.25% after Dirt (even better rates are available elsewhere). Apart from being more beneficial by .75% this fund gives more flexibility if there are problems making repayments in the future.

I also have an NIB tracker ECB+0.5% and have been making monthly overpayments directly into the mortgage account. Whenever there is a rate change, they send me a letter with the new minimum repayment which they re-calculate to ensure that the mortgage continues to its original end date. I work out the correct repayment based on the prevailing interest rate and add on my overpayment to that value.

As an aside, I am confused by the answer I have seen before whereby someone who wants to make overpayments or pay off a lump sum is advised to get written agreement from the bank that the overpayments will be applied to the capital; surely given that the amount of interest to be applied each month is known at any given time, the overpayment must be applied to the capital. To do otherwise would be to apply an increased interest rate.

 

[twofor1]

Why are you saving with NIB? You are not getting the best return on your money.

Have you checked out the savings best buys here?

This is my mortgage fund, it’s protected by the Danish guarantee scheme, I also have funds for other purposes in banks protected by the Irish, English and Dutch guarantee schemes.

Overall I’m getting a reasonable rate, admittedly not the best available, but it’s more important to me to keep my savings as safe as possible rather than getting the highest interest rate available.