Making the most of low interest...

Hey fellow mortgage holders!

While I acknowledge their is a recession going on I am also thinking of the most amazing opportunity to clear years off my mortgage while availing of the lower interest rates.

You see I was interest only for the past year- due to being out of work and having a child/mat leave etc. Now that I'm back to work I am looking to put some money off my mortgage - and given that the interest rates are so low I think this could be very advantageous and suddenly makes perfect sense!

My one question is - can I lob some cash off my mortgage without committing to a standard monthly payment? I am slightly reluctant to jump off the interest only bandwagon in case things take a turn for the worse and I'll never get this agreement back again...so can I remain interest only and throw a few bob off the mortgage in a lump sum?

Any other advice in this situation to avail of the low interest rates?

Yes you can do this with most lenders. I make additional online payments into my Interest Only mortgage account with NIB whenever I want.

What provider are you with ?

That's what we've been doing for the last 3 years.

Committed to interest only, but put away an extra €350pm into a high interest savings account. At the end of the year, we'd throw the lump sum at the mortgage thus reducing the principal.
But to make it worth while, we kept the repayments the same, but added the difference to the capital repayment, as well as adding another 5% onto it.

That might sound all over the place, but as an example....
Our interest was costing us €1000 per month.
Our savings were €350 per month.
After 12 months, we withdrew the €4200 (€350x12) from the savings, and paid it off the principal.
Following year, interest was costing us €950. So we added the €50 to our savings, giving us €400 per month to save. We also added an extra 5% onto it, just to keep ahead of the game. So our monthly savings were €420 per month.
After 12 months again, we withdrew the €5040 (€420x12) from the savings, and paid it off the principal.
Following year again, interest dropped to €900. We added the €50 to our savings again, giving us €470 per month to save. We added another 5% onto it, giving us a monthly saving of €495.
And on it goes.

Obviously that's a simplistic example, but it gives an outline of what we did. It doesn't take into account the interest you'd earn on the savings, but we were earning 6.5%.
It's also good in the way that you're only committed to paying the lowest amount possible for your mortgage, so if things are tight some month, you don't have to put away the savings for that month.

Oh yeah, and there's no penalty for paying money off the principal as long as you're on a variable rate.

Hi Soarer,

I'm on interest only also and was thinking of going back onto capital repayments. I didn't know that the bank would allow you pay off capital at the end of every year if you're onl interest only. Also if you come off interest only are banks reluctant to put you back on interest only if things get tight?

Angela59

Yeah, you can pay off amounts whenever you see fit...as long as you're variable. You could do it once a month if you liked, making it like a "normal" mortgage but still with only the commitment of paying the interest.
The reason's we did it once a year were:
1. Only commitment was paying the interest.
2. High interest rate on savings.
3. If money wwas tight, no need to deposit into the savings.
4. If needs be, we could withdraw money from the savings for some other reason.
5. We were getting slightly higher TRS, as the interest on the capital was slightly higher.

As for coming off Interest Only and going back on, I don't know I'm afraid. Can't see why they'd have a problem tbh. They're still making their money.

Soarer said:

As for coming off Interest Only and going back on, I don't know I'm afraid. Can't see why they'd have a problem tbh. They're still making their money.

Click to expand...

Negative equity would be the main reason the banks are strict on interest only in this climate.
With a capital and interest mortgage the bank knows that the amount borrowed is reducing and will be repaid by the end of the term whereas on interest only the full capital sum will still be outstanding while the property could be worth a lot less.

Good thinking NorfBank.
Thanks for the clarification.

Hi,

Would most of you be of the same opinion that staying on interest only and saving money would be better than going on to capital repayment and paying off the capital either every month or year?

Sorry to hijack the post by the way.

Angela59

Just agree it with the bank first. Don't assume the payment will automatically be offset against the mortgage.