Mortgage Lump Sum

[noel_k]

I am considering paying 30,000 off my 30 year mortgage as I have this money left over following a recent move. According to my bank, I have the option of reducing the term or reducing the monthly repayment. What is the better option? The current monthly repayment is stretching things a bit for us so I'm thinking that might be the best way to go. Advice appreciated. Thanks in advance.

 

[ClubMan]

Reducing the term will result in higher savings than reducing the monthly repayment. However there really should be no need to renegotiate/change the terms & conditions of the loan if that's what your lender means. When I did something similar with the EBS years ago I just made lump sum capital repayments and also fixed my repayments (not the rate!) at a figure above what would have been the normal repayment for the (pre capital repayment) sum/term/rate. In theory the term remained the same but in fact the mortgage was paid off in about a third of the original term at which point I was also able to cancel the mortgage protection life assurance which I no longer needed. All I did was made the capital repayments, made it clear to the EBS that I wanted them to come off the capital immediately and told them what amount I wanted to pay each month.

Of course if cashflow is an issue for you then there may well be good reasons to leave the term as is and reduce the monthly repayments. You will pay less total interest than your original loan but more than if you reduce the term. You would need to crunch the numbers (e.g. using Karl Jeacle's mortgage calculator) to get a better idea of the actual figures involved.

 

[noel_k]

Of course if cashflow is an issue for you then there may well be good reasons to leave the term as is and reduce the monthly repayments. You will pay less total interest than your original loan but more than if you reduce the term. You would need to crunch the numbers (e.g. using Karl Jeacle's mortgage calculator) to get a better idea of the actual figures involved.

Thanks Clubman - I suppose that's the crux of it. Given the rising interest rates, the repayments are hefty - about €1900 (after tax relief) between the two of us. The mortgage is about 428000. I think there is a psychological thing here for me too. If I can get into six figures beginning with 3xx, I'll be happier. Going forward, we can always think about putting a bit of extra money into the mortgage when we are a bit financially better off. I've heard a bit of reference to these voluntary monthly repayments/to-ups, so I'm assuming they are common enough and most lenders will consider them?

 

[ClubMan]

Thanks Clubman - I suppose that's the crux of it. Given the rising interest rates, the repayments are hefty - about €1900 (after tax relief) between the two of us.

If cashflow/monthly repayments are a burden for you then it would probably make more sense to go for the reduced monthly repayment option to give you some breathing space.

I've heard a bit of reference to these voluntary monthly repayments/to-ups, so I'm assuming they are common enough and most lenders will consider them?

No lender can charge penalties for early (part or full) redemption of a variable/tracker rate owner occupier mortgage. Some lenders may have a minimum amount for lump sum capital repayments. Most or all should allow you to vary/increase the monthly repayments over what they would normally be for the agreed sum/term/rate.

If in doubt get independent, professional advice on what's best for your specific circumstances.