Mortgage / Lump sum

B

bmclough

Registered User
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Hi,

We want to pay a lump sum off our mortgage maybe around 8% of the principal. What is the best approach here as we want to reduce the mortgage term by reducing the principal.

I.e. reduce the mortgage by x years.

It is probably straight forward but i am looking for the pitfalls to doing this,

B
 
We did this on our first house and managed to pay off the mortgage in just 7 years (this was pre crazy prices!!). We made a point to use any work bonuses or extra cash and the term came down rapidly.
You should call your bank and they should be able to give you details over the phone on what effect your payment will have on the term of the mortgage. It may also be worth considering if you can pay abit more each month also. Some banks charge a fee for making the change. We did both (lump sum and upped payments) a few years ago and knocked about 5 years off the term.
Call the bank, and look at all your options as you won't be able to get the money back afterwards if you feel you've paid too much (without the cost of re-mortgaging)
 
Write to the lender telling them that you want to pay €x,000 off the capital balance of the loan and that you want to keep your repayments at their "normal" level (as if the capital had not been reduced). This will yield the best interest cost savings long term and reduce the effective term of the loan. Get confirmation in writing that the lender does what you want here. Use Karl Jeacle's mortgage calculator to estimate the interest cost savings possible with such accelerated repayment strategies. With the capital balance reducing "unexpectedly" you may also be able to save a few bob by getting lower/alternative mortgage protection life assurance cover. If you do this then put the new cover in place and assigned to the lender before cancelling the old cover.
 
Oh - and after making the capital repayment your lower Loan To Value (LTV) ratio may qualify you for a lower rate (in particular a lower tracker variable rate) with your existing or another lender so shop around in case you can make further savings. If you do qualify for a lower rate then don't expect your lender to unilaterally tell you this!
 
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