Mortgage overpayment

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Astrodog

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I have a mortgage of EUR 680k (variable 4.15% AIB) with repayments that would be extremely difficult to afford on salary alone. However, I have significant savings, which have just been added to by the proceeds of the sale of my old house.

I now want to pay about 50% off my mortgage in a lump sum to make it more manageable. I know that I can either (a) pay to reduce the term or (b) pay to reduce the amount of each repayment. My question is, can I do a mix? Can I pay off a lump sum to reduce the repayments to a set monthly figure, and then set the term at whatever that set repayment would get me to?

Some additional questions:

When paying off a lump sum, do I need to specify that I want to pay off the principal?
Would it be worth remortgaging after I get the mortgage below 50% LTV?

Thanks
 
I don’t think it’s wise to ever reduce the term.

You could have unexpected financial difficulties and be glad of the headroom.

Getting a term extension in future is a whole headache and will impact your credit record. You’d feel like a fool having reduced it in the first place.

Just pay off more as you can afford to.

My mortgage term is until 2043 and I’m overpaying 12% a month. I expect to pay it off by 2038 on this trajectory but if I ever need to I can just reduce overpayments.
 
I have always paid lump sums off my mortgages over the years to reduce the term, not the monthly repayment.

This has worked very well. You just tell the mortgage provider what you want to do.

I would suggest that you do this a couple of times a year max.

Also remember when you do this that you also contact your mortgage protection company and advise them.
 
If you wish to maintain the monthly repayment as it is, after making the lump-sum overpayment, then simply state this to the mortgage lender.

This means that the effective term of the mortgage will reduce, but the official term has not changed.

I have done this several times.
 
I didn't know you could do this. That's really helpful, thank you!
Protocol said:
If you wish to maintain the monthly repayment as it is, after making the lump-sum overpayment, then simply state this to the mortgage lender.

This means that the effective term of the mortgage will reduce, but the official term has not changed.

I have done this several times.
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I didn't know you could do this, thank you!
 
Tintagel said:
I have always paid lump sums off my mortgages over the years to reduce the term, not the monthly repayment.

This has worked very well.
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Always reduce monthly repayment. As Dr.Strangelove said above, it give you headroom should you ever need it but not the other way around.

To put it simply, what that means is that if your monthly repayment is lets say 500 and you overpay which allow you to reduce your term as you said.

However if you keep the same term and your new reduced repayment is lets say 400 (officially the bank will take this amount monthly) then as long as you keep paying 500 every month like before, it will eventually work out the same as if you are reducing your term.
 
It's better to read the full Key Post on the pros and cons.

If you are on a variable rate, it is correct to always reduce the repayment and keep the term - because you can overpay without penalty.

If you are on a fixed rate and can comfortably afford the repayments of a shorter term, it may be better to reduce the term to avoid penalties from overpaying.
 
OK. You do not need to notify your insurance company that the mortgage is now lower than it was planned to be.

Certainly reviewing your level of cover is appropriate.

But in most cases it will make sense to retain it.

Brendan
 
Has anyone sucessfully set up lump sum mortgage overpayments via their on line banking?

Getting the run around with PTSB at present.
 
DannyBoyD said:
Has anyone sucessfully set up lump sum mortgage overpayments via their on line banking?

Getting the run around with PTSB at present.
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What's the issue? If you've the mortgage account number/reference you should be able to do it yourself.
 
Brendan Burgess said:
If you are on a variable rate, it is correct to always reduce the repayment and keep the term - because you can overpay without penalty.
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Back in the day I was on a split mortgage. I annually paid a lump sum to reduce the term......off the variable rate.
 
Tintagel said:
Back in the day I was on a split mortgage. I annually paid a lump sum to reduce the term......off the variable rate.
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You can of course do it (reduce term) but the argument against it -as already outlined above - is you're effectively limiting your flexibility if you should ever be in a situation where your ability to service the repayments is stretched.
 
Tintagel said:
Back in the day I was on a split mortgage. I annually paid a lump sum to reduce the term......off the variable rate.
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Split mortgage (generally one variable and one fixed) have its own benefit.. but depending on how much you overpay every year.. lenders such as AIB allow you to overpay now up to 5K on fixed mortgage per year without penalty since 14 Oct 2023.. The point here is you don't need variable to overpay any more.

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but did you ever consider that when you do a split mortgage with AIB (not sure about other lenders but should be the same), you can actually change the variable to fixed (i.e. both split as fixed).. essentially all it is, AIB treat the two as separate mortgage accounts (like two mortgages).. the benefit here is you should be able to overpay up to 10K total per year without penalty.

Not many people think about that. It is one of the reason I always also recommend to get split mortgage whenever anyone is taking mortgage with AIB. Partly for this and partly for free banking for you and spouse (where you have spouse that also bank with AIB).
 
Pinoy adventure said:
I think it’s just the 1 account gets free banking unless it’s a joint account
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No, I have done it between myself and my wife, we don't have a joint current account.. the crucial part here is starting with split mortgage (one variable and one fixed) both paid via direct debit from my current account at the start. Eventually I changed the variable portion to fixed also as it has better rate than variable at the time (and due to the way AIB overpayment work from the regulatory information sheet formula previously discussed here on AAM).

Since my wife also bank with AIB, after I changed variable portion to fixed, I request AIB to change the direct debit payment from my current account to my wife's current account instead and BOOM, free banking for both.

Like I said, when it comes to split mortgage, it is essentially two separate mortgage accounts in the eye of AIB. For free banking with AIB mortgage all they care about is the direct debit for mortgage payment comes from AIB current account. So in my case with the changes I mentioned above, all they see is one of the mortgage account is paid from my current account. The other mortgage account is paid from my wife's current account. Their system treats it as if we both got two separate mortgages just because of the way they set up the split mortgage as separate accounts.

Hope this helps.
 
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