Mortgage what to do, pay lumpsum or cut the duration of the mortgage?

I am 2 years into a 35 year variable mortgage. I have been saving for the past 2 years and have managed to put away 10 grand. I also have a lodger in the house. I am considering paying off a lumpsum of the mortgage, my mortgage currently stands at 141000. But not sure whether to keep saving till I have a bigger sum or maybe even decreasing my duration for 35 years to 30 or even 25 years!

Any one got any advice what would be the best option to do in this situation?

Thought it would be nice to have a rainy day fund too but with the rates being low at the moment thought it might be better to hit now??

All advice welcome! Thanks

Personally, I would not change to a shorter term mortgage as it might be difficult to revert to a longer term in the future if you ever need to. Why not just continue saving and lodge a lump sum whenever have a surplus.

When you lodge the lump sum, you can choose to reduce the term of the mortgage or the monthly payment. That really is a personal choice. Reducing the term saves more money in interest in the long run but reducing the monthly payment again minimises your monthly commitment.

As for the rainy day fund, that depends on your circumstances, job security etc. I would not be inclined to pay down the mortgage until I had a comfortable rainy day fund. For a family that might be 50k; for a young singleton maybe 5k would do. It all depends.

So in summary, if you have a rock solid income, pay down the mortgage. If you could be unemployed next week, keep enough aside somewhere safe.

Cheers 3ccc, Is there such thing as a rock solid income these days?
Thanks tho!

Why don't you split it? You could put half your lump sum away and put the other half against the mortgage right now, and from now on split your excess earnings between savings and overpaying your mortgage on a monthly basis.

http://www.drcalculator.com/mortgage/ie

Use this to see what happens to the term and total cost of your mortgage when you increase your monthly payment.

Who is your mortgage provider?

I presume you are not on a cheap tracker?

Many people who paid off lump sums a few years ago are now in difficulty due to changed circumstances, and now wish that they had kept the money.

I think it's a good idea to pay it off, but get your lender's agreement in writing that the payment is noted as repayments in advance, so that if you get into difficulty later, you can stop making payments and you will not be regarded as in arrears.

Brendan

Mortgage what to do, pay lumpsum or cut the duration of the mortgage?

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These are not mutually exclusive - paying a capital lump sum would (subject to agreement with the lender) allow you to (a) retain the existing term but reduce the monthly repayments or (b) retain the existing repayments but reduce the effective term. Both will save you money on total interest charges in the long run. (b) moreso than (a) in all likelyhood.

Your mortgage term of 35 years is quite long so if it was me then I would certainly look at using at least some spare cash to reduce the effective term. But then your mortgage is not huge although that also depends on your earning capacity. But what's most suitable really depends on your specific needs and circumstances - e.g. you may have better/more pressing use for the money in the short/medium term which makes availing of relatively low cost mortgage debt for as much and as long as possible a better option.

Horses for courses...

3CC said:

As for the rainy day fund, that depends on your circumstances, job security etc. I would not be inclined to pay down the mortgage until I had a comfortable rainy day fund. For a family that might be 50k; for a young singleton maybe 5k would do. It all depends.

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This is definitely something to consider. If the 10k is all your savings, then don't go putting any of it towards to the mortgage. In todays job market, it is taking people on 3-6 months to switch jobs (in the tech industry at least, others may be higher) so your rainy day fund should at least cover this.
It is also there there to cover other emergencies that pop up, like lets say a leak in the house, broken window, washing machine etc.

ryaner said:

This is definitely something to consider. If the 10k is all your savings, then don't go putting any of it towards to the mortgage. In todays job market, it is taking people on 3-6 months to switch jobs (in the tech industry at least, others may be higher) so your rainy day fund should at least cover this.
It is also there there to cover other emergencies that pop up, like lets say a leak in the house, broken window, washing machine etc.

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Cheers Ryaner and the other posters, I have made my mind up a bit anyway, this I'll keep building the rainy day fund for now, but what are your opinions on overpaying your mortgage while rates are low, I read an article on it where the analyst said it was a waste of money and that your actually better off saving the amount than overpaying it onto your mortgage, anyone any opinions on this. I kinda have my mind made up on it already that I wouldnt be in favour of it but other opinions are welcome. Thanks

irish_bhoy82 said:

I read an article on it where the analyst said it was a waste of money and that your actually better off saving the amount than overpaying it onto your mortgage, anyone any opinions on this.

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If you can get a better return on your money (net or DIRT or other deductions) than your mortgage rate (net of TRS etc.) then this holds up but with mortgage rates probably in or around 5% in many cases this is unlikely at least where deposit savings are concerned. If the article actually said this then it sounds like a rubbish article to me.

So Clubman would you suggest overpaying if I have the funds to do so?

If you have no immediate, short or medium term need for the money then I'd imagine that reducing/clearing debt would be the next best use for it.