Overpay 7 year fixed rate mortgage?

T

tom1ie

Registered User
Messages
126
Age:
40
Spouse’s/Partner's age:
40

Annual gross income from employment or profession:
E80k
Annual gross income spouse:
E70k

Type of employment:
semi state employee myself
wife is private multi national
Expenditure pattern:
We have some savings

Rough estimate of value of home
E600,000
Mortgage on home
E240k
Mortgage provider:
Avent 7 year fixed. We switched to avant in December 2021 so we have 6 years of fixed rate left.
Type of mortgage: Tracker, interest only, fixed rate
Fixed
Interest rate
1.95%

Other borrowings – car loans/personal loans etc
None

Do you pay off your full credit card balance each month?
We don’t have credit cards

Savings and investments:
E20,000 savings. Approx E10k in investments in wife’s job.

Do you have a pension scheme?
Yes both.
I have a DB pension and my wife has a DC pension.

Do you own any investment or other property?
No.

Ages of children:
7 months, 7 and 10.

Life insurance:
Yes.

What specific question do you have or what issues are of concern to you?
We have overpaid 13k against the mortgage at the start of the year and we now have a chance to overpay the remaining 10% overpayment facility for the year.
This amounts to 12K.
What are peoples opinion on this?
we have worked out that if we keep overpaying the max 10% for the duration of the fixed rate we will have an outstanding balance of 80K by the time we are 46/47.
This seems like a good idea but I wonder are we missing another option here?
personally i don’t see the upside in investments in Ireland due to the high rate of CGT to be paid etc plus the inherent risk- at least with paying off debt you are getting a guaranteed result from your money.
We are maxed out on our pension contributions and we have some cash saved also for emergencies and for school fees etc.
I am reluctant to get into more debt for an investment property also.
Let me know what you guys think
thanks
Tom.
 
tom1ie said:
Savings and investments:
E20,000 savings. Approx E10k in investments in wife’s job.
Click to expand...

tom1ie said:
personally i don’t see the upside in investments in Ireland due to the high rate of CGT to be paid etc plus the inherent risk- at least with paying off debt you are getting a guaranteed result from your money.
Click to expand...

tom1ie said:
we have worked out that if we keep overpaying the max 10% for the duration of the fixed rate we will have an outstanding balance of 80K by the time we are 46/47.
Click to expand...
tom1ie said:
we have some cash saved also for emergencies and for school fees
Click to expand...

1. You are looking at it correctly. You get a risk-free, tax-free return of 1.95% by overpaying your mortgage and you should do so.
2. No need to project the next 7 years. Your circumstances may change and you pay it down slower or quicker. What matters is that this is the best current return on your money. Next year, you should review the numbers again.
3. You have two well paid jobs. You don't need very much in an emergency fund. If one of you loses your job, the other will be working and you will probably get a big redundancy pay out anyway. OK, to have €2,000 or so. And if some big surprise hits, you can always run up the debt on your credit card and pay it off in a couple of months.
In other words - don't borrow money at 1.95% to put it on deposit at 0%.
4. The best long-term investment for your school fees is to pay down your mortgage. If your mortgage is clear by the the time you face fees, you will be able to use the money you would have used for your mortgage repayments.
5. It's not a good idea to hold onto shares in your employer. If your employer gets into difficulty, you could lose your job and your investment goes down - a double whammy. If it's tax effective to sell them, then do so.
 
So in summary, I would say knock €30k off your mortgage.

Check with Avant. The early break fee is probably zero.

Even if it's not zero, it's probably still worthwhile to set it all off against your mortgage.

Brendan
 
Hi Brendan,
Thanks for the reply.

Avant allow me to overpay by 10% off the balance of the mortgage every year that it is fixed.
So I can break this into two payments a year to get to that 10% overpay without breaking out of my low 1.95% rate that as far as I know is the lowest rate on the market.
I have the mortgage fixed for another 6 years so hope to max out the overpayments over this time.
Thanks for your advice.
Tom.
 
tom1ie said:
So I can break this into two payments a year to get to that 10% overpay without breaking out of my low 1.95% rate that as far as I know is the lowest rate on the market.
Click to expand...

Hi Tom

I think you might be under some misunderstanding.

Your mortgage is €240k.
You can overpay by €24k and not face a penalty.

If you overpay by €44k i.e. another €20k, you don't lose your great fixed rate on the rest of the mortgage.

You may face a small early repayment charge on the extra €20k. But as skrooge points out, when they do the calculation on the €20k, it is likely to be zero.

Brendan
 
Open to correction but don't Avant charge 2% for early redemptions, so it would never be zero?
 
nest egg said:
Open to correction but don't Avant charge 2% for early redemptions, so it would never be zero?
Click to expand...
Correction: That is the the maximum early redemption fee.

So if you are overpaying on a 1.95% rate, you will only be ever be worse off by a maximum of .05%. If you are on a rate higher than that, you are quids-in by overpaying no matter what.
 
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