Overpaying mortgage and then withdrawing the overpayment - any advantages?

[Sunnysoutheast]

Hi SSE

If you put the money on deposit now at 0% interest, this is what your mortgage will look like after 5 years (based on €250,000 @2.5% over 31 years.) Your repayments will be €966 per month.

View attachment 3313

If you keep up the same repayment of €966 per month and pay €90k off now but withdraw €18k a year for 5 years, your account will look something like this.

View attachment 3314

So you save €6,361 - which ties in with GNF's €6,750. I have underestimated the interest a bit.

You will then owe about €215k over 26 years, instead of owing €221k over 26 years.

So this doesn't really make any sense:



If you overpay by €90k now and withdraw it over 5 years, the capital figure will be lower than it would otherwise have been had you not overpaid it.

But of course, if you overpay €90k now and withdraw it, the capital figure will be higher than if you had not withdrawn it.

Brendan

Many thanks Brendan for your insights. What you say makes sense to me in terms of the advantages of making the overpayment. It wouldn't be a huge saving but it still is significant, particularly when every penny counts these days.

 

[Sunnysoutheast]

Absolutely agree with Leo here. This guarantee needs to be treated with caution, as it does give them the option of changing their rules in the future. Is there any reference to overpayment capabilities in your original mortgage agreement you signed with KBC.




Personally I would not be comfortable with the 'guarantee' you have. There are too many risks associated to it in my view, and this is for money that you need, and have a plan to spend.

Thanks for this post gnf_ireland and also your extremely comprehensive one below it. That really spells out for me exactly how much I would be saving in interest and is extremely helpful.
In relation to having an iron clad guarantee from KBC regarding the ability to withdraw the overpayment would you (or anyone on this forum) have any suggestions as to what wording I would need to get from the bank or how I would go about getting a 100% assurance regarding this from KBC?

 

[Sunnysoutheast]

Hi Sunnysoutheast,

To be honest, the benefit is if you keep going with the same monthly payment. The advantage is that you clear the mortgage by a fair number of years, although it slows down again when you take the cash out. Gordon Gekko makes a fair point in terms of not overpaying if you feel you need the money later. It really depends on your priorities - I would overpay (I have done so) but my circumstances were different so you have to do what's most appropriate for you. You could of course do a half and half, but have a look at the amount of interest you are paying early on - it will give you pause for thought!

Hope this helps,

Opus 2018

Thanks for that Opus2018, that's very helpful.

 

[MangoJoe]

Just to echo other peoples commentary and warnings re KBC reserving the right to pull this particular rug from under you feet at any time. -This would be of paramount concern to me if the change would then negatively impact my lifestyle or that of my dependents.

Also re your point on the recordings - There is no financial Institution on the Planet that I would remotely trust to hand over their recordings of Customer Service telephone conversations for the benefit of the customer when requested to by said customer - especially when this customer was clearly proposing to then use the recordings as a stick to beat them with.....