Pay more off mortgage - good/bad idea?

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PetPal

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I have a small equity release. Recently my income is a little better than it was and I considered putting more money off the capital each month. I'm wondering though, given the current economic climate, whether I'm as well to allow the debt to continue as it is on the basis that (presumably?) it's wiser currently to owe banks than it is to pay them. I'm not hugely into economics and would appreciate advice. Thanks.
 
well, paying money off the capital now will save you time and interest over the course of the mortgage. Can you comfortably manage to pay this extra every month, or if doing it by lump sum will you leave yourself short. Consider these first. If you can comfortably do this then I would consider paying off the capital right away.
 
The main reason I'm paying off the mortgage is because I can't think of anything safer to do with the money. I'm trying to leave it in the bank account for as little time as possible.

What else would you do with it?
 
Invest in a saver scheme that earns more than the interest you're being charged.

BOI currently have a saver scheme for 7% p.a. (afaik) for the first €5k. cost of a mortgage can't be as much as this with current interest rates. Therefore, would you not be better saving it, earning a slightly higher interest rate than the mortgage?

I'm not 100% certain my maths adds up (typing this on the fly) but I think I'm on the right train of thought.
 
Thanks Paddy and Leghorn. "What else would you do with it" ... excellent point Leghorn. Hadn't looked at it that way. Paddy - I wouldn't be able to pay the entire mortgage off, but will certainly have a little bit extra in my pay packet each month (maybe 500) for the foreseeable future and probably won't miss it (as I didn't have it previously). I would intend paying it off the capital monthly. I wasn't going to set up a DD - just send in a cheque each month. The reason for this is so that I have control over it in case I change my mind..

All in all I think that it would be wiser, as you say to pay it off the capital than just leave it in a bank (or spend it). Thanks for your advice.
 
My son asked me a similar question recently and I advised him to pay off a lump sum from his capital and, as his income has increased, increase his payments also. Amazing how a lump sum payment can reduce the term of a mortgage. Some factors must be taken into account when comparing mortgage v savings e.g tax relief on mortgage versus DIRT at 23% on savings. I would not go down the road of opening a regular saver a/c at Bank of Ireland, even at 7%. Just look at the restrictive terms and conditions. I had one of these and after saving the maximum amount to a total max of €5,000 got less than €60.
 
Yes, if you can manage it comfortably every month, do pay it off. 500 a month off capital for a decent length of time could make a huge dent in your mortgage term and interest. Make sure that before you start sending in your cheques monthly that you have it in writing from your bank that the money will be taken directly off the capital as otherwise they may try to apply it to the interest instead.

There is one alternative also, you could always save the 500 a month in a savings account that earns higher interest than the rate you pay on your mortgage. Make it a savings account where you have to give plenty of notice, which will help you avoid the temptation to dip into it! Do you know what your current interest rate and outstanding balance is? You could continue to save this until mortgage interest rates start to increase (hopefully never as I say!) and then pay it off in one large lump sum, again directly to the capital. But, either option is up to yourself, so do as you feel comfortable with. Best of luck with it.
 
PaddyW said:
Yes, if you can manage it comfortably every month, do pay it off. 500 a month off capital for a decent length of time could make a huge dent in your mortgage term and interest. Make sure that before you start sending in your cheques monthly that you have it in writing from your bank that the money will be taken directly off the capital as otherwise they may try to apply it to the interest instead.

There is one alternative also, you could always save the 500 a month in a savings account that earns higher interest than the rate you pay on your mortgage. Make it a savings account where you have to give plenty of notice, which will help you avoid the temptation to dip into it! Do you know what your current interest rate and outstanding balance is? You could continue to save this until mortgage interest rates start to increase (hopefully never as I say!) and then pay it off in one large lump sum, again directly to the capital. But, either option is up to yourself, so do as you feel comfortable with. Best of luck with it.
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Thanks Paddy. The current balance is 54k. The interest rate has been coming down all the time recently .... latest notice tells me it's 3.3% from 2 January. So I guess that you're saying if I can earn in excess of 3.3% from savings, then that is one way to go. My gut feeling is that unless I'm earning significantly more than that interest rate, it would be best to put my extra money off the mortgage each month. Even though that may not make sound economic sense to purists, I think that I would just "feel" better, knowing that I was making inroads. Thanks for all the help.
 
Well, you'd have to be getting a rate of 4.3% or more in your savings (don't forget you have to figure in DIRT). If you can get a rate of say, 4.5% or more for now, I would take it as ECB rate likely to fall by 0.5% next month (although it's debatable if banks will pass this on).
 
It may be difficult to get this money back if you need it. Banks may be less likely to do equity release in the future so you may not be able to get the money back. I'd keep it in cash until you are certain you don't need it. You can probably get a comparable rate of interest for your savings in a secure bank.
 
I'd always pay off mortgage first, the savings are huge, I can never figure out why people choose to sit on savings while paying huge interest on a mortgage. You'll always get money from somewhere if you need it, credit unions and so on
 
While this can be true, I still feel a Mortgage is the cheapest loan you can get (I kno I know, 20 years into repayments it can cost a lot in interest etc...) and I would disagree with poster 11 as to "getting money elsewhere". For example, you have spent 2 years overpaying your mortgage, which, in teh long run will save you money. However, your car has just gon kaput, and you need a 10k loan to buy a new one. the car loan is at a relatively high interest rate, and you'll spend the next 5 years paying this off an making no savings.

I know there are a lot of pro's and con's to the argument, and it can be argued either way relatively successfully, but this is just my point of view :D
 
Petpal - why don't you have a look at this website, it's helped me make similar decisions in the past. You can see what effect many different decisions will have on your morgage such as the effect of making once off lump sum payments or regular overpayments.
http://www.drcalculator.com/mortgage/ie/
 
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