Pay off lump sum or switch mortgage

D

Daisy day

Registered User
Messages
3
Hi folks,
First time post,
mortgage:€270000
term: 26 years
we are coming to the end of our fixed term with BOI, I can fix for three years at 3.5% or ten years at 3.8% with BOI.
I’d like to pay off my mortgage as early as possible, we still have €150000 from a previous house sale that we could use to reduce our balance. We would still have a rainy day fund after paying the €150000.
we are both working, early 40’s, public sector
should I pay off the lump sum, or switch the mortgage, or is there something else I should look at?
Thanks
 
For big decisions concerning large sums like this, you should fill in the Money Makeover section so that people could get a complete picture.

Key Post - Basic information required for the "Money Makeover" forum

It can be difficult, but please try to use a meaningful title in your thread For example "27 year old with mortgage arrears". You will get a much better and much more coherent answer if you give as much information as possible in your first post. For example, if you give your mortgage rate, it...
www.askaboutmoney.com

It's not a choice between paying off the mortgage and switching mortgage. You can do both.

Based on the limited information provided, it is better to pay down a mortgage with an interest rate of 3.5% than leaving it in a deposit account at 1% or 2% , which would be subject to tax.

That would bring your mortgage down to €120k. As you want to pay it off as quickly as possible, then you should not fix for a long term as you may face penalties for paying it off early. So fixing for three years would seem appropriate.
 
As you are both in the public sector

And as you will have much lower mortgage payments...

Use the rainyday fund to pay down the mortgage as well.

Then you can build up a small rainy day fund again.

And if a rainy day hits suddenly before you have built up the amount needed, then you can borrow the money on your credit card or with a bank overdraft or from the credit union and pay it off quickly.

Brendan
 
A decision you will have to make is whether to reduce the term of your mortgage and keep the repayments the same,

or

Keep the term of the mortgage the same and reduce the repayments.

As you want to pay off the mortgage quickly, you should probably go for the shorter term. You could opt to keep the term the same and overpay, but you might face early repayment penalties.
 
Alternatively, you could switch to AIB which has a comparatively low variable rate of 3.1%.

Then you could keep the term the same and have much lower scheduled repayments.
But you could overpay whenever you wanted without penalty.


Of course, the risk with a variable rate is that AIB could increase it at any time. But AIB's record of treating customers fairly is better than BoI's or ptsb's. For example, BoI's lowest variable rate is 3.9% at present and they have had a long history of maintaining variable rates artificially high to force customers to fix.

Brendan
 
Thanks Brendan,
I contacted BOI about paying off the lump sum, I wanted to reduce the term and keep repayments the same, however I was told I could only reduce my payments and not the actual term. I’m still not sure if this is correct information.
Thanks
 
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