Pay off Mortgage

[Lilo Lil]

Am currently paying off about 1500 on mortgage of 340,000 each month. The rate is 3.35%. Do you think it is wise to make overpayments on this mortgage (variable rate) with any additional cash I have?
I could possibly pay 2000 extra some months - not every month as its not definite.
Or are there other options I should look at with this additional money? Am reluctant to go into something fixed for 5 or 10 years as this money is not definite each month.

 

[ClubMan]

Are you already maximising your SSIA contributions?

If you don't need the money for any other purpose in the short/medium term and want to reduce your mortgage to a "mangeable" level (e.g. some small multiple of annual income) then making accelerated capital repayments and keeping the repayments at their pre capital repayment level would be a good way to save money and reduce the effective term of the mortgage. See Karl Jeacle's mortgage calculator for assistance on modelling the effects of such accelerated mortgage capital repayment strategies.

The next possible option might be to make (increased) pension contributions to avail of the tax relief and boost your projected pension savings.

Otherwise what you should do with the money should be driven by your short, medium and long term goals. The AAM and IFSRA guides to savings & investments linked in the key posts thread may help with clarifying these and with choosing financial options that suit each.

 

[Odea]

I would suggest that you do this but not off the capital so to speak. If you lodge the monies in to your account and let it sit there as a credit then you can ask for it back at any time should the need arise. If you capitalise your repayment it comes off the amount owing immediately and you won't be able to ask for it back. I would then suggest that perhaps once a year you review your financial situation. For example you might have built up €10k to your credit in your account and might want to capitalise all of this sum or part of this sum. Talk with your mortgage manager.

 

[ClubMan]

If you lodge the monies in to your account and let it sit there as a credit then you can ask for it back at any time should the need arise.

If the mortgage is not an offset/current account mortgage this will yield no immediate benefit and the money will not earn interest and will lose value over time due to the eroding effects of inflation.

I forgot to say that you should first make sure that you are with the most competitive lender for your situation and, if not, think about moving if the benefits outweigh the costs (if any).

 

[Odea]

If the money is lodged in to the mortgage account and it sits there as a credit you will only pay interest on the balance outstanding as interest is calculated on a daily basis. I am afraid Clubman is 100% wrong on this as he has been in the past.Your daily capital is reduced by the amount of money that you lodge and you pay interest on the balance outstanding. However your capital loan is not reduced until such time as you notify the financial institution that you wish to capitalise the credit in your account.

It is possible to have a loan of say €100k with a credit of €x over and above your monthly repayment, made up of the extra monies that you lodge monthly, this will show up as a credit on your account because you have lodged more than your monthly repayment. This credit amount can be carried forward for as long as you wish. If you wish to reduce the capital amount on your mortgage you ask the financial institution to capitalise this credit. This in effect clears the credit on your mortgage that you have built up and further reduces your monthly reducing €100k loan by the lump sum amount of the credit.

 

[ClubMan]

Unless things have changed significantly in recent years...

If the money is lodged in to the mortgage account and it sits there as a credit you will only pay interest on the balance outstanding as interest is calculated on a daily basis.

This is not the case if it is not a current account/offset mortgage.

Your daily capital is reduced by the amount of money that you lodge and you pay interest on the balance outstanding. However your capital loan is not reduced until such time as you notify the financial institution that you wish to capitalise the credit in your account.

Not on most or all normal (non current account/offset) variable/tracker mortgage accounts.