Paying 100k off mortgage, should I still keep up same repayments?

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paddywhacker

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Hi,
I'm planning to pay 100k lump sum off my 500k 35 year mortgage, but what I'm wondering is should I reduce the monthly repayments accordingly or does this wipe out much of the gain in paying off so much of the capital? Repayments currently 2750 pm with Irish Nationwide's rubbish variable rate (am sticking with them hoping for the payout but this is becoming more difficult as time goes on!)

My work is such that I will again be able to pay off additonal smaller lump sums from time to time, and because we are in a higher interest rate cycle now, I'm wondering if I should just treat it as a 400k mortage over the same period rather than keeping the same repayments (which of course I know will pay it off faster) I've tried the Karls mortgage calculator and it look as though I would save approx 500 pm in repayments by keeping the term the same.

So what do you think? Keep the term the same and go with reduced payments or keep paying off at the current rate? Essentially I want to get the best value out of the 100k but I'm wondering if I'm being too diligent by doing everything ...
 
Making a lump sum capital repayment and keeping the repayments at their "normal" level will yield the best savings and reduce the effective term of the mortgage. Making the capital repayment and then allowing your regular repayments to fall based on the original term will yield lower savings. See Karl Jeacle's mortgage calculator. Make sure to put in writing to your lender that the lump sum is to be applied as a capital repayment to th mortgage just to avoid any confusion. If you can afford it I would say that it makes most sense to make the capital repayment and keep the regular repayments at their normal level. I am assuming that you have no higher cost debts that might merit attention first and that you might not end up clearing the mortgage only to borrow at higher than mortgage rates later.
 
Yes, I'm sure this is the safest option but I'm wondering if I should just reduce the payment and then maybe the 'saved' 500 pm to reinvest further?
 
Well it all depends on whether you think that you can get returns in excess of those guaranteed by keeping the repayments at their "normal" level.
 
You could pay the lump and fix the repayment at the current value. i.e. Not tracking the interest rate. This will protect you from any further rate increases and then when rates start to go down make you catch up again. This is the smart way to fix as it doesn't involve paying an interest rate premium to the bank or expose you to exit penalties. The lump is required to do this of course. AIB let me do that.
 
Thanks, but following on from that, (and I know it's another thread!) I know I could get a much better rate that the 5.7 I'm on at the mo. As it is I'm probably paying over 200 more pm with Irish Nationwide and was also thinking of moving mortgage provider. But I don't want to miss any payout and yet there is no sign of anything stirring at INBS ....
Would it be a bit of a gamble to move mortgage provider at this stage?
 
Sounds like a bit of a long shot.

Will the lump change your LTV into a different band?

You should be asking them for an interest rate reduction. After you've got that concession then decide if you want to move.
 
Yes, the lump sum will put it at below 60% LTV. I've already asked them to be moved to a tracker variable but they won't do it, insisting that trackers are for 'new business only'. I threatened to move but they basically said 'go ahead then'. Think they can do what they like really as they know we are all waiting for the payouts so moving at this stage would be a big risk.
 
Personally I'd follow the definite savings route rather than a what-if. Assume you've already gone through the Irish Nationwide mutuality thread here
 
Yep and it really does look like nothing's stirring, doesn't it? V hard to make the break though, as knowing my luck they would announce a sale the day after I moved. Think I have to bite the bullet and hang on in there although it's getting harder and harder with the interest rates on the rise ..
 
That's a terrible rate. I'm paying less on the same principal for a 30 year term.

Have you a reasonable idea what the payout is likely to be? [I haven't been following the details at all]. It will need to be really significant...
 
What rate are you on Dreamerb if you don't mind my asking? And are you with INBS too? They pretty much have us over a barrel with this possible payout which is why I think they can keep their rates so high and get away with it!
 
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