Paying off mortgage or...

T

Twinkle

Guest
My mortgage is currently €75,000 and I have savings of roughly €60,000. I am not interested in buying another property and wonder whether I should make a lump payment on my mortgage, and thereby potentially reduce the term to 2/3 years and reduce the interest significantly, or would it be financially more astute to invest it elsewhere?

Any words of wisdom gladly received...
 
If you know that you can get better guaranteed returns elsewhere than what you can save on interest costs (and eventually mortgage life assurance protection repayment costs) then investing rather than reducing the mortgage might make sense. But I would be surprised if you could do this so if the money is not required for anything else then reducing the mortgage may be a prudent thing to do. See Karl Jeacle's mortgage calculator to estimate the potential interest cost savings of reducing the mortgage through accelerated capital and/or regular repayment strategies.
 
I wouldn't use all your savings, as you never know what is around the corner, you may need ready cash in the future, so keep at least some of it liquid. after that, despite mortgage interest rates having gone up in the past year, they are still very low, you are probably paying in and around the 5% mark, with a little bit of careful planning you should be able to get a higher return than that. it depends really when you feel you will want access to the money, if you want a low risk option you will probably have to leave your money tied up in an investment for a few years to make returns high enough to warrent keeping on your mortgage. another consideration is how hard you are finding it to meet your monthy payments on the mortgage. you should maybe do a financial review with an advisor, and look at all your options, you deffinitly shouldn't have all that money sitting in a low interest account.
 
We are in a similar position and have an offset mortgage with NIB. The money in our savings account earns the same rate of interest as our mortgage. The interest we earn on the savings is then added to our monthly mortgage repayment to reduce our mortgage at a faster rate. There are several advantages to this:
1. Our savings remain available to us in our current account
2. We earn 5.1% interest on our savings which isn't at all bad
3. We pay no DIRT tax on the interest
4. We rapidly shorten the lifetime of the mortgage

If you have both a mortgage and some money in the bank, and you're not ready to use it to pay off the mortgage but you are fed up with low savings interest rates, this is the way to go.
 
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