Query on Karl Jeacle's Mortgage Calculator

C

Carmel

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I have a query on Karl Jeacle's mortage calculator.

There are two reading for interest saved due to prepayments -
savings and real savings. Could someone explain the difference in these to me please?

I have done a search through this site am think it might be to do with inflation, but amn't sure.

I am trying to compare paying 6K off our mortgage or putting it into Rabodirect at 5%. I found a calcalator here for the Rabo interest: [broken link removed]

I know interest rates will change etc., but would like to make a fairly educated decision.

Thanks
C
 
The real savings figure is the adjusted for inflation figure.

If you set the term to 1 year and the interest to 1% you can see that values differ by 1%.

In general if the interest rate you're paying on the mortgage (adjusting downwards for interest relief) is more than the interest you'd get from Rabodirect (adjusting downwards for DIRT) then you should use it to repay the mortgage. If it's the other way around put it into Rabo. Although if the difference is marginal I'd still pay off the mortgage as there's peace of mind benefit with having a lower mortgage.

The term of the loan is irrelevant to the calculation so ignore inflation when making the decision.
 
Thanks General Zod.
One more query.

In general if the interest rate you're paying on the mortgage (adjusting downwards for interest relief)

Can you tell me how to adjust the interest rate on the mortgage downwards for interest relief?

Thanks
Carmel
 
Carmel said:
Can you tell me how to adjust the interest rate on the mortgage downwards for interest relief?
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I think you might be better off looking at the monthly/annual summary and then just deducting whatever owner occupier mortgage interest relief you are entitled to rather than trying to adjust the rate to account for this (which would probably be tricky).

I've emailed Karl asking if he ever considered adding support for mortgage interest relief but I presume that (a) this might be tricky and (b) he probably wants to keep the calculator as generic and non country specific as possible.
 
If all your mortgage interest is within the threshold for [broken link removed] then the effective mortgage interest rate is reduced by one fifth. If you don't qualify for full relief I'd take Clubman's approach. Try Clubman's approach as well to look at the tables of interest payments.
 
GeneralZod said:
If all your mortgage interest is within the threshold for [broken link removed] then the effective mortgage interest rate is reduced by one fifth.
Click to expand...
Can you explain how you arrive at this result? And do you mean that the rate charged should be multiplied by 4/5?
 
ClubMan said:
Can you explain how you arrive at this result?
Click to expand...

Say the mortgage was for €100,000 and the interest rate was 5%.

The interest charge for a year is €5,000 (not allowing for repayment of a small amount of the principal).

This €5,000 attracts relief at 20% reducing it to €4000. The effective rate is 4%.

ClubMan said:
And do you mean that the rate charged should be multiplied by 4/5?
Click to expand...

Yes. x - 1x/5 = 5x/5 - 1x/5 = 4/5 * x
 
GeneralZod said:
Say the mortgage was for €100,000 and the interest rate was 5%.
Click to expand...
Yes - but that presupposes what the rate is so the 4/5ths rule doesn't work in the general case surely?

My confusion about the 1/5th issue was that you might have meant 1/5th of a percent (i.e. 0.2%).
 
ClubMan said:
Yes - but that presupposes what the rate is so the 4/5ths rule doesn't work in the general case surely?
Click to expand...

It works in general, provided one is below the threshold.

Say the mortgage is €125,000 with a rate of 6%.

The interest is €7,500 and after relief is €6,000.

4/5 x 6% is 4.8% and 4.8% of €125,000 is also €6,000
 
Okay
So if I understand correctly

My mortgage interest rate is 4.51% (NIB LTV tracker), reduced by 1/5th to 3.6% with interest relief.

With Rabodirect I will get 5% interest reduced by 20% for DIRT = 4%.

So Rabodirect works out better in theory....

C
 
Carmel,

Yes provided your interest payments are below the relief level.

If that isn't the case we need the answers to these questions to make an exact calculation.

What's your outstanding principal and remaining term?

What are your mortgage protection premiums?

Are you a first time buyer? If so did you take out the loan less than seven years ago?

Are you single or part of a couple of joint owners?

The Rabodirect path might be more optimised (in fact first Active have just announced a higher interest rate product discussed elsewhere on AAM), but do you have enough discipline to carry it through? If later on you spend that money + accumulated interest on something besides paying back the mortgage it makes this comparison moot.
 
For such potentially marginal savings I would be more inclined to concentrate on reducing the mortgage and the effective term thereby reducing long term interest costs and also mortgage protection life assurance premiums (e.g. if the mortgage is cleared before term or you reduce the capital enough to merit getting cheaper cover in place).
 
Clubman and GeneralZod

I take you points on the likelihood on keeping the money in Rabodirect for that long and think I will go ahead and make a mortgage pre-payment.

Thanks for all the info.

Carmel
 
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