Should I pay a lump sum off my mortgage?

Brendan Burgess said:

I was being kind, calling it "meaningless".

It's a saving of 2014€ 2700 , plus 2015€ 2,700,+ 2016€2,700 etc.

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Hi Brendan,

Thank you for clarifying that and for your kindness, I accept that is the only correct way to look at it, though I think it can be usefull to sometimes look outside the box.

Interestingly and apparently wrongly, if you put the O/P’s figure of €190K @ 4.4% over 33 years into Jeacles calculator and after month 1 make a once off payment of €60K, leaving the term unchanged, it clearly states it is a saving of €53,681, and it is clearly Euro's not anything else’s.

Sorry, can't paste Karl's summary properly formatted, but these are the important bits.

Start date: June 2014

End date: May 2047

Extra payments: €60,000.00

Savings: €53,681.67

Brendan Burgess said:

OK

Let's look at the main options which the OP has

1) Put it in a mattress
2) Put it on deposit at 1% (net after tax)
3) Pay it off the mortgage at 4.5%

The term of 33 years is simply irrelevant to the decision.
Would the advice be any different if the term was 23 years or 43 years? If we do the apples and oranges calculation, we would calculate that he would save 43,000 (apples and oranges and grapes - I refuse to call them €) . If the term remaining is 43 years, he would save 63,000 (apples and oranges and grapes). Does this make any difference? Of course, it doesn't.

This year, he will save 3.5% of €60,000 or €2,100. This is the key financial issue to be considered. And the only financial issue.

After that, he should look at the other issues, to see if there is some other reason which suggests an alternative use

• Invest in shares instead of paying off the mortgage
• Keep the money to start a business
• Keep the money to buy a car or to trade up

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Let's say tronman is evaluating any of the above options. With the help of a fairly simple spreadsheet, he can assume what rate of annual growth he thinks he might get investing in shares, for example and then deduct the tax. He could play around with different possible future annual growth rates.

In doing so, if he comes up with a figure after 33 years that's greater than €53,841 he knows that using those assumptions, investing in shares would be better for him. Or if it's lower, then paying off the mortgage would be better for him.

Should he base his decisions solely on such projections? No - he should look at them in the context of his overall financial situation.

Should he accept that any projections that involve looking into the future are not forecasts and can be affected by a whole variety of variables? Certainly.

But are such projections of interest savings from Karl Jeacle's calculator meaningless? No.

LDFerguson said:

But are such projections of interest savings from Karl Jeacle's calculator meaningless? No.

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Sorry Liam. They are absolutely meaningless.

Let me try a different approach.

I have a mortgage of €200k
The SVR is 4.5%
I have no other borrowing.
I have €100k on deposit at 1%
I will not be trading up.


1) Would you advise me to pay off the loan?
2) Would you advise me to pay off the loan if the remaining term is 10 years?
3) Would you advise me to pay off the loan if the remaining term is 30 years?

After the initial post, tronman asked "What is the remaining term?"

It's completely irrelevant.

It's one of the problems when thinking about money. People focus on some irrelevant issue and then do some complex calculation which lends a credibility to the answer which it does not deserve.

The updated Key Post covers all the relevant issues to allow people to focus on making the right decision.

Saying "This will save you €53k" is meaningless and misleading.