Should we pay extra into our mortgage

Hi There,

We currently put 1600 a month into our joint account to cover the mortgage and insurance etc. With the interest rates dropping etc I was wondering should be paying more off our mortgage? If we do increase it now and the interest rates go sky high again in the future can we go back to the original amount we were paying etc or will there be penalties?

Any help on this would be greatly appreciated,

JJ

Would it not be more clearcut to consider lump sums? Also, if your fortunate enough to be on a very good mortgage rate, it may be more beneficial to put additional savings into a deposit account.

In times of economic uncertainty, paying down debt is a sensible course of action.

Of course you shouldn't make an overpayment until you have adequate savings built up to cover exigencies such as illness, temporary periods of unemployment, repairs and replacement of consumer durables etc..

With the increased risk of redundancy and diminished re-employment prospects the standard of a rapidly accessible rainy-day fund of 3 months average expenditure may be insufficient for most people.

However, the majority of people will be well advised to look at reducing all their debts (starting with the highest rate shortest-term ones) and mortgage debt is a part of this.

This advice is especially relevant to those whose mortgage terms stretch into their anticipated retirement years - with declining pension yields such commitments may be unsustainable at that stage in their lives.

Assuming you are not on a fixed rate at the moment then there will not be any penalties.

If you already have a lump sum rainy day fund(I agree with oysterman that 3 months average expenditure may not be enough(try for 6 months) then after that is in place and assuming you have no other debts at higher interest rates(long term credit card debt/car loan etc..) then you can probably arrange with your bank in writing to fix your actual repayments at an amount higher than they currently are while leaving your variable rate and existing term unchanged. This course of action reduces the effective term of the mortgage but gives you the flexibility of changing back to your ordinary repayments and old term on demand. Certainly I have done this in the past with EBS IN any event its important to get confirmation in writing from your bank of what you have agreed as the ability of banks to get things wrong should never be underestimated!

Alternatively you could be patriotic and blow all your extra cash on luxury items to kickstart the economy!

oysterman said:

In times of economic uncertainty, paying down debt is a sensible course of action.

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this is what we thought and so as interest rates went down we kept our payment the same so the rest reduced the term. Its a loan no matter what that we need to pay back - and its better off doing that when he have money. we still put money into a savings account.

Hi Guys,

Thanks for your responses. We did speak to the bank and yes they informed us that we can keep our repayments the same as before and as long as the interest rates don't go back to what they used to be, we will be overpaying the mortgage.

However, we have decided that we would like to utilize the money to pay off another loan that we have and we can come back to the mortgage at a later date.

Thanks for your help.
JJ

the other loan is probably higher cost to you anyway so its probably the best course of action for you. Good luck