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Chapter 1: What is the main topic discussed in this episode?
You're listening to the Irish Times.
You have come to the right place if you're wondering what's the best way to pay down your mortgage as fast and as painlessly as possible. If one was to gamify the process, how do you win at mortgages? I'm Aideen Finnegan and this is Better With Money from the Irish Times. I'm joined today by financial planner and managing director of D&G Financial Services, Cian Carolyn. Hi, Cian.
Chapter 2: What are the fastest ways to pay off your mortgage?
Hi, Aideen. How are you?
Now, lest anyone forget, this episode is for information purposes only and does not constitute financial advice. How could it? Because everyone's situation is different, particularly when it comes to mortgages. Isn't that right?
Correct.
Just before we continue, I should say for anyone listening today, we are concentrating on mortgage holders. Trying to get on the property ladder is a whole different ballgame. And we did a very detailed episode on that back in series one, which I will leave a link to in the show notes. Now, Cian, we've been going very hard on investing lately on Better With Money.
And a question that has come in again and again is, should I overpay my mortgage or should I take that extra few hundred euro and invest it every month instead?
Yeah, there's no... I know you're going to say it depends. I won't say what you think I'm going to say, right? So I'll start with, okay, different motivations, okay? So if someone came to me, let's say they have a good emergency fund, they've got some good disposable income, but they're really underfunded from a retirement perspective.
I might say to them, listen, why don't we dial up the pension contributions a little bit here because you're not putting enough in at the minute. rather than you don't be debt free in your mid 50s with no pension or a very minimal pension pot. And then you might come across someone who's already max funding their pension. So that kind of ticks that box very quickly.
And then you might say, OK, you've a lot of money in the bank. You've no long term investment plans at the minute. And maybe that might be a motivator as well. You might talk about, well, the opportunity cost of paying down your mortgage versus the opportunity that you're leaving behind by not investing.
And then you might find someone's already investing or they, but some people just have a really strong motivation to being debt free early. And as financial advisors, it's really important for us to lean in to what the motivations are rather than telling people what,
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Chapter 3: Should I overpay my mortgage or invest my extra money?
The interesting thing is overpayments is probably second to interest rate, the most sought after feature on a mortgage. I would say now that's anecdotal, but that's 10, 12 years experience of this that that's what I find it's the after interest rate it's the next thing that people want most and it's one of the most underutilized features on mortgages.
Is it?
Yeah now again I don't have exact numbers on this but it's considerably less than what you might think I think it could be as low as 8 or 10 percent of mortgages are in an overpayment position.
Well I suppose the way things are it's actually it's hard to find extra money to do that so maybe that's not so surprising.
Yeah, and then there's people that are coming off historic low interest rates where they may have been overpaying a little bit each month, but maybe that's with their interest rates increasing, that could be that that's now their new baseline repayment.
Like as in if you're paying a thousand a month and you're overpaying by a hundred a month on top, if your rate has gone up by half a percent, it's quite plausible that that eleven hundred a month is now not an overpayment position at all. So look, fixed variable, there are good reasons why one would go with one versus the other.
But I would say the lion's share of mortgages that have issued over the last decade have been fixed rate mortgages. High, high percentages are fixed rate mortgages.
So that's the structure then. So when you're talking about overpaying, how you do it, what are the different ways depending on which one you've chosen?
So particularly when you're in a fixed rate, you need to be really careful about how much you overpay by. So if you're in a really fortunate position to come into a large lump sum of money, you could...
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Chapter 4: What are the different motivations for overpaying a mortgage?
depending on the lender, you could walk into overpayment penalties very easy. So the easy thing to do is to call your lender and ask them, okay, how much can I overpay now? Or how much can I overpay this year without incurring any penalties? And if I was to exceed that amount, What way is that going to impact me in terms of penalties? How much is that going to cost me?
So you can ask these questions straight out to your lenders. And they're important questions to ask because you don't want to take all the good out of an overpayment by being hit with big penalties, right? And it is a minefield because we've got 10 different lenders in the market and they all have different variations in terms of how much you can overpay.
Some will allow you to overpay 10% of the balance each year, but you're limited to two overpayments. So you might overpay... you know, 5% at the start of the year and then you might do two more percent mid-year. But that's your, that's your allocation for the year because it's 10% or two overpayments with some lenders. So you need to be really careful before you overpay. What are the parameters?
How many times can I do that this year? And practically speaking, how do I do it? Is it a transfer or can they set that up automatically to happen without me now having to do anything moving forward? So it really depends and it's just a quick conversation with your lender.
What if it's not a lump sum? What if you've changed jobs and you're on a higher salary now and you've decided, right, I'm going to, you know, siphon off an extra 200, 300 euro a month to pay the mortgage. What about doing that regularly?
can do that as well depends on the lender okay so if you're on a fixed rate very few lenders will allow regular overpayment it's it goes back to do they facilitate only regular overpayments at a certain limit or do they facilitate lump sum overpayments and can i only do one or two of them so it really depends on the lender so you may be dictated to by the lender in terms of how much you can do
And if it's a case that you don't have a lump sum to invest but you have a regular amount that you could, or to overpay even, and let's say you have that lump sum and you're not in a position to do a regular overpayment but they only facilitate regular, then you might have to look at an alternative option with that money until you're out of a fixed rate and can then overpay.
Or if it's a case that you want to do it regular but your lender only facilitates lump sums, again, what you might do is you might look at setting up an investment account, kind of a low, medium risk investment account for those three or four years that you're in a fixed rate and then take that money and overpay it against the mortgage.
So it really does depend and it's nuanced depending on the lender and depending on whether you want to do regular or one-off lump sums. And so it's important that before doing anything that you ask these questions.
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Chapter 5: How do fixed and variable mortgage rates differ?
And it's something that ECB have a responsibility and a very big motivation to keep in check. And I think Irish inflation is running at 3.6% at the minute. I think European inflation is maybe closer to 3%. it's higher than they would like it to be. They might tweak rates just to curb that kind of inflationary growth at the minute. We're seeing non-bank lenders in Ireland already moving on rates.
We've had ICS mortgages, I think, have announced three different rate increases this year already. One or two of them have been fixed rates and variable rate increases.
Would you be mad to opt for variable in that context?
Look, it depends. Someone might be borrowing for a five-year cycle and they might have plans to sell their house and retire out. Someone could be expecting a large inheritance coming their way and they're really motivated to be debt-free. And so there could be a reason why. But look, we don't see a huge appetite for variable rates.
And also, depending on the lender, it doesn't have to be one or the other. Some lenders will allow a split fixed and variable rate position or a dual split fixed rate position. Oh, how does that work? So you might split half your mortgage on one rate and half on another. And it doesn't have to be half and half.
It can be a certain split with like one of the splits will have to be of a certain minimum value. Right. But some lenders will allow you to split your rates. Not every lender allows you to do that. So if you know that you're going to have a bonus of X amount coming your direction or if you know you've
and an early inheritance or inheritance come in your direction, you say, I want to be able to knock 100 grand off my mortgage in 12 months time. That could be a really good reason to sit on a variable rate for a portion of your mortgage, that portion that you expect to be able to pay down. So yeah, look, I wouldn't say there's huge appetite for variable rates. It's generally circumstantial.
Coming up, we're all told to shop around, but how much does switching mortgages cost and what can it really save you in the long term? Should you always opt for the longest term possible?
Longest mortgage term or longest fixed rate?
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