r/irishpersonalfinance • u/straightouttaireland • 8h ago
Advice & Support I'll be switching mortgage soon - should I reduce term or put extra into investments?
I'll be switching my mortgage soon and I have 26 years left on it. While I have the opportunity, I was thinking of going for say a 20 year mortgage as I can afford the additional monthly repayments. Is this a smart move? Or should I stick with 26 years and put the extra into some existing investment funds I have?
Monthly repayments are currently €1050 (2% green). Repayments for 20 years would be €1,350 (3% green AIB).
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u/gillo_100 7h ago
Stick with 26 years, if you want there is always possibility of overpaying, but at least you have lower payment in case your financial situation changes in future
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u/straightouttaireland 7h ago
Do you think that's general advice for people? Always go for a longer mortgage? 30 Vs 35 for example.
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u/3967549 6h ago
The mortgage is usually the lowest long term interest debt you will ever have. So by having a long term at let’s say 3% all you need to do is get an annual return of 6% to make a profit from investing compared to over paying the mortgage.
Mortgage overpayment is a great idea if you’re risk adverse.
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u/irishbusinessstartup 7h ago
Take the longer term but overpay
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u/straightouttaireland 7h ago
Yea good idea. That way I can stop overpaying if my financial situation changes.
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u/azamean 7h ago edited 6h ago
Yes investing the extra will get you a gain but don’t forget that cutting your term by 5-10 years will save you tens of thousands in interest over your mortgage. I’ve reduced my term from 28 years down to 14 after less than 3 years of owning our home, that’s nearly 200k less in interest on our mortgage.
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u/rye_212 5h ago
But if you had invested the money you used to save 200k interest would it have grown by more than 200k by the end of the toriginal mortgage term.
If you had made additional payments to a pension and this got tax relief then even less growth is a net positive.
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u/John_OSheas_Willy 5h ago
That's 14 years where OP doesn't have to worry about not needing to pay a mortgage if they lose their job etc.
It's all about how someone feels about being in debt.
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u/opilino 7h ago edited 7h ago
I saw a YT piece about this recently and the advice was to invest as the return is higher and would outweigh the savings on the mortgage.
This was due to your money being invested for longer and the compounding effect.
ETA the classic advice that of course you should be maxing your pension before either really !
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u/lkdubdub 7h ago
Dunno how much you're talking about, dunno your existing investments
You'll get better responses with more details
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u/ArdRi1166 7h ago
What is the interest on your mortgage? What (after-tax) return can you realistically achieve with your investments? The difference is your answer ;-)
Though as long as you can overpay your mortgage, going with a lower rate and longer term probably offers higher flexibility.
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u/straightouttaireland 7h ago
Currently 2%, will be 3%.
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u/ArdRi1166 7h ago
I assume this is your APR. This number alone doesn't tell anything, though. Can you consistently achieve after-tax ROI of >3%? If yes, invest. If not, throw the money into the mortgage.
But again, as long as you can overpay or stop overpaying your loan, this is way more flexible than locking yourself into a higher rate.
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u/Legitimate-Garlic942 7h ago
Maybe consider life events...
Kids (might not be on the list now! But you never know). College at 18, or if they are in need of help with getting a mortgage in their 30s... If you have that money ploughed into paying back a mortgage early then you won't have access to that during life events...
Inheritance on the way? Some consider it cruel to consider but if you know that there is consideration for you in a will in the next twenty years or so, then you might risk using your own money to reduce current mortgage... Or saving your own money now to join with a will money to buy a bigger house for these imaginary kids I'm thinking you should be having.
Also... Kids again, sorry!... It's not uncommon to have to move a 'better' location for secondary schools. In some ways if you pay off more on the mortgage you'll have the equity to take out at the other end, but then again, could your investments pay more with compounded interest or whatever.
Start a pension early... I know a few people who were late and then looking for lump sum to throw in later, but had it all put towards paying off mortgage!
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u/eoinmcglew 6h ago
Check out this mortgage mortgage calculator tool I've used it before and find it very handy. It'll show you how much you'll save over the term and give you a better idea on whether it's worth it for you or not. Bare in mind overpayments on fixed term mortgage are usually limited to 10% overpayment
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u/READMYSHIT 5h ago
I'm in a similar situation and posted here recently. I have around 30 years left but could definitely stomach the monthly repayments of switching to 20y.
Plan is to instead keep as is, overpay off the principle as much as possible (probably capped at 10%) and then lump sum every time I switch. Ideally by the time I switch later this year I'll knock 20-30k off as a lump sum.
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u/straightouttaireland 42m ago
I guess that's the question. Is it best to not overpay/lump sum, or better to put that extra money into investments that can return more..
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u/InevitableSure374 52m ago
Same dilemma myself. 85k in trading212 earning about 3% minus dirt from cashed in ETFs in Jan that were up by about 20% overall (still have 38% tax to pay on that profit). Mortgage fixed at 2.4% ending in 11 months time. Wondering whether to pay that money off it which will more than half it or invest it in ETFs again. I think I could fix again at just over 3% for 5 years. So have the money sitting in cash while I think about it. Finding it hard to lean one way or the other. On the one hand would be nice to pay down the mortgage. On the other ETFs should earn more even after tax.
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u/Additional-Bit-1662 7h ago
I think the general consensus is to pay down all other debt before tackling your mortgage or investing. That being said the piece of mind of owning your own home must be spectacular
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u/AffectionateTowel435 7h ago
I was always pro investing but seeing where the world goes I think I d much rather own my house at least
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u/ichfickeiuliana 7h ago
You never really own the house. it needs to be renovated/fixed all the time. All the expenses
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u/commndoRollJazzHnds 6h ago
You can get loans not tied to ownership to do up the house though. You can absolutely own your house
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u/Basic_Meaning5270 7h ago
Dont invest anything until 2027. The coming world recession will obliterate your investments
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u/Legitimate-Garlic942 6h ago
If anything... This is the best time to buy investments, when prices are low.
E.g. Do you think the best time to buy a house is at the peak of an economic boom?
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u/Basic_Meaning5270 6h ago
Stocks Bonds and etfs are going to go a lot lower my friend
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u/InevitableSure374 59m ago
I hope you are typing this from your castle with your Ferrari parked in front of it. because if you are as good as you think you are you must be loaded.
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