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Working from home could shave €30,000 off cost of a mortgage

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Doddl MD Martina Hennessy

Doddl MD Martina Hennessy

Doddl MD Martina Hennessy

People having to work remotely could save close to €30,000 by using the money they save from commuting and lunches to overpay their mortgage.

Households that would have spent €150 a month on travelling to and from work and meals could cut six years off the average term by overpaying that amount.

The total cost of credit would be reduced by just over €28,000, according to the latest Irish Independent doddl mortgage switching index.

The impact of the overpayment would also be to reduce the mortgage term by six years.

This is based on the average mortgage drawn down this year of €230,943, assuming a 30-year term and the variable mortgage interest rate of 3.2pc.

Those on increasingly popular fixed rates should opt to switch some of their funds to variable in order to avail of the benefits of overpaying, according to experts.

That is unless their bank allows them to overpay on a fixed rate, as some lenders do.

The impact of the overpayment would be to reduce the mortgage term by six years, and the total cost of credit would be reduced by just over €28,000, according to Martina Hennessy, the managing director of online mortgage platform doddl.ie.

"Mortgages are calculated on an annuity basis, and the more you can overpay to decrease your capital balance, the more you reduce the overall interest you repay over the mortgage term," she said.

As well as using savings on commuter costs, people could make even bigger savings by switching to a better rate.

Ms Hennessy said interest adds no value to a person's mortgage.

Dead

"If you're paying a higher rate than you should, this is simply dead money that is being handed to your bank," she said.

It is important that mortgage holders understand what interest rate they are repaying and if they could reduce this by either moving to another product with their existing lender or by switching mortgage provider, Ms Hennessy added.

The average Irish homeowner is needlessly making up to €3,439 in extra mortgage repayments every year by not switching lenders, according to doddl.

The spread between the highest and lowest interest rates available on the market is currently 2.3pc, working out at a saving of €122 a month for every €100,000 owed on a 25-year mortgage.

The Irish Independent doddl Index looks at the total number of switcher transactions per quarter as a percentage of all home loan transactions, excluding buy-to-let mortgages, to give an accurate picture of principal private dwelling house credit.

The index is based on the average mortgage for new lending in both the first-time buyer and second-hand mover markets.

"It is important that we educate ourselves on the importance of overpaying mortgages if at all possible, even when we're dealing with fixed rates which carry early repayment penalties," Ms Hennessy said.

Three-quarters of new mortgage customers are now opting for fixed rates, compared with half in 2017.

The rates are generally lower than their variable counterparts, but have limited or no options for overpayment without penalty.