Mortgage Question ref: Overpayments

cmssjone

Hi all,

I recently bought a house and have taken a 35 year mortgage but with the view to paying it off sooner (if circumstances allow). To this end, I contacted my bank (PTSB) via their open24 service and asked the operator to set up a bill pay facility so that I could put any spare money onto the mortgage as and when I could afford it.

Now, when I check the balance of my mortgage, the money I have sent over from my current account is displayed as a "credit" and has not been removed from the mortgage amount.

Does this mean that this is not being taken into consideration when calculating the interest and therefore a waste of time?

Thanks for any thoughts.......

TheDriver

I did this to an aib mortgage before and it would be taken off the balance when lodged and interest from then on calculated on the remainder of the balance.

Moonbeam

cmssjone wrote: »

Hi all,

I recently bought a house and have taken a 35 year mortgage but with the view to paying it off sooner (if circumstances allow). To this end, I contacted my bank (PTSB) via their open24 service and asked the operator to set up a bill pay facility so that I could put any spare money onto the mortgage as and when I could afford it.

Now, when I check the balance of my mortgage, the money I have sent over from my current account is displayed as a "credit" and has not been removed from the mortgage amount.

Does this mean that this is not being taken into consideration when calculating the interest and therefore a waste of time?

Thanks for any thoughts.......

It might be more worth your while saving up and making payments off the capital .

cmssjone

TheDriver wrote: »

I did this to an aib mortgage before and it would be taken off the balance when lodged and interest from then on calculated on the remainder of the balance.

That would make sense. The way they have it set out seems a little odd with PTSB.... I get the feeling that it's not being considered as taken from the principal balance.

cmssjone

Moonbeam wrote: »

It might be more worth your while saving up and making payments off the capital .

If I save up over the year then I am missing out on a years worth of incremental interest coming off the mortgage. Any overpayments should come off the capital as for as I am aware. Why else would people bother?

Arbiter of Good Taste

Presumably you're on a variable rate mortgage as opposed to a fixed term?

cmssjone

Arbiter of Good Taste wrote: »

Presumably you're on a variable rate mortgage as opposed to a fixed term?

Yes - I took out a var so that I was able to make as many overpayments as I want.

Ray Palmer

You have to expressly say you wish the money to come of the principle and for them to allow it. Most only allow you do this once a year. You have credit rather than less principle as you have to be so specific, if you had they probably would have told you they don't do it that way.

The other thing is some bank employee aren't necessarily able to understand what you want and misunderstood your directions. The computer system didn't allow for off principle so they though credit was as good as.

Gandhi

My mortgage is here (in the US) so may be different, but when I make an extra payment to the principal, it first goes into a "pending" state, and won't actually hit the mortgage amount until the amount "pending" is at least equal to the minimum regular payment.

Say I make an extra $200 payment today. That is less than the monthly minimum payment, so instead of attacking the principal immediately, the money sits in financial limbo. When I make my full payment (say $1000) at the start of next month, that pulls the $200 out of limbo and THEN it attacks the principal.

So for this week, the bank gets to keep my $200, while still charging me interest on the $200 I owe them, even though I already paid it to them. PITA. You have to watch these banks like a hawk.

cmssjone

Ray Palmer wrote: »

You have to expressly say you wish the money to come of the principle and for them to allow it. Most only allow you do this once a year. You have credit rather than less principle as you have to be so specific, if you had they probably would have told you they don't do it that way.

The other thing is some bank employee aren't necessarily able to understand what you want and misunderstood your directions. The computer system didn't allow for off principle so they though credit was as good as.

I expressly stated this when I was on the phone on open24. TBH, I don't think this is a difficult concept for banks (and their employees) to understand. Maybe they are just feigning ignorance. Looks like I'll have to go in and see if I can find someone who can explain it (and then get it in writing!)

Thanks for all of your help everyone.

The_Morrigan

cmssjone wrote: »

I expressly stated this when I was on the phone on open24. TBH, I don't think this is a difficult concept for banks (and their employees) to understand. Maybe they are just feigning ignorance. Looks like I'll have to go in and see if I can find someone who can explain it (and then get it in writing!)

Thanks for all of your help everyone.

You have to understand that the majority of staff working on the phones are not specialist staff with qualifications in lending. If you have a mortgage query make an appointment with the mortgage staff in the branch.

cmssjone

The_Morrigan wrote: »

You have to understand that the majority of staff working on the phones are not specialist staff with qualifications in lending. If you have a mortgage query make an appointment with the mortgage staff in the branch.

Looks like I'll have to do that. Didn't think that it would be so difficult but then again they don't make as much money off you if you pay your loan off quicker I suppose.

missmyler

I have my mortgage with ulster bank and make regular monthly over payments. If I want to increase the overpayment amount at any time I just ring them up and they ask me to confirm in writing.

The customer service team are always very aware what overpayments are and the amount always comes off principal without specifying.

Moonbeam

with AIb you need to be very specific.

cmssjone

Moonbeam wrote: »

with AIb you need to be very specific.

And PTSB by the sounds of things....

bigbadcon

With Ebs it sits in your account as a credit until you tell them whether you want it to reduce the monthly payment amount or the term of the mortgage.

You have to tell them in writing as well asfar as I remember.

What rate is your mortgage at at the moment... Mine is at 1.5 % so if I had any spare cash I'll be putting it into a higher rate savings account or those an post savings bond thingys...

techdiver

Did you complete one of the forms in this pdf?

https://www.permanenttsb.ie/media/permanenttsb/pdfdocuments/Flexible-Mortgage-Options.pdf

It seems that is the correct formal way to specify which type over overpayment facility you want to use.

cmssjone

techdiver wrote: »

Did you complete one of the forms in this pdf?

https://www.permanenttsb.ie/media/permanenttsb/pdfdocuments/Flexible-Mortgage-Options.pdf

It seems that is the correct formal way to specify which type over overpayment facility you want to use.

Thanks for the info. All filled out and I'll take it into them this afternoon. Will also draft a letter stating that all credit is to be taken off the principal.

ForEffsSake

I may not be correct here but I've just been talking to PTSB last week about a mortgage and if I could overpay.
Apparently overpayments are used to reduce the capital and thus the interest of the mortgage BUT you can also use overpayment if you want to take payment holidays or reduce your payments for a while - say if you're suddenly made unemployed or something.

So yes, the money is taken off the principle but you are shown a 'credit' that you can claw back in times of need.

techdiver

ForEffsSake wrote: »

I may not be correct here but I've just been talking to PTSB last week about a mortgage and if I could overpay.
Apparently overpayments are used to reduce the capital and thus the interest of the mortgage BUT you can also use overpayment if you want to take payment holidays or reduce your payments for a while - say if you're suddenly made unemployed or something.

So yes, the money is taken off the principle but you are shown a 'credit' that you can claw back in times of need.

According to the application I posted, you can choose what way to treat an overpayment. Whether you just want to pay the mortgage off earlier, or to enable payment holidays or underpayments.

Farmer Pudsey

OP have you build up a cash balance in the back in case of unforseen circumstances. I would build this up first. This is to allow you not to have to borrow other money for a car, holidays, family expenses if you have one etc. Term loans are very expensive. maybe double the rate you pay for mortgage money.

I also find it strange that with houses prices at low level compared to historical levels that you had to go for a 35 year loan. However maybe it is 5+ years old. I also would be inclined to pay off extra repayments as once off lump sums 1-2 times a year. Yes you may pay a little interest however saving rates would cut this in half. Paying back 10K in one lump as opposed to maybe monthly will only save 250 euro over a year ( assuming an interest rate of 5%) but if money lodged into a regular saver 9 assuming 2.5% deposit rate) this would be cut to 125.

If you are on a tracker I would definately not be paying off rather building up a lump sum on deposit.

techdiver

Farmer Pudsey wrote: »

I also find it strange that with houses prices at low level compared to historical levels that you had to go for a 35 year loan.

I think you mean "bubble" levels, which were in no sense "normal".

Also if he bought in Dublin, prices are now very expensive again, with massive rises over the past year. In this scenario it is easy to see why people now need 35 year mortgages again.

cmssjone

Farmer Pudsey wrote: »

OP have you build up a cash balance in the back in case of unforseen circumstances. I would build this up first. This is to allow you not to have to borrow other money for a car, holidays, family expenses if you have one etc. Term loans are very expensive. maybe double the rate you pay for mortgage money.

I also find it strange that with houses prices at low level compared to historical levels that you had to go for a 35 year loan. However maybe it is 5+ years old. I also would be inclined to pay off extra repayments as once off lump sums 1-2 times a year. Yes you may pay a little interest however saving rates would cut this in half. Paying back 10K in one lump as opposed to maybe monthly will only save 250 euro over a year ( assuming an interest rate of 5%) but if money lodged into a regular saver 9 assuming 2.5% deposit rate) this would be cut to 125.

If you are on a tracker I would definately not be paying off rather building up a lump sum on deposit.

Hi Farmer,

Thanks for the post.

Loan is relatively new but thought that we would take the 35 year timeframe for flexibility knowing that we would be able and disciplined enough to add the overpayments when able. This would allow us to comfortably still pay the original monthly mortgage amount should our circumstances change. In reality, with the overpayments, the mortgage should be paid in around 20 years.

We do also have savings put away for the proverbial rainy day and contribute to this monthly as well as the overpayments in roughly equal measure. We have no other unsecured loans.

ChuckProphet

ForEffsSake wrote: »

I may not be correct here but I've just been talking to PTSB last week about a mortgage and if I could overpay.
Apparently overpayments are used to reduce the capital and thus the interest of the mortgage BUT you can also use overpayment if you want to take payment holidays or reduce your payments for a while - say if you're suddenly made unemployed or something.

So yes, the money is taken off the principle but you are shown a 'credit' that you can claw back in times of need.

this is correct op. I did this with PTSB. Your overpayment reduces what you pay interest on. Confused the hell out of me as well but it's just how PTSB do it.

martingriff

cmssjone wrote: »

Hi all,

I recently bought a house and have taken a 35 year mortgage but with the view to paying it off sooner (if circumstances allow). To this end, I contacted my bank (PTSB) via their open24 service and asked the operator to set up a bill pay facility so that I could put any spare money onto the mortgage as and when I could afford it.

Now, when I check the balance of my mortgage, the money I have sent over from my current account is displayed as a "credit" and has not been removed from the mortgage amount.

Does this mean that this is not being taken into consideration when calculating the interest and therefore a waste of time?

I am with BOI and my repayment every month is the same even though I paid over €4K extra that I had. I will have it paid off sooner. If they did it by taking it off and lowering the repayments it will still be the same amount of period to pay it off unless you keep chipping away with morgage.

Also with BOI you have an option to increase your monthly repayments not just bulk payments

Thanks for any thoughts.......

I do this at times it can be done 1 of 2 ways.

1. They take the money off the balance and your repayments next week will go down.

2. The monthly repayments will stay the same but the loan will be paid off sooner.

Mrs OBumble

This won't help the OP, but I do love my (overseas) revolving credit mortgage.

A higher interest rate, for sure, but (within their safety limit) I can put extra in and draw extra down at any time: no notice, no contact, no waiting, no penalties. And interest is charged on the daily balance - so even things like the power bill money reduced my interest (a tiny bit admittedly, but every little helps) between payday and the bill's due-date.

It doesn't work of all personalities, I know, but for those of us who are able to be disciplined it's a great type of scheme.

tigershould

I just told the EBS (in writing) to increase my monthly payments from y to x. They sent my a confirmation advising that if I carry on paying at this amount (considering interest rates) my loan term has now reduced to z years.

It was all very simple and straight forward but I think the difference is I just increased my repayment amount rather than transferring an addition amount to my mortgage account.