Credit on Mortgage

fyfe79

Hi folks. I guess I'm in the lucky position of actually having credit on my mortgage account but I'm wondering what to do with it.

I have a 1% tracker loan with Permanent TSB. A good few years ago I began overpaying it each month and I now have a credit of €30k on the account. It has effectively shortened the term by 12 years. I can use the credit to fund future 'payment holidays' or stop repayments for a while if I get into trouble paying.

But it hasn't taken anything off the principle, it seems. So if I instruct the TSB to put the 30k towards the principle, as I right in thinking that my monthly repayments will be lower (lower interest due to lower principle)? I am aware that the 'credit' will be gone and I can't use it for repayment holidays etc, but I'm fine with that.

dobsdave

Have you been just overpaying without informing tsb what to do with the overpayment, or did you agree a strategy with them on how to use it?
Where did you get the 12yrs figure from?

fyfe79

Thanks for the reply.

It's a 30 year plan that I took out in January 2006. With the current overpayments the 'flexi feature end date' according to my online account, is October 2023. So it's taken 12 years and 3 months off.

When I started the repayments I got a letter from them. I've just dug it out and it states;
"As a result of your accelerated repayments, a credit will build up on your mortgage account which may be used to fund underpayment or payment holidays if required. Please note that each month the interest portion of your mortgage is calculated on the principal balance at the end of the previous month, minus any payments in credit. All accelerated payments will give you the benefit of a lower interest calculation"

This seems to be saying I'm getting the 'best of both worlds'? In terms of having the money available as 'credit' to fund payment holidays (if required) but also it lowering my principal at the same time? I just don't trust them with their wording! ;-)

phormium

You are getting the best of both worlds.

You are getting the benefit of paying interest on the net outstanding balance of the mortgage less the credit and you have the ability to take back out that credit again, the interest on a mortgage is usually calculated on the balance outstanding, in your case that takes into account the credit.

If you ask them to set it permanently off the mortgage then you will have two options, one to continue on with your normal repayments and your loan will end early or to reduce your repayments based on the new amount owing and the original remaining term.

Obviously then you can no longer take it back.

To have the best of both worlds on those options you should opt for the reduced payment and keep original term but continue paying the normal amount, a credit will build up again but if for any reason you cannot afford the increased payment you are making you can drop back to the reduced one without any complications of having to request a term extension or reduced payments.