Overpaying mortgage by standing order

heldel00

I was recently scolded, on another forum i better add, for making my financial decisions based on the advice of strangers on an internet site but here i go again.....

For those in the know is there any downside to overpaying a standard variable AIB mortagage by standing order?
From my research it seems to be the most flexible option as you can stop it/ amend it any time without the bank viewing it as a "contract" of sorts.
I would like to pay by €140 S/O to my mrtgage account on a fortnightly basis and not have any of the rigmarole of sending letters notifying Head Office of overpayment every time?

Seems straightforward but someone here might have experience they are willing to share.

fatbhoy

heldel00 wrote: »

I was recently scolded, on another forum i better add, for making my financial decisions based on the advice of strangers on an internet site but here i go again.....

For those in the know is there any downside to overpaying a standard variable AIB mortagage by standing order?
From my research it seems to be the most flexible option as you can stop it/ amend it any time without the bank viewing it as a "contract" of sorts.
I would like to pay by €140 S/O to my mrtgage account on a fortnightly basis and not have any of the rigmarole of sending letters notifying Head Office of overpayment every time?

Seems straightforward but someone here might have experience they are willing to share.

I'd be very interested in hearing the answer to this too. I'd like to do something similar. AIB seem to make it difficult to overpay off the principal: they say you've to make the payment, and then write in specifying that the payment is to come off the principal. That's my understanding anyway.

heldel00

fatbhoy wrote: »

I'd be very interested in hearing the answer to this too. I'd like to do something similar. AIB seem to make it difficult to overpay off the principal: they say you've to make the payment, and then write in specifying that the payment is to come off the principal. That's my understanding anyway.

I nearly certain that you are right. You could do a standing order to a separate savings account, let it build up and then transfer over quarterly but i know that wouldnt work for me. The money would end up going on something else!

fatbhoy

There's an Ask AIB section in boards.ie's Talk to... that would be a good place to ask this question.

However, their response to a similar question wasn't very clear, in my opinion.

Tow

There are no problems doing this. Until a few years ago AIB's systems could not handle it to 'their liking', so they did not allow easy payments into a AIB mortgage account from an AIB account. I got around this by payments from a BOI account. Started off transferring €10 just to test it and once I saw it working increased the amount, making one off random payments rather than setting up a standing order. Under their old system this would (by default) automatically reduce your principle (and interest) and the monthly repayments would stay the same, i.e. the term would reduce. Now (by default) it reduces you monthly repayment amount, so you will have to regularly increase the over-payment to keep up the overall repayment level. You may be able to adjust this by contacting them, but I never bothered.

ike

I'm with EBS and I overpay by SO. The mortgage amount comes out as normal and the remaining balance sits there as as credit. AIB seem to be working in the same principle.

I let it accumulate for a few months and send them a letter to instruct them to reduce the term of the mortgage. It's a bit of a manual process but I have a standard letter drafted up that I just send on usually every quarter.

lau1247

ike wrote: »

I'm with EBS and I overpay by SO. The mortgage amount comes out as normal and the remaining balance sits there as as credit. AIB seem to be working in the same principle.

I let it accumulate for a few months and send them a letter to instruct them to reduce the term of the mortgage. It's a bit of a manual process but I have a standard letter drafted up that I just send on usually every quarter.

Genuine curiosity, any reason to let it accumulate in the account for a few months before instructing them to make the reduction? I know it is a bit of a hassle if have to write to them each time but wouldn't it work out better by reducing it right away in the long term?

Interested to hear the thought process.

pwurple

I don't quite get this... surely it's as awkward to set up and change a standing order, as it is to adjust the direct debit amount on the mortgage repayment?

I overpay my mortgages, and I adjust the amount a couple of times a year as needed. It's a phonecall, followed by signing the letter they send to me, and returning it to them.

fatbhoy

pwurple wrote: »

I don't quite get this... surely it's as awkward to set up and change a standing order, as it is to adjust the direct debit amount on the mortgage repayment?

I overpay my mortgages, and I adjust the amount a couple of times a year as needed. It's a phonecall, followed by signing the letter they send to me, and returning it to them.

Is that with AIB?

Why not just do a manual online money transfer of whatever amount you want whenever you want rather than setting up SOs or adjusting DD.

It the easiest and most flexible way of doing it. It's how I paid my rent when I was doing it by bank transfer, how I move money to different savings accounts every month etc and is how I would manage any mortgage over payment too as you can transfer a different amount every time if it suits.

MarkR

My mortgage, with BOI, is paid for monthly by standing order. The value we set on the standing order is in excess of the required mortgage payment. We haven't had cause to lower it, but we could if required.

I do seem to recall someone saying to make sure the overpayment was going against the principle, rather than the interest.

Here we go..

What is a Regular Overpayment?
You can set up a regular overpayment amount to your mortgage which is in addition to your normal repayment. You have the flexibility to set this up on an ongoing basis and then when you need to cancel it you can do so at any time.

Any additional amount you pay over your normal monthly repayments will be paid against your capital balance. This will reduce your total interest charge and may shorten the term of your mortgage.
Your monthly repayment amount will be fixed, which means the effect of the Overpayment on the capital balance will vary with interest rate fluctuations during the Overpayment period.
An Overpayment can be cancelled at any time by writing to us at the address below.
Overpayments made are not refundable.
For fixed rates the maximum monthly overpayment is 10% of the monthly mortgage repayment, or €65 euro, whichever is greater.

From https://personalbanking.bankofireland.com/borrow/mortgages/articles/mortgage-overpayment/#panel1

I would imagine with AIB it is similar.

fatbhoy

z0e1qp7iot5fdx wrote: »

I make regular overpayments to AIB mortgage just by transferring money via the AIB app. Then I get a letter informing me how much my monthly repayment is reduced by.

That's paying off the principal and interest, not the principal alone. There's more value in paying off the principal alone. That's what I'm interested in.

fatbhoy

fatbhoy wrote: »

That's paying off the principal and interest, not the principal alone. There's more value in paying off the principal alone. That's what I'm interested in.

I would have thought any over payment goes against the principal only automatically.

cronos

ike wrote: »

I'm with EBS and I overpay by SO. The mortgage amount comes out as normal and the remaining balance sits there as as credit. AIB seem to be working in the same principle.

I let it accumulate for a few months and send them a letter to instruct them to reduce the term of the mortgage. It's a bit of a manual process but I have a standard letter drafted up that I just send on usually every quarter.

Any chance I could get that standard letter? Obviously not with any of your info in it.

cronos

fatbhoy wrote: »

That's paying off the principal and interest, not the principal alone. There's more value in paying off the principal alone. That's what I'm interested in.

Can you explain that with numbers? It's different to how I understand it works but I could be wrong.

pwurple

cronos wrote: »

Can you explain that with numbers? It's different to how I understand it works but I could be wrong.

Not addressed to me, but I think I can answer it.

You can overpay in one of two ways.

A) Overpay to reduce the term: So, if your mortgage is has twenty years remaining, your repayment shortens that term to say, 19 years and 11 months. Ie, pays the principle amount down. When you stop overpaying, term is shorter, but monthly amount is the same.

Overpay without reducing the term: So, if your mortgage has twenty years remaining, it still has that term, but a smaller amount. This means when you stop overpaying, your mortgage payment monthly would be smaller. But the length of the mortgage is the same.

Interest paid on the total loan is lower with Option A than interest paid on Option B.

CruelCoin

fatbhoy wrote: »

I'd be very interested in hearing the answer to this too. I'd like to do something similar. AIB seem to make it difficult to overpay off the principal: they say you've to make the payment, and then write in specifying that the payment is to come off the principal. That's my understanding anyway.

Exactly the same process with PTSB

pwurple

fatbhoy wrote: »

Is that with AIB?

No. BOI and KBC.

cronos

pwurple wrote: »

Not addressed to me, but I think I can answer it.

You can overpay in one of two ways.

A) Overpay to reduce the term: So, if your mortgage is has twenty years remaining, your repayment shortens that term to say, 19 years and 11 months. Ie, pays the principle amount down. When you stop overpaying, term is shorter, but monthly amount is the same.

Overpay without reducing the term: So, if your mortgage has twenty years remaining, it still has that term, but a smaller amount. This means when you stop overpaying, your mortgage payment monthly would be smaller. But the length of the mortgage is the same.

Interest paid on the total loan is lower with Option A than interest paid on Option B.

But in either case it's paying off the principle. The person who I was questioning seemed to suggest something different. But again I could be misinterpreting what he's saying.

Plus if I repay in 5 years, does it make any difference if the morgage said 15 years or 20 years for example. What really matters is how early you started to pay .

bee06

I overpay with AIB. I wrote to them saying I wanted to overpay my monthly payment by 200 Euro a month and it should reduce the term of the mortgage. That was a year ago. Haven't had to do anything since.

heldel00

bee06 wrote: »

I overpay with AIB. I wrote to them saying I wanted to overpay my monthly payment by 200 Euro a month and it should reduce the term of the mortgage. That was a year ago. Haven't had to do anything since.

But the only problem i would see with this is if your financial circumstances change, are you then contracted into this overpayment of €200???
I feel with a standing order i have to power to decrease/ stop any time i want

Tow

heldel00 wrote: »

But the only problem i would see with this is if your financial circumstances change, are you then contracted into this overpayment of €200???
I feel with a standing order i have to power to decrease/ stop any time i want

Exactly. This is were the problem lies, lack of control. I bet it would be a big rigmarole to reduce the agreed over payment. With a standing order (or manual online payments) you can turn it off/on via internet banking your self as required.