Pay money off mortgage term?

Tow · 19-09-2015 7:26am

tommythecat wrote: »

Thanks Guys. The problem with A.I.B is they don't allow regular overpayments. You can only overpay by request with a letter so its not easy to do monthly.

They may say that, but it is just a matter transferring money online into your mortgage account.

Until about a year or two ago it would reduce the principle balance, so effectively reduce the term. The reduced balance would be taken into account when they recalculated the interest part of the monthly repayment, every quarter. Up to this point in time they claimed it could not be done and I think had a block on setting up payments to mortgage accounts on the AIB Internet Banking. However, there were no problems in making the transfer from another bank!

However, they now 'allow' over payments, as they changed their systems to keep the term the same and reduce both the interest and capital parts of the repayment.

The_Conductor · 19-09-2015 8:01am

aido79 wrote: »

Are there any mortgage providers that have offset or redraw accounts in Ireland? I live in Australia and it is common practice to have this option. For example if I had 10k to spare I would put it in the offset account which is linked to the mortgage. It effectively knocks 10k off my mortgage as I don't have to pay interest on it and I still earn interest on the money in that account. The money can be redrawn from the account at any time so there is no problems with having the money tied up as would be the case if you actually paid the money off the capital.

Bank of Ireland used do offset accounts- based on overdrafts- not mortgages- I'm not aware of any lender who offers the product as you've described.

WhatsGoingOn2 · 19-09-2015 8:10am

aido79 wrote: »

Are there any mortgage providers that have offset or redraw accounts in Ireland? I live in Australia and it is common practice to have this option. For example if I had 10k to spare I would put it in the offset account which is linked to the mortgage. It effectively knocks 10k off my mortgage as I don't have to pay interest on it and I still earn interest on the money in that account. The money can be redrawn from the account at any time so there is no problems with having the money tied up as would be the case if you actually paid the money off the capital.

Yes, I have an offset tracker mortgage as you described from Ulster Bank. The origi mortgage was taken out with First Active.

earlyevening · 19-09-2015 8:58am

First Active and NIB offered these in the boom.

I had an NIB current account offset mortgage.

tommythecat · 19-09-2015 9:39am

Tow wrote: »

They may say that, but it is just a matter transferring money online into your mortgage account.

Until about a year or two ago it would reduce the principle balance, so effectively reduce the term. The reduced balance would be taken into account when they recalculated the interest part of the monthly repayment, every quarter. Up to this point in time they claimed it could not be done and I think had a block on setting up payments to mortgage accounts on the AIB Internet Banking. However, there were no problems in making the transfer from another bank!

However, they now 'allow' over payments, as they changed their systems to keep the term the same and reduce both the interest and capital parts of the repayment.

Hi

Thanks everyone. Tow could you clarify this for me if you don't mind. Are you saying that I should keep the term the same but reduce the repayment by over payment as such? Slightly confused. Thanks

The_Conductor · 19-09-2015 10:13am

tommythecat wrote: »

Hi

Thanks everyone. Tow could you clarify this for me if you don't mind. Are you saying that I should keep the term the same but reduce the repayment by over payment as such? Slightly confused. Thanks

If you keep the term the same but overpay now- it means you have a buffer if/when interest rates eventually rise to 'normal' levels (which looks like it could very well be in several years time). Knocking lumps off the principle now- can you large lumps off the interest in future.

tommythecat · 19-09-2015 10:30am

The_Conductor wrote: »

If you keep the term the same but overpay now- it means you have a buffer if/when interest rates eventually rise to 'normal' levels (which looks like it could very well be in several years time). Knocking lumps off the principle now- can you large lumps off the interest in future.

Ah I see. So is there much difference monetarily speaking in savings between the two?

The_Conductor · 19-09-2015 11:03am

tommythecat wrote: »

Ah I see. So is there much difference monetarily speaking in savings between the two?

It depends on what happens with interest rates in the future- which no-one can really predict....... Not reducing the term now- while paying down the principle- gives you more options in the future (including the option to shorten the term at a future date).

cart man · 19-09-2015 6:18pm

NIMAN wrote: »

Sounds wrong to me.

That may be so but it is how it actually worked for me.

pasquale83 wrote: »

What do you mean when saying: "you have full access to the money to withdraw it again"? You really can take the money back when doing overpayments?

Yes.

Let's play this scenario out (please excuse the approx. crude numbers). Say your mortgage is €100,000, you have 20 years left, interest rates 4% (APR), monthly repayments are €600. Cash available €20,000.

Of the €7,200 you pay in the first year €4,000 goes on interest and €3,200 goes on paying down the principle.
If on the first month instead of making the €600 payment you give a cheque for €20,600 (ie overpay). The following month when interest is calculated it is off €79.7k (approx) and not €99.7k, and so forth over the year. As a result in the year you will have paid approx approx €3,200 on interest and €4,000 off the principle. Thus are better off by €800 for your €20k over-payment (4% interest, however you do not pay DIRT on this so effective deposit rate of approx 5%).

You can at any stage go into the branch of your bank and say that you have noticed that there was an overpayment on your account and that you would like for them to return your overpayment. They should do this. Once that has been done you will still have a lower principle balance.

I can state as a matter of fact that this worked for me.

If you are still unsure about this just ask in your branch...

pasquale83 · 19-09-2015 10:01pm

cart man wrote: »

That may be so but it is how it actually worked for me.

Yes.

Let's play this scenario out (please excuse the approx. crude numbers). Say your mortgage is €100,000, you have 20 years left, interest rates 4% (APR), monthly repayments are €600. Cash available €20,000.

Of the €7,200 you pay in the first year €4,000 goes on interest and €3,200 goes on paying down the principle.
If on the first month instead of making the €600 payment you give a cheque for €20,600 (ie overpay). The following month when interest is calculated it is off €79.7k (approx) and not €99.7k, and so forth over the year. As a result in the year you will have paid approx approx €3,200 on interest and €4,000 off the principle. Thus are better off by €800 for your €20k over-payment (4% interest, however you do not pay DIRT on this so effective deposit rate of approx 5%).

You can at any stage go into the branch of your bank and say that you have noticed that there was an overpayment on your account and that you would like for them to return your overpayment. They should do this. Once that has been done you will still have a lower principle balance.

I can state as a matter of fact that this worked for me.

If you are still unsure about this just ask in your branch...

Hi cart man, that is a great news! I will cross-check if that is allowed with my mortgage. If I can take the money back it is like if I have a deposit account.

But I think it will work only if the interest rate is calculated monthly, is it always the case? Thanks!

pasquale83 · 19-09-2015 10:06pm

pasquale83 wrote: »

Hi cart man, that is a great news! I will cross-check if that is allowed with my mortgage. If I can take the money back it is like if I have a deposit account.

But I think it will work only if the interest rate is calculated monthly, is it always the case? Thanks!

So, just to make things clearer to me, if after one year I withdraw the 20k from my mortgage the principle will go up by 19.2 k...It is like if I have a 4% deposit tax free and I use the interests on 20k to reduce the principle, is that correct? Thanks!

4ensic15 · 19-09-2015 10:22pm

pasquale83 wrote: »

So, just to make things clearer to me, if after one year I withdraw the 20k from my mortgage the principle will go up by 19.2 k...It is like if I have a 4% deposit tax free and I use the interests on 20k to reduce the principle, is that correct? Thanks!

It seems to me that the 20k will be returned but the principal balance will be €800 less than it the 20K had never been paid in. The approach of AIB is to simply reduce the monthly payment so that the loan finishes up at the same time as previously. No way will they give back the 20k.

pasquale83 · 19-09-2015 10:27pm

4ensic15 wrote: »

It seems to me that the 20k will be returned but the principal balance will be €800 less than it the 20K had never been paid in. The approach of AIB is to simply reduce the monthly payment so that the loan finishes up at the same time as previously. No way will they give back the 20k.

What AIB is doing is indeed different from what other banks are allowing people to do. I have to cross-check better with my bank (KBC) but at the time I collected information on the mortgage they told me I have two options with overpayments:

- reduce the principle keeping the monthly repayment the same thus reducing the duration of the mortgage
- reduce the monthly repayment that means paying interests quickly thus keeping the duration the same

If I pick the first option, that is what I have in mind, I will ask if I can get money back if I need them and if it will work how cat man described. If that will work I will use my mortgage as a deposit account with the same (net) interest rate of my mortgage. So I will reduce the mortgage principle ad at the same time will keep the funds available. Let's see what they will tell me, I will keep the forum posted.

gordongekko · 19-09-2015 10:31pm

jonnybravo wrote: »

I just sent AIB mortgages an email with a signed letter asking them to increase my monthly payments to €x,xxx from 1 xxx 2015 and they did it straight away.

But they are not compelled to put them back down if your circumstances change.

NIMAN · 19-09-2015 11:16pm

Am looking at the AIB overpayment form right now, and it reads " unscheduled lump sum payments result in a permanent reduction of the mortgage balance and are non refundable "

4ensic15 · 19-09-2015 11:21pm

NIMAN wrote: »

Am looking at the AIB overpayment form right now, and it reads " unscheduled lump sum payments result in a permanent reduction of the mortgage balance and are non refundable "

The monthly repayment goes down as a result of the unscheduled payment so the saving can be accumulated as a "rainy day" fund until the next unscheduled payment.

NIMAN · 20-09-2015 3:24am

4ensic15 wrote: »

The monthly repayment goes down as a result of the unscheduled payment so the saving can be accumulated as a "rainy day" fund until the next unscheduled payment.

In my case it doesn't, as the AIB form gives you 2 options: first to reduce the principal and keep the repayment at same amount, meaning a reduction in term of mortgage, or secondly the option to keep term same and reduce monthly repayments.

I always go for 1.

And as a result, there's no way I am getting that money back, no matter how nicely I ask.

padjo5 · 20-09-2015 5:11am

Be very diligent in verifying whether you can actually 'withdraw' your over-payment on a future date, as claimed above. It's not a feature I've come across, ever.

pwurple · 20-09-2015 7:37am

Well, you get it back when you sell the house.

Overpayment makes most sense in the first half of a mortgage term (which you are in OP), because you avoid more interest.

I'd put half that lump in if you have nothing else earmarked for it and arrange a regular overpayment if possible as well. Building up equity in your home is second best to having a rainy day fund. It's still there, but not as accessible. It gives you flexibility to pause payments possibly later if you need to. You used to be able to borrow against equity (not sure about now!). And you can sell and downsize if you need a lump again.

Chris_5339762 · 20-09-2015 1:06pm

NIMAN wrote: »

In my case it doesn't, as the AIB form gives you 2 options: first to reduce the principal and keep the repayment at same amount, meaning a reduction in term of mortgage, or secondly the option to keep term same and reduce monthly repayments.

I always go for 1.
.

Funny enough I always go for (2)! It beings down your monthly repayments but if do have problems down the line you are paying less anyway, and you are cushioning yourself more against interest rate rises.

You will pay a bit more interest but if you know you're going to pay your mortgage off early anyway then it makes sense.

NIMAN · 20-09-2015 9:09pm

The purpose of overpaying my mortgage is to get it cleared asap, and for that reason option1 is my preferred choice.

The_Conductor · 21-09-2015 6:41am

4ensic15 wrote: »

It seems to me that the 20k will be returned but the principal balance will be €800 less than it the 20K had never been paid in. The approach of AIB is to simply reduce the monthly payment so that the loan finishes up at the same time as previously. No way will they give back the 20k.

What Cart Man is suggesting is not normal policy for Ulster Bank (where he states he managed to do it), AIB, BOI or KBC (you can ask other lenders- however- I'd be shocked if they allowed it).

Once you put a lumpsum towards your mortgage (to either reduce monthly outgoings- or to reduce the term of the mortgage- it doesn't matter)- the principle outstanding on the mortgage is reduced by the amount of the lumpsum payment. The only way to withdraw the overpayment down the road- is normally to take an equity release on the property (which is normally accommodated- however, it is *not* what Cart Man was suggesting). In addition- the 'equity release' from the mortgage is then treated as an independent loan secured on the property in its own right- and is normally subject to a higher interest rate than the main mortgage (with Ulster and BOI- I can't vouch for the others- they may put it on the same rate- however, 2 of the 3 pillar lenders- don't).

Do your own research and see what the story is.

cart man · 21-09-2015 9:24am

The_Conductor wrote: »

What Cart Man is suggesting is not normal policy for Ulster Bank (where he states he managed to do it)

Did I say it was Ulster Bank? Really??

For the record it was EBS. It was not "normal" practice for them either. It is not something that they offer as a product (a la offset mortgages). However when I asked in practice would it work, they said that it would. It did work exactly as I said it did and was not an "equity release".

This was going to be my last post on the subject, I have already explained how it did work for me and I shouldn't waste time re-explaining or defending against people who make assumptions, misquotes etc.

However I intend on intend on making an overpayment again this week, I will revert back if their policy has changed or if I can do it. I will share any documentation that I can.

OP, check with your branch and don't take the word of any keyboard warrior. Make sure that you get to talk to someone who actually knows his/her stuff and best of luck with your decision, it is a nice one to have to make.

tommythecat · 21-09-2015 9:32am

cart man wrote: »

Did I say it was Ulster Bank? Really??

For the record it was EBS. It was not "normal" practice for them either. It is not something that they offer as a product (a la offset mortgages). However when I asked in practice would it work, they said that it would. It did work exactly as I said it did and was not an "equity release".

This was going to be my last post on the subject, I have already explained how it did work for me and I shouldn't waste time re-explaining or defending against people who make assumptions, misquotes etc.

However I intend on intend on making an overpayment again this week, I will revert back if their policy has changed or if I can do it. I will share any documentation that I can.

OP, check with your branch and don't take the word of any keyboard warrior. Make sure that you get to talk to someone who actually knows his/her stuff and best of luck with your decision, it is a nice one to have to make.

Thanks everyone for all the input on this thread. It's really helpful to me and I'm sure others who may seek it out in the future. I'm still in two minds though!! ðŸ˜‰

The Buster · 21-09-2015 11:21am

In general is there a minimum time period before you can make an overpayment. I took out mortgage with Ulster Bank a year ago and could make a once of payment now. Do the terms normally allow this to happen so soon. I will check it out myself in next week or two but hoping someone might know the answer:-)

Mrs OBumble · 21-09-2015 1:34pm

aido79 wrote: »

Are there any mortgage providers that have offset or redraw accounts in Ireland? I live in Australia and it is common practice to have this option. For example if I had 10k to spare I would put it in the offset account which is linked to the mortgage. It effectively knocks 10k off my mortgage as I don't have to pay interest on it and I still earn interest on the money in that account. The money can be redrawn from the account at any time so there is no problems with having the money tied up as would be the case if you actually paid the money off the capital.

I don't believe so.

My overseas mortgage is a step further along the road, and is just managed as revolving credit: there is only one account, and the interest is calculated on the outstanding balance every day. I used this as my day-to-day transaction account, as well as my mortgage. No payments as such, bu there's a gradually reducing amount of credit available - this is a straight-line from the approved amount down to zero at the end of the last year. It works extremely well if you are a disciplined person, who won't go mad because you have access to a big lump of cash.

I've had to explain this account to government officials here a couple of times, and they've never heard of the like of it.

OP - whether to use the money on the mortgage or keep it as savings or use it for something else depends on your long term plans. In my case, paying off the mortgage balance as quickly as possible enabled me to take leave and go travelling for an extended period less than 10 years after buying the house - and that fitted my lifestyle perfectly. But if you have family circumstances which mean it's more valuable for you to have the cash now (or within the term of the mortgage), then paying off more quickly might not be for you.

Economists have theories which explain why paying off early might not be a good idea - based on the effects of inflation and salary rises as you age, and the Nett Present Value of your money (google it).

My personal theory is that you should look at the Nett Utility Value of money: eg not having to pay 5k of interest per year in ten years time was worth more to me than having an extra 20k to play with now.

pasquale83 · 24-09-2015 2:07pm

I have asked my bank (KBC) how to reduce the mortgage with overpayments and below are the options I have available (sorry for the misspelled words but I have used OCR to scan the text).

The are not really clear to me. I do not understand how option A and B cannot reduce the term of the mortgage if I am repaying the capital with overpayments. They keep everything very vague. I spoke at the phone with a Mortgage advisor and she told me that option A and B are basically the same thing. The only difference is that with B I have to review the overpayment amount after x months. She also told me that if the overpayment is kept for a reasonable time, then the bank can decide to effectively reduce the term. That is not fair in my opinion, I have to know how long the term is and for how long I have to keep overpaying my mortgage to get the term amended!!

Also option C. I can choose the new term but who tells me the amount of overpayment needed??

Do you have any experience with KBC and specifically overpayments?

Thanks!

A. l/We wish to make an additional monthly payment of € above my
scheduled mortgage repayment for a period of morith-
The additional payments will be deducted from your capital balance. Although the scheduled term will not be
reduced you Will beneﬁt from interest savings. The funds will be available for redraw at a later date subject to
KBC Homeloans Terms and Conditions. The overpayment instruction will be applied for the term ot‘the
mongage unless requested otherwise above. Please instruct us in writing if you wish to cancel or amend the
overpayment amount.

B. We wish to increase our total monthly repayment to € per month.
The additional payments will be deducted from your capital balance and the overpayments can be redrawn at
a later date subject to KBC llomeloatts Terms and Conditions. We request that you review the overpayment
amount in the event of an increase to your mongage repayment over and above the amount you have
speciﬁed above. The overpayment instmcliott will need to be renetted in I2 months il‘you wish to continue
with it. Although the term of your mortgage will not be reduced. if lell in place for the full term of the loan
this credit will effectively redeem'your mortgage at an earlier date. If the sole objective in making the
overpayment is to reduce your term, refer to option C.

C. l/We wish to reduce the term of my/our entire mortgage from _ months to
months (including subsequent top-ups).
Please be advised a tertn reduction will increase your scheduled monthly repayments. This option will allow
you to pay your mortgage off at an earlier date and also result in an interest saving, The additional amounts
paid will not be available for redraw at a later date. Please contact our Customer Senices Department on (01)
6646100 for a quotation in this regard.

4ensic15 · 24-09-2015 8:07pm

pasquale83 wrote: »

I have asked my bank (KBC) how to reduce the mortgage with overpayments and below are the options I have available (sorry for the misspelled words but I have used OCR to scan the text).

The are not really clear to me. I do not understand how option A and B cannot reduce the term of the mortgage if I am repaying the capital with overpayments. They keep everything very vague. I spoke at the phone with a Mortgage advisor and she told me that option A and B are basically the same thing. The only difference is that with B I have to review the overpayment amount after x months. She also told me that if the overpayment is kept for a reasonable time, then the bank can decide to effectively reduce the term. That is not fair in my opinion, I have to know how long the term is and for how long I have to keep overpaying my mortgage to get the term amended!!

Also option C. I can choose the new term but who tells me the amount of overpayment needed??

Do you have any experience with KBC and specifically overpayments?

Thanks!

The mortgage will be paid off early provided you don't withdraw all of the overpaid money at any point.

cart man · 24-09-2015 8:18pm

pasquale83 wrote:

The only difference is that with B I have to review the overpayment amount after x months.

With Option A you determine by how much you want to overpay, so if interest rates change the amount you overpay stays the same.
In addition to the review, With option B you state what is the total amount you pay, if interest rates changed once the new amount is less than your repayments then your repayment stays the same
Both options work as I had previously outlined. Even if you take out the overpayments in a couple of years your term will reduce as the interest charged whilst overpaying was less so your payments covered an amount of the principle.

cart man · 24-09-2015 8:19pm

pasquale83 wrote:

Also option C. I can choose the new term but who tells me the amount of overpayment needed??

The customer service department will if you call them.

Pay money off mortgage term?

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