Overpaying Mortgage - Best Option

Lemlin

I want to start overpaying my mortgage with AIB. It's not a tracker. My current rate is 3.1%. I'm in positive equity. Mortgage was approved in 2009 and was for a self build so I didn't get caught in the boom.

Am I right in thinking I should ring the bank and tell them I want any overpayment to come off the principal amount directly so that it is in effect reducing the term?

I took out a 30 year mortgage because I was quite young taking it so I'm now 7 years into it. My plan was always to start overpaying it early to get it paid off in advance of the 30 years.

Lumina

Are you fixed or variable rate?

Lemlin

Lumina wrote: »

Are you fixed or variable rate?

Variable rate.

Lumina

Based on what I know (I am not a financial expert) and my own experience, one should generally avoid setting up the overpayment direct with the provider. It seems best to set up a standing order from your bank account which you can easily increase and decrease as and when you want.

It has been handy for us to change about our contributions and even stop overpayment when we needed to.

Lemlin

Lumina wrote: »

Based on what I know (I am not a financial expert) and my own experience, one should generally avoid setting up the overpayment direct with the provider. It seems best to set up a standing order from your bank account which you can easily increase and decrease as and when you want.

It has been handy for us to change about our contributions and even stop overpayment when we needed to.

That was my plan. As far as I know with AIB internet banking I can just transfer whatever funds I want to pay off over to my mortgage account each month.

My question is what is the most beneficial way for me to ask the bank to account for the overpayment?

3DataModem

Lemlin wrote: »

That was my plan. As far as I know with AIB internet banking I can just transfer whatever funds I want to pay off over to my mortgage account each month.

My question is what is the most beneficial way for me to ask the bank to account for the overpayment?

There's no difference in how they account for it. Overpayments will come off the principal.

BelleOfTheBall

Can you make a quick payment with Aib say say for overpayment say I wanted to put €100. Next month I might have €20 etc is it that straight forward ??

wench

3DataModem wrote: »

There's no difference in how they account for it. Overpayments will come off the principal.

The overpayment comes off the principal, which puts you ahead of schedule.
So you need to decide if you want the payments reduced & the term maintained (this is AIBs default option), or the payments kept the same and the term reduced.

NIMAN

I did this in the past with AIB.

Each time I filled in a form available on their website, and posted it with a cheque, asking that it came off the capital owed. People often say it will automatically come off the capital, but their form also has the option of the term remaining the same ans your monthly amount changing, so I didn't want to risk it. If they are right, and you have online banking, then there is no reason why you couldn't move it from your current account to your mortgage account?

Anyway, I initially spoke to a branch about overpaying and they said it is preferred if you gather money up before paying it off as a lump sum. As an example they said don;t be sending €200 every few months, but instead wait til you have €1000 and send it then. They said that someone has to calculate time reduction and change to new monthly amount each time, but I don't believe this, I'm sure everything is done my computer in this regard.

Good luck with whatever you decide. Can be a great way to knock a few years off your mortgage. Think I made 7 or 8 overpayments in total.

Lemlin

wench wrote: »

The overpayment comes off the principal, which puts you ahead of schedule.
So you need to decide if you want the payments reduced & the term maintained (this is AIBs default option), or the payments kept the same and the term reduced.

I want the payments kept the same and the term reduced.

Lumina

Phone and chat to them. You'll just need to fill in a form saying exactly what you want to do.

Uriel.

Lemlin wrote: »

I want the payments kept the same and the term reduced.

Then you will need to fill out the form for mortgage overpayment on the AIB website. You don't need to send a cheque you can fill in bank account details and they will do an electronic transfer.

Overpaying through the Internet banking only reduces monthly payments rather than the term unfortunately.

Usually takes about 8 working days for the form to be processed and the money paid off. You will then get a statement with the details of the new status (e.g. Term reduction)

Alun

AIB have stated over in their Talk to .. forum that if you simply make a payment to your mortgage account using AIB online banking then the payments are reduced and the term is kept the same. You cannot change this, either as a default or after the fact.

http://www.boards.ie/ttfpost/97124083

There is however a PDF form you can fill in and send off by post, where you can either enclose a cheque/draft or give account details (AIB only, I think) for a direct transfer, and specify what you want to happen.

http://www.aib.ie/servlet/BlobServer?blobcol=urldata&blobtable=MungoBlobs&csblobid=1214417763172&blobkey=id&blobwhere=1214417763172&blobheader=application%2Fpdf

Pkiernan

We've over paid on 3 occasions with lump sums and instructions to keep payment the same to reduce term.
Each time they reduced the monthly payment instead, and we had to write to them again.

Alun

Pkiernan wrote: »

We've over paid on 3 occasions with lump sums and instructions to keep payment the same to reduce term.
Each time they reduced the monthly payment instead, and we had to write to them again.

I've had this happen once when I've done it in branch, and they've sent the instruction via internal mail, but not once since I started using the form linked to above.

notsoyoungwan

I'm with AIB too and have started overpaying this year. Like you, I wanted to reduce the term. The 'relationship manager' they'd made a song and dance about allocating to me last year was worse than useless when trying to sort this out. Anyway, basically as others have said if you just send ad hoc payments through your online banking it will only reduce the next scheduled payment. What I ended up doing was increasing my monthly payment so that they take the original payment plus the additional amount every month. I have it in writing that I can revert to the original payment schedule at any stage without penalty.

Lemlin

notsoyoungwan wrote: »

I'm with AIB too and have started overpaying this year. Like you, I wanted to reduce the term. The 'relationship manager' they'd made a song and dance about allocating to me last year was worse than useless when trying to sort this out. Anyway, basically as others have said if you just send ad hoc payments through your online banking it will only reduce the next scheduled payment. What I ended up doing was increasing my monthly payment so that they take the original payment plus the additional amount every month. I have it in writing that I can revert to the original payment schedule at any stage without penalty.

And are they reducing your term as a result?

notsoyoungwan

Yeah, they wrote to me saying my new payment is x amount and that term is now y, total of (however) many payments remaining

Heisenberg1

OP it doesn't matter if the money goes off and reduces the monthly amount or the term.

Example. If you pay €1000 pm and you overpay by €200pm your amount drops to €998. So now you pay €202 as the overpayment and so on it will have the same effect as reducing the term.

NIMAN

I made 7 or 8 overpayments, always using the form.

I ticked the box saying I wanted repayments to remain the same and term to be reduced, and thats what happened each time. They never made an error.

I must have been a lucky one!

All in all

The best option is not to reduce the term but continue to overpay each month or by lump sum (which will naturally reduce the term) and telling your bank that you wish for your payments to be allocated as repayments in advance, this gives you greater flexibility in future should your circumstances change and you wish to reduce repayments.

If you reduce the term of the mortgage any future reduction in payments or restructuring of the mortgage is at the discretion of the bank.