Mortgage repayments

johnytwentyten

Hi,

Last week I transferred €10 from my current account​ to my mortgage account using internet banking, I was just curious as to whether it would work,

When it did I rang up AIB and asked if any money I add like this comes off the balance or the interest,

The girl I spoke to said that adding money like this would lead to reduced monthly payments, so I take it that meant the tenner came off the interest?

Today I got a letter stating,

"we acknowledge the receipt of the out of course lodgement for €10, this has been lodged in permanent reduction of your loan, we advise that the outstanding balance of your mortgage loan has been reduced to reflect this lodgement"

Isnt this the exact opposite of what I was told on the phone?

Also, my new monthly payment (also stated in the letter) is €0.70 more than it was, why??

This could be a useful way to reduce the loan on occasion but I'm a bit lost at to what's going on,
Any ideas?

Thanks

Merowig

Normally the principle is reduced. In regards to the additional increased monthly payment of 0.70 this doesn't sound correct.
I would ask the bank there.

Please report here back as this is as well very interesting for me

johnytwentyten

Ive added the question here, says they're online till eight so will see what they say,

http://www.boards.ie/ttfthread/2057742829

Nervous Wreck

If you get TRS, you can potentially end up slightly increasing your repayments by paying more off your mortgage, as you're getting tax relief on a smaller amount. If you don't get TRS, I don't know why it would have increased.

The money would come off the principle, not the interest. The letter is correct.

phormium

It comes off both as in there is only one balance and it's made up of the capital you borrowed, the interest added regularly and the payments coming off it. There is not two separate amounts of interest and capital. You start off with a balance on day one, interest for first month is added on so balance increases, payment for that month comes in so balance decreases and so on, going down slowly in the early years as the amount owed is at it's largest and so is the interest. One outstanding balance so any extra payment decreases that balance which decreases interest being calculated for following month, mind you on a tenner that would be minimal.

How the particular bank then treats that overpayment is what varies, some reduce your monthly payment automatically to recalculate the repayments needed to clear loan within same term. Others ask you which you want to do but most have a minimum you need to lodge before it's considered an overpayment worth changing either of the two options. Any extra payments will reduce your term whether you officially reduce the term or not.

johnytwentyten

Im in my last year of TRS so hopefully nervous wreck has explained that,

so if I have, say an extra €30 a week to throw at the mortgage, I assume I'm better just setting it up so that it's added to the direct debit,
but it's nice to have the option of throwing a bit in randomly without having to write letters etc.

I've emailed them this evening so should get an answer at the start of the week, but think most have been answered here anyway, cheers!

Nervous Wreck

Whatever you throw at it will reduce the amount of interest you pay anyway so no need to write the letter. Like if you had 5k left and you threw 5k at it, they'd just close off the mortgage. But if you throw money at it and don't write the letter, you won't be able to see it on your "balance outstanding " or whatever.

johnytwentyten

Merowig wrote: »

Normally the principle is reduced. In regards to the additional increased monthly payment of 0.70 this doesn't sound correct.
I would ask the bank there.

Please report here back as this is as well very interesting for me

Got a letter today

"When a lodgement is made to your account, you can choose to either reduce the repayment amount, or reduce the term of the mortgage. Our procedure is to reduce the repayment amount, but if you wish to have the lodgement reduce the term of your loan, we require signed authority from all parties to the loan (joint account).

With regards to your repayment amount increasing following the lodgement of €10, this occured due to an IT error, and has since been rectified"

Merowig

Thank's a lot for the update!