AIB Fixed Rate Mortgage - now allows €5,000 early repayment annually

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Calico

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Dear Customer

We are writing to let you know about our new AIB Fixed Rate Mortgage Overpayment feature that will soon be available to you.

From 14 October 2023, all fixed rate mortgage customers can make payments, over the normal regular scheduled payments, up to €5,000 each calendar year for the term of the fixed rate. And we won't charge an early repayment charge (ERC) for the overpayment. If you make an overpayment in December, this needs to be paid no later than 15 December to make sure that it's processed within the current year's overpayment allowance. While we will try to process all overpayments by the end of the current year, if you make an overpayment after this date, it may be taken from the following year's allowance. Any additional overpayments above €5,000, or early full redemption of your mortgage, may result in an early repayment charge.

Advantages - An overpayment will reduce the cost of credit of your loan. Your scheduled mortgage repayments will reduce in line with the reduced balance on the account, while the remaining term and prevailing rate of interest remain unchanged.

The following example illustrates the effect of making an overpayment up to the limit, without an early repayment charge. At the time of the overpayment the mortgage balance is €200,000 on a fixed interest rate of 5.25% for a period of 5 years (60 months) and there are 25 years remaining in the term of the mortgage.

No overpayment - total cost of credit is €158,952.80, repayments of €1,196.52 per month
€5,000 overpayment is made - total cost of credit is €154,978.09, repayments of €1,166.61 per month

In the calculation above we're assuming the interest rate applied for the full mortgage term is 5.25%.

Disadvantages - There are no disadvantages of making an overpayment up to the value specified.

We recommend that you get independent financial advice before considering an overpayment on your fixed rate.
 
AIB still haven't worked out that many of their fixed rate customers can make unlimited overpayments without incurring a break fee.

Overpayment / re-fix flexibility of AIB's green 5yr fixed rate (and some other rates)

Moderator's note: Because of a quirk in how AIB calculate their break fee / early redemption charge, you can make unlimited overpayments on some of their fixed rates without penalty. Or you can break out of your existing AIB fixed rate and re-fix on a different rate, again without penalty. (You...
www.askaboutmoney.com
 
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The example here is rather misleading. How many mortgages are on a fixed-rate of 5.25%?

However, overall it seems like it's advantageous to have this overpayment option.
 
What are the chances they're bringing this in to cut out the unlimited overpayments mentioned above? Can they unilaterally change the contract like that?
 
A clever move by the bank. It will benefit some borrowers but overall the bank will be the real winner.

It plants the idea that there is a cap/limit in people's head. €5,000 is easy to remember compared to some vague notion about movements in interbank rates.

Expect the need for repeated clarification when people incorrectly quote this as a definitive limit.
 
Brendan Burgess said:
So this new feature will be of benefit to them.
Click to expand...
Yes, absolutely this is a benefit. It adds certainty to all customers.

But, the vast majority of AIBs existing fixed rate mortgage holders currently do not have a break fee if they overpay, and will not unless interest rates start to drop. I'll write it out clearly if I get time later.

And, as with all lenders, even if there is a break fee, it will always be less than the amount of interest that is saved by overpaying early.
 
We also received this letter from AIB.

I would like to shorten the term instead.
Is that an option for us?

We fixed at 3% in 2022 (until 2027)
 
Silvera said:
I would like to shorten the term instead.
Is that an option for us?
Click to expand...
Yes, just ask them to shorten the term. I'm not sure if they allow during a fixed interest period, but you can overpay anyhow (see linked thread below)

Edit: No. AIB treat shortened term while in a fixed period as breaking the fixed rate in totality.
I need to go back through old terms and conditions, and will update thread later.



Also see thread: https://www.askaboutmoney.com/threa...ers-face-no-early-break-fee-currently.232525/
 
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I was contacted by AIB saying an overpayment I recently made will NOT go off the term as instructed, instead it will decrease the monthly repayments. I will need to wait until 2027 until fixed term ends
 
Yourbluejumper said:
I will need to wait until 2027 until fixed term ends
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Ah, I need to refresh my memory.

AIB treats a shortening of term while on a fixed rate as breaking the fixed rate in totality.

"• You can only reduce your mortgage term when on a fixed rate if you break out of your fixed rate agreement and choose a new interest rate. Breaking a fixed rate agreement may result in you having to pay an early repayment charge and choose a new rate."


I will need to go back through old terms and conditions to see if this is a recent change.
 
"I was contacted by AIB saying an overpayment I recently made will NOT go off the term as instructed, instead it will decrease the monthly repayments. I will need to wait until 2027 until fixed term ends"

I suspected this is still the case

We may keep saving until 2027 and make an overpayment then in order to reduce the term (and perhaps start a new fixed rate term)
 
Yes, I think that's the best choice here.
We should be thankful we grabbed a good deal at the time, just a shame we can't reduce the term until it ends.
 
Help me understand that please.
Ignoring the breakage for a second we have two options.

Option 1
Overpay and reduce monthly premium

Option 2
Overpay and reduce term

If option 1 (reduce monthly premium) is the only option available would this not just reduce the monthly premium and keep the same overall term length?

Nice one
 
Yourbluejumper said:
If option 1 (reduce monthly premium) is the only option available would this not just reduce the monthly premium and keep the same overall term length?

Nice one
Click to expand...
Keep it simple for illustration.

200k balance, 3% interest with 23 years remaining.
Mortgage payment 1,000 per month.
You overpay 10% of your balance (20k), so AIB reduces your monthly payment to 900. Term is still 23 years.

Each month you manually transfer an extra 100 to your mortgage, so you are paying 1,000 per month in total. If you keep doing that, you'll have it paid off in 20 years, instead of 23. Exact same as AIB reducing the term to 20 years now.

Yourbluejumper said:
Ignoring the breakage for a second
Click to expand...
Unless AIB reduce interest rates from current levels, there is no breakage fee. This whole ability to pay 5k is a red herring at the moment (it's only of value if a break fee applies).
 
RedOnion said:
Keep it simple for illustration.

200k balance, 3% interest with 23 years remaining.
Mortgage payment 1,000 per month.
You overpay 10% of your balance (20k), so AIB reduces your monthly payment to 900. Term is still 23 years.

Each month you manually transfer an extra 100 to your mortgage, so you are paying 1,000 per month in total. If you keep doing that, you'll have it paid off in 20 years, instead of 23. Exact same as AIB reducing the term to 20 years now.


Unless AIB reduce interest rates from current levels, there is no breakage fee. This whole ability to pay 5k is a red herring at the moment (it's only of value if a break fee applies
RedOnion said:
You can overpay manually each month and have same outcome.
Click to expand...


How would you go about manually overpaying??
Click to expand...
 
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