head scratching over mortgage overpayment

[Jim'llfixit]

Hi I was wondering if someone here could shed a bit of light on this minor issue we’re having with a mortgage overpaying arrangement with AIB. Sorry it’s a bit long-winded…

We’re a year into our FTB mortgage (310k over 30 years) and at the end of a discount tracker rate, which reverts to 5.1pc next month. We paid my SSIA lump sum of €15k into the mortgage account a few months ago, to be paid against the capital and also arranged from the beginning to pay €1700 a month, which is a roughly a €200 overpayment a month extra, again against the capital.

We recently contacted AIB to ask what our current repayments would be under the new normal rate from next month, thinking that what we were paying would just about cover it. It turns out that the new rate is nearly a €100 a month more than what we were paying, which didn’t make sense. We have our mortgage down to 290k and at 5.1 percent, monthly repayments should equate to just under €1700.

The AIB chap said yes, but we overpaid and asked that the overpayment reduce the term and so we now have a 23 year mortgage.

So now, paying €1770 a month is no longer overpaying the mortgage but *is* paying what is owed, because we now have a 23 year term. In effect, it's the same as overpaying enough to mean we'd paid it all off by 2030 (7 years early) but we don't have the option of *not*. That’s how we’re interpreting anyway.

Does this make any sense to anyone? Our problem is that it doesn’t seem like we have the flexibility anymore to revert to the initial level of monthly repayments of about €1500 or a bit more, given rate rises.

 

[moneygrower]

Can they assure you that you can make the term longer again if things get tight? If so they you seem to be in a win win situation.

 

[Trish2006]

We overpay our PTSB mortgage by €200 per month, have done for about 4 years now. But we were asked if we wanted to reduce the term and said no. We figured there was the possibility that things could change and we'd need to stop the overpayment at some point. And it's generally easier to reduce your term than increase it. In the end it's the same overall effect but with flexibility.

 

[Jim'llfixit]

Thanks for the replies.

I think the thing that flummoxes us is that OK, with overpayments you can either reduce the term or reduce your monthly payments.

But if we reduce the term, why can't our standard, basic monthly payments not stay the same (adjusting for interest rates of course)?

Our monthly repayments are now being calculated on the basis of 23 years in stead of 30 years and our monthly repayment amount is now much higher than before, even with interest rate rises. And this is only after over paying by 200 euro or so a month for less than a year, and a €13k lump sum.