Mortgage Problem. Need Advice.

Hi
I have a small variable rate mortgage and due to falling rates decided to increase the monthly payment, rang bank, they said no problem just put it in writing which i did.

I received a letter today from bank saying they have reduced the original term of the loan in order to increase repayments.They have reduced the original loan from 20 to 16 years which I never agreed to. In effect I now have a new mortgage with a new monthly payment, with I presume new terms and conditions. If i find in 12 months time I can`t afford the increased payments i will have to renegotiate the mortgage instead of just dropping back to the original 20 year payment.

What can I do about this? All I wanted in the first instance was to pay a bit extra each month but have the option to make the minimum payment if need be.

Thanks for any advice.

Tomas - This is generally referred to as an over payment and should not change the mortgage term agreed upon when you signed the offer letter.

In general, the letter is for illustrative purposes and outlines the new term and gives you the new expiry date. I cannot see why you will not be able to go back to the original term if you so wish so long as you keep your life cover over the original term.

It is best to ring the bank and confirm this but generally speaking you should not have a problem.

Hi VOR

Thanks for your post, I went to my local branch today they basically said it was out of their hands and to ring their mortgage centre. Gave them a ring and was told there was no problem with altering payments at a later date and they would follow up with a letter to that effect. Must check the life cover bit. Thanks, thought I`d dug a hole for myself.

Tomas

If you have not altered the life cover it should still be fine.

I am also in the same situation and am a bit confused - sorry for long-winded post - am a bit clueless.
My mortgage payment was €927/month (variable). After the first 0.5% interest rate drop, the repayment went to €880. I sent a letter to the bank requesting to fix my repayments at €1000. They wrote to me advising that they had reduced the original term from 30 to 24 years. Then the next interest rate drop of 0.5% came in so my repayments went to €957.
I called to my local branch and they checked with the mortgage department who advised that they cannot fix repayments - they will have to keep changing the term of the loan but that it can go back to the original term if required. The branch said that I could lodge the difference straight into the mortgage account so I put in the €43. The branch said that the interest rate was likely to go down again so in Jan after the 0.75% reduction came in, I should lodge the balance again and then if rate hasn't changed since then, I should write requesting new term.
My questions are as follows:
In reducing the term of my loan, is the interest payable any different or will my tax relief be affected? (I am a FTB)
Would I be better off leaving the term at 30 years and lodging the balance every month or couple of months so it will be taken straight off the capital?
Would the interest relief then be affected?
Does it make any difference what way I overpay?
Thanks for any advice
Tommygirl

Your TRS is calculated at the amount of interest you pay so when the interest decreases so will the TRS.

By overpaying your mortgage, the term is recalculated as you are increasing your repayments which in turn decreases the term of your mortgage.

If you are leaving the term the same, your repayments will decrease - the difference is due to the decrease in interest rates.

You should be able to revert to the original term should you find the increased repayments difficult to maintain. It would be a good idea to get this confirmed by your lender in writing.

You should keep your original life cover and term in order to make it easier to revert to to the original mortgage term.

I found that the easiest way to overpay was to set up a seperate direct debit and say nothing to the mortgage lender in question. I have never heard of the first situation where the lender sends a letter to the effect that you have reduced your term by 4 years although that is the net effect of overpaying. In Tommygirl's instance if you're a FTB and you're worries about your Tax relief being affected by reducing your term. Setup a long term deposit account and pay the extra in there and then when the 5 or 7 years (or whatever they are now) of the Tax Relief at Source period is up, dump in the lump sum. You'll have to crunch the numbers to see which way will work out better for you. ie overpaying directly and losing what would normally amount to a small loss in your Tax Relief or saving and paying a lump sum... I would imagine in most circumstances that the former would work out better.

Pauly, did you not send them a letter telling them to take it directly off the capital?

I didn't. On my year end statement the capital was reduced by the corresponding ammounts I had lodged directly and the interest accrued was calculated on the balance remaining each time...

This was with PTSB on a variable rate. I don't know in fairness if it works that way with all lenders.

This is a forum for Irish mortgage issues.