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

masterboy123 said:
Update:
I have received a letter from AIB acknowledging the lump sum payment and the new monthly repayments. There is a reduction of €250 per month, we are very happy with this movie and we will save €3000 annually on monthly repayments plus the associated interest!

Thank you all with a special thanks to @Paul F
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Do you mind if i ask how much lump sum did you make.

Thanks
 
masterboy123 said:
Update:
I have received a letter from AIB acknowledging the lump sum payment and the new monthly repayments. There is a reduction of €250 per month, we are very happy with this movie and we will save €3000 annually on monthly repayments plus the associated interest!

Thank you all with a special thanks to @Paul F
Click to expand...
You should not look alone on the reduction of monthly repayments - that's only a cashflow reduction but not real total savings. Any savings are only in regards to the reduction in interest payments. If you already have the pension maxed out I would advise to look into doing monthly overpayments in order to save on interest.
 
Merowig said:
You should not look alone on the reduction of monthly repayments - that's only a cashflow reduction but not real total savings. Any savings are only in regards to the reduction in interest payments. If you already have the pension maxed out I would advise to look into doing monthly overpayments in order to save on interest.
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Thanks for your ongoing suggestions and help.

I did consider monthly overpayments, however, given how volatile market is, I am worried I may end up paying break fee and all the savings will go downhill.
What's your thoughts on break fee?
 
masterboy123 said:
I did consider monthly overpayments, however, given how volatile market is, I am worried I may end up paying break fee and all the savings will go downhill.
What's your thoughts on break fee?
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I can‘t see a break fee to be applied for the three and five years fixed rates due to the way AIB calculates that. My understanding is that AIB would need to reduce the interest rates for the 1,2 and 4 year fixed rate in order to have a break fee for the 3 and 5 year fixed rate. And the opposite is happening. Will do my next overpayment on Monday and I am pretty sure there won’t be a break fee again like it was for over the past 2 years already.
 
Just to add to the info in here. I sent a €200 payment to my mortgage account, from my KBC current account. I did not contact AIB before and I received a letter around a week later telling me the payment was paid off my principal and my monthly payment has reduced. Says there may be a breakage fee in the future but that won't happen unless rates dropped below my green 2.1% rate.

I think it's a waste of paper but they probably have to do it. Will only be a once off for now as we're going to be seeking a top up but good to know it's that simple and if you're sure there will be no break fee you can just do it.
 
The Oggster said:
Just to add to the info in here. I sent a €200 payment to my mortgage account, from my KBC current account. I did not contact AIB before and I received a letter around a week later telling me the payment was paid off my principal and my monthly payment has reduced. Says there may be a breakage fee in the future but that won't happen unless rates dropped below my green 2.1% rate.

I think it's a waste of paper but they probably have to do it. Will only be a once off for now as we're going to be seeking a top up but good to know it's that simple and if you're sure there will be no break fee you can just do it.
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Agree it is a bit of a waste of paper, they should give the option to email it out instead or access it via the app.

But by god!, I have to say that is the part I look forward to the most receiving the post every month.
 
The Oggster said:
Just to add to the info in here. I sent a €200 payment to my mortgage account, from my KBC current account. I did not contact AIB before and I received a letter around a week later telling me the payment was paid off my principal and my monthly payment has reduced. Says there may be a breakage fee in the future but that won't happen unless rates dropped below my green 2.1% rate.

I think it's a waste of paper but they probably have to do it. Will only be a once off for now as we're going to be seeking a top up but good to know it's that simple and if you're sure there will be no break fee you can just do it.
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Regarding the break fee, does it have to be less than 2.1% rate with any Irish bank or just with AIB?
 
masterboy123 said:
Regarding the break fee, does it have to be less than 2.1% rate with any Irish bank or just with AIB?
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Each bank will have their own Mortgage Regulatory Information page.

Example from AIB: https://aib.ie/our-products/mortgages/Home-Mortgages-Regulatory-Information

So if you have a different bank/lender, you need to check their formula and work out the numbers. From the few that I have seen, AIB by far have the clearest and simplest explanation and examples.


Some other lender's explanation may not be clear (Certainly not for me, take BoI for example).
 
masterboy123 said:
Regarding the break fee, does it have to be less than 2.1% rate with any Irish bank or just with AIB?
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If you're asking specifically about the quirk in AIB's break fee calculation:
  • The quirk only applies to AIB's fixed rates, not to the fixed rates of any other lender – and even then it only applies to some of AIB's fixed rates
  • As part of their calculation, AIB only look at interbank interest rates and their own fixed rates, not the fixed rates of any other lender
If you have any doubts about what the break fee will be, i.e., if you don't understand the quirk inside out, get a break fee quote from AIB before you make any overpayment. Nobody here will 100% guarantee that a given break fee is going to be zero.
 
help999 said:
When I took out my mortgage with AIB, after drawdown I tried to set up the internet banking for my mortgage so i could check the balance regularly..
I rang them and they said that there is no way to set it up that there is no online portal for a mortgage account so I would have to ring them for a statement whenever I need one. Anyway unhappy with that i when into my local branch, played dumb and said I just took out a mortgage account and id like to set up internet banking. i had all the necessary documents ready that one would need to open any bank account. 2 hours later I had internet banking with my mortgage account online. I didn't have and actual AIB current account and I didn't need one at the time. I do now ( as I want to overpay and do it soon as the break fee arrives in the door) and when to do it online- same again wouldn't let me do it kept giving an error code.. I went into branch said I have a mortgage account with you and id like to set up a current account so that I can pay my mortgage from the AIB account instead of my bank of Ireland account. Showed the lady the error code. she rang someone- when she got off the phone she just shook her head in disbelieve. she said I can do that now, but she told me they told her that I should have never been set up for internet banking for my mortgage account. She was as puzzled as I was. Then I relished banks being banks they don't want you knowing, they don't want to make it easy, they don't want to make it easy to overpay- they get less money from it. AIB break fees are usually expired by the time they arrive in the post.
So they didn't want me to have access to my mortgage account in real time, they want you in the dark. they make more more the bigger your principle is, they try discourage you by you having the ring them, go through channels and long waits.
For anyone that is an AIB customer that intends on overpaying I suggest you get set up online for your mortgage account and current account to stay a step ahead of them
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Sorry for the late reply to this one. I had remembered reading it but couldn't find the post.

We switched our mortgage to AIB and recently set up a current account too. When I sorted out the Internet banking on that, I added my mortgage account no problem. Just needed the IBAN.
 
Moderator's note: this post and the next one were moved from another thread to here.

masterboy123 said:
Other query: Does AIB allow you to overpay on a fixed rate without penalty every month?
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This question was extensively answered already in https://www.askaboutmoney.com/threa...s-5yr-fixed-rate-and-some-other-rates.222401/
So the answer is that there is a quirk due to the way AIB calculates the break fee when you have fixed for three years or five years and AIB is not reducing the interest rates for their one year, two year and four year offers.

masterboy123 said:
Thanks so much for the detailed information.

It's good to see I am having the best deal already in the market and everything else will leave me worse off.

I will hold on to my AIB 5 year fixed and try to do overpayments every 6 months or so (after confirming a zero break fee from the bank).
Have a great Sunday!
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If you do monthly overpayments you will save more interest.
 
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Normally interest is calculated daily. The key point is that as you pay more earlier, you cut down the principal earlier too, which the next set of interest calculated would be based on the new principal. Where as if you pay lump sum say in 6 months time, the first 5 months' principal is higher in comparison thus higher interest.


This is where monthly repayment (or bi weekly, etc) trumps lump sum with all things being equal (i.e. total amount you pay for a set period of time). The exception is if you front load the overpayment (i.e. overpay the 6K in Month 1), which is not really realistic in real life.



For illustration, lets say you got a mortgage of 100K at 5% interest rate for 10 years (For ease of nicely rounded number), your monthly repayment is 1.06K.

Scenario 1: If you pay 2K every month (i.e. overpay by 1K). Your first 6 months will be calculated as follows:
MonthInterestPrincipalTotal PaymentLTVClosing Balance
Jan416.671,643.992,060.6698.498,356.01
Feb409.821,650.842,060.6696.796,705.17
Mar402.941,657.722,060.6695.095,047.46
Apr396.031,664.622,060.6693.493,382.83
May389.101,671.562,060.6691.791,711.27
Jun382.131,678.522,060.6690.090,032.75


Scenario 2: If you pay 1.06K monthly and a single 6K lump sum in June, your first 6 months will be calculated as follows:
MonthInterestPrincipalTotal PaymentLTVClosing Balance
Jan416.67643.991,060.6699.499,356.01
Feb413.98646.671,060.6698.798,709.34
Mar411.29649.371,060.6698.198,059.97
Apr408.58652.071,060.6697.497,407.90
May405.87654.791,060.6696.896,753.11
Jun403.146,657.527,060.6690.190,095.60

As you can see there is a difference of about 60 euros over 6 months at the closing balance.

Over the space of 5 years and 5 months (assuming you keep paying the same overpayment in the above scenario, that is when your overpayment would kill off the 10 year), that is 340 euros. The longer your mortgage is, the bigger the saving.


The saving is not massive but if you are certain that you will overpay in 6 months time (or whatever period) and you have the money now, paying it now regularly to the same equivalent amount will always result in slightly more saving
 
BigPineapple said:
Normally interest is calculated daily. The key point is that as you pay more earlier, you cut down the principal earlier too, which the next set of interest calculated would be based on the new principal. Where as if you pay lump sum say in 6 months time, the first 5 months' principal is higher in comparison thus higher interest.


This is where monthly repayment (or bi weekly, etc) trumps lump sum with all things being equal (i.e. total amount you pay for a set period of time). The exception is if you front load the overpayment (i.e. overpay the 6K in Month 1), which is not really realistic in real life.



For illustration, lets say you got a mortgage of 100K at 5% interest rate for 10 years (For ease of nicely rounded number), your monthly repayment is 1.06K.

Scenario 1: If you pay 2K every month (i.e. overpay by 1K). Your first 6 months will be calculated as follows:
MonthInterestPrincipalTotal PaymentLTVClosing Balance
Jan416.671,643.992,060.6698.498,356.01
Feb409.821,650.842,060.6696.796,705.17
Mar402.941,657.722,060.6695.095,047.46
Apr396.031,664.622,060.6693.493,382.83
May389.101,671.562,060.6691.791,711.27
Jun382.131,678.522,060.6690.090,032.75


Scenario 2: If you pay 1.06K monthly and a single 6K lump sum in June, your first 6 months will be calculated as follows:
MonthInterestPrincipalTotal PaymentLTVClosing Balance
Jan416.67643.991,060.6699.499,356.01
Feb413.98646.671,060.6698.798,709.34
Mar411.29649.371,060.6698.198,059.97
Apr408.58652.071,060.6697.497,407.90
May405.87654.791,060.6696.896,753.11
Jun403.146,657.527,060.6690.190,095.60

As you can see there is a difference of about 60 euros over 6 months at the closing balance.

Over the space of 5 years and 5 months (assuming you keep paying the same overpayment in the above scenario, that is when your overpayment would kill off the 10 year), that is 340 euros. The longer your mortgage is, the bigger the saving.


The saving is not massive but if you are certain that you will overpay in 6 months time (or whatever period) and you have the money now, paying it now regularly to the same equivalent amount will always result in slightly more saving
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Thanks for the detailed explanation using a simple language. It's clear now.

Could I ask you which application did you use to get those columns with interest, principal, LTV, etc? I will feed in the exact amounts and see how much I will save.
 
masterboy123 said:
How does this work?
I assumed that if I paid a big lump sum cash that would save more interest.

And if this is the case, can we not pay our mortgage bi-weekly?
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Net Present value and the magic of compounding - 100 Euro are more worth today than in 6 months - also you get interest for these 6 months.
Similiar when you pay off any debt - if you pay off 100 Eruro today you save more interest than paying it off in 6 months time.
Never understood anyone who decides to make larger lump sum payments than just paying it off regularly. You can also come to this conclusion by just comparing the interest rates between your savings or current account with the interest rate of your mortgage.

On the second question: if I recall you can change your AIB mandatory repayments to bi-weekly.
 
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