Paying lump sums off a variable mortgage

R

RMCF

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I was planning to switch my mortgage from a tracker variable to an offset so that I could avail of overpayments/savings.

But the First Active advisor (to their credit) said that perhaps a tracker variable would be better for me, as I didn't want to leave all my salary in my current account to have it offset.

I didn't realise that you could make additional payments to a variable account, and its not something that the AIB ever mentioned to me (as far as I remember).

So does anybody ever make additional overpayments to a variable account?
 
Yes - I've done this in the past. You can generally make arbitrary accelerated lump sum or regular capital repayments on a variable/tracker rate mortgage. Certainly a lender cannot charge an owner occupier a penalty fee for accepting such accelerated capital repayments. Some lenders may set a lower limit on the size of the lump sum that they will accept. Some may have rules on what sort of "increased" repayments (i.e. increased capital amount) you can make. And so on. And it's always prudent to make clear your intentions in writing to your lender (e.g. when making lump sum or regular additional capital repayments tell your lender explicitly what you are doing). If you make a lump sum capital repayment you will often have the option of keeping your regular repayments at the same level thereby reducing the effective term of the mortgage or reducing these so that the term remains the same as originally agreed. The former yields the highest interest cost savings and is often a good idea if you can afford it.
 
ClubMan said:
Yes - I've done this in the past. You can generally make arbitrary accelerated lump sum or regular capital repayments on a variable/tracker rate mortgage. Certainly a lender cannot charge an owner occupier a penalty fee for accepting such accelerated capital repayments. Some lenders may set a lower limit on the size of the lump sum that they will accept. Some may have rules on what sort of "increased" repayments (i.e. increased capital amount) you can make. And so on. And it's always prudent to make clear your intentions in writing to your lender (e.g. when making lump sum or regular additional capital repayments tell your lender explicitly what you are doing). If you make a lump sum capital repayment you will often have the option of keeping your regular repayments at the same level thereby reducing the effective term of the mortgage or reducing these so that the term remains the same as originally agreed. The former yields the highest interest cost savings and is often a good idea if you can afford it.
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Thanks for that clubman. Good info and I will contact my bank to see if they can accommodate me.

My overall objective is to reduce the term (a la offset) so I intend to try to pay, for example, an extra €400 per month to a €650 mortgage.

I appreciate that the bank may not accept this every single month and may require me to present a minimum amount each time (such as 5% of the mortgage total) - but this would be ok - all I would do would be save until I would have this amount then take it along to them and ask for it to be taken off the mortgage total.
 
I have NIB variable Tracker and regulary transfere on line any spare cash into mortgage A/c, its great mortgage balance drops instantly.
 
As I said before if you are going to do this then make it clear (in writing) to the lender that you want additional accelerated repayments over and above the normal interest plus capital annuity repayments (or lump sums) to be immediately deducted from the capital. Some lenders may, in the absence of explicit instructions, accumulate the additional repayments as a credit in the account but not deduct it from capital which yields no benefit to you in terms of reducing the interest costs.
 
RMCF said:
I appreciate that the bank may not accept this every single month and may require me to present a minimum amount each time (such as 5% of the mortgage total) - but this would be ok - all I would do would be save until I would have this amount then take it along to them and ask for it to be taken off the mortgage total.
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You're being a bit too easy on the banks. You're entitled to pay off as little extra as you want, as often as you want. They can only charge you a penalty if you're on a fixed rate. With variable and tracker rates it's up to the borrower - loads of us are doing this on a monthly basis.
 
Yes - but, as far as I know, they are still entitled to specify certain terms & conditions on what accelerated repayments they will accept even on a variable/tracker rate owner occupier mortgage (e.g. they can, and some do, set limits on the minimum size of a lump sum that they will accept).
 
Speaking to FA, they said that you can only allow capital to come off the total when it reaches 5% of the mortgage amount (well in an offset anyway).

Until then it is just saved up, and even when it reaches 5% of the total you have to make a point of informing them that you want it 'capitalized', otherwise they will just let it build up.

Now what the rules are for tracker variables are, I will just have to find out.

But anyway, thanks for all your inputs.
 
As far as I know some lenders will not accept any lump sum capital repayment below some minimum amount. I seem to recall some lenders setting the bar at €1K.
 
ClubMan said:
As far as I know some lenders will not accept any lump sum capital repayment below some minimum amount. I seem to recall some lenders setting the bar at €1K.
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I can live with that, if it happened to be €1k.

I currently pay €650 monthly and we are planning to try to pay at least another €450-€500 per month. So we may have to save it for a month or two before handing it over - no great problem.
 
Another way of working this is to ask for the term to be reduced. You can use the calculator mentioned above to estimate the monthly payments if you reduce the term by 3,4,5 years etc. When you find a payment you are comfortable with, just advise the bank to reduce the term. They should not have any difficulties with that on a variable or tracker mortgage.
 
If you reduce the capital and/or term you may also be able to put in place cheaper mortgage protection life assurance cover to save another few bob.
 
EBS requires a minimum of €500, for a monthly lump sum repayment, on variable or tracker mortgages.
 
But that limit does not apply to regular monthly overpayments as far as I know. Or at least it didn't up to c. 2000. At that time you could just write to them, tell them that you wanted to fix your repayments at a particular level above the normal scheduled repayment and have any additional sums deducted from the outstanding capital balance.
 
yeah, not sure about that! It would be great if you could do it online and transfer the money directly off the capital amount.
 
I doubt that EBS facilitate that - their online support for accounts is pretty dire in my experience. On the other hand you could always just write a cheque, attache a brief letter of instruction and post it into them I presume?
 
oysterman said:
You're entitled to pay off as little extra as you want, as often as you want- loads of us are doing this on a monthly basis.
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With AIB, you can view your Mortgage accounts on-line in the same way as any other a/c, and transfer into them as you wish (see under Add New Account). If theres 2 people involved in any of the mortgages, then all you need is a Multi-view form from any branch, and thats it.

They make for depressing viewing next to your measley current a/c, but that encourages you to chip away at it ;)
 
paddyd said:
With AIB, you can view your Mortgage accounts on-line in the same way as any other a/c, and transfer into them as you wish (see under Add New Account). If theres 2 people involved in any of the mortgages, then all you need is a Multi-view form from any branch, and thats it.

They make for depressing viewing next to your measley current a/c, but that encourages you to chip away at it ;)
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I have my AIB mortgage account under my 24 hr banking profile by adding new accounts as you say however i am unable to transfer any money from my current account to the mortgage account. I also asked the customer service rep from 24 hr banking and they said it could not be done.
Therefore I would be grateful if you could tell me how you managed to do it.
 
You're entitled to pay off as little extra as you want, as often as you want. They can only charge you a penalty if you're on a fixed rate. With variable and tracker rates it's up to the borrower - loads of us are doing this on a monthly basis.
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Bank of Scotlaand charge even for a variable rate. We wanted to up monthly payments & pay a lump sum & they made a charge of something like €70 - €80 for each....unless you did both at once and then one charge would apply, over the life of the mortgage it seemed like a small price to pay.

but that encourages you to chip away at it
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....I'd love to have an axe rather than this blunt butter knife!!
 
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