Penalty for paying mortgage fortnightly.

S

shay23b

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I pay my mortgage every two weeks instead of once a month. I switched because of the way I am paid. I received my annual statement in the post the other day and in the envelope was a flyer stating that because I pay every 2 weeks I might have to keep paying my mortgage past the agreed loan term of 21 years I have remaining because there might be a shortfall. When I switched from monthly to fortnightly payments the bank said that there was no difference from either type of repayments. I was never made aware of this fact and I have been on this repayment option for 1.5 years. I rang the bank to ask them to calculate my shortfall based on my current payments for the term and interest rate agreed just to give me some idea of my shortfall figure (100's, 1000's, 10000's) and they could not do it. I am going to make a formal complaint to the bank as I feel I was never informed of this bit of information when I asked to go onto fortnightly payments. Does anyone have any experience with this situation please.
 
Hi Shay

I suspect that the bank is sending this because of some regulatory requirement.

If you were due to pay the mortgage on 28th of every month, but you are paying half of it on 14th and the other half on the 28th, then you will be paying quicker than planned and your mortgage will be a bit shorter.

If you were due to pay the mortgage on 1st of the month, and you are paying half on the 1st and half on the 14th, then you would be in arrears, and there would be a very small balance left at the end.

If you are in the second category, I don't think you have any grounds for complaint. If you are due to pay something but you delay by two weeks, then you will be charged additional interest on that repayment for two weeks.

Brendan
 
By the way, I presume that you mean you are paying twice a month, rather than every two weeks?

If you are paying twice amonth, you will be making 24 payments a years. If you are actually paying every two week, that means that you will be paying 26 repayments a year. That means that you are paying more than you agreed and your mortgage will be repaid a lot earlier than planned.

The issue of paying every two weeks is discussed at length here.

Brendan
 
We pay the mortgage fortnightly. When we moved to this, we were warned that since we were paying a fixed amount (we are on a tracker mortgage) it was up to us to keep track of what we are paying and make sure we aren't underpaying the mortgage. We have always overpaid the mortgage so it hasn't been an issue, but we are aware that if things change there could be problems.

We are on a tracker mortgage, but the bank don't (and won't as far as I can remember) calculate the repayments every fortnight. Instead, we split the monthly repayment in half and paid that.
 
Thankyou for your replies. I pay my mortgage every 14 days and i pay 26 of these payments a year. The bank told me that it would have no effect whatsoever as to paying my mortgage of early, they made that point very clear when I started paying this way. However I was never informed that I could possibily have to extend the term of my mortgage because of this payment method. Even though its more hastle for 1 monthly payment I am going to ask to be put back on this. I do not want to give them any excuse to charge me more interest. Thankyou again.
 
shay23b said:
Thankyou for your replies. I pay my mortgage every 14 days and i pay 26 of these payments a year. The bank told me that it would have no effect whatsoever as to paying my mortgage of early, they made that point very clear when I started paying this way. However I was never informed that I could possibily have to extend the term of my mortgage because of this payment method. Even though its more hastle for 1 monthly payment I am going to ask to be put back on this. I do not want to give them any excuse to charge me more interest. Thankyou again.
Click to expand...

Taking a simple example....

say your monthly repayment is €1,000, half of this is €500.

if you pay 26 fortnightly payments of €500, thats €13,000 per year

if you pay 12 monthly payments of €1,000, thats €12,000 per year

How can arrears arise if you are overpaying by €1,000 per annum?

If you overpay by €1,000 per annum, then the repayment term will decrease.
 
@OP - Can you confirm how the payment amount changed when the payment period changed from a month to 14 days.

Was the amount reduced by half or was it reduced by a factor of 12/26?

Thanks,

3CC
 
My monthly payment was 1295.
When I went onto paying every 14 days the payment was 625.
26 payments of 625 euro.
 
1295 x 12 = €15,540

625 x 26 = €16,250

So you are overpaying your mortgage and it will finish earlier than planned.

Brendan
 
Apolagies I just remembered I had an overpayment of 60 euro on the 1295 as it was a fixed rate and that was all I could overpay by.
The 625 included 30 euro overpayment that I was making each 14 days so the bank were charging me approx 595.
Sorry I only remembered the overpayment I was making myself.
 
I don't think that this changes anything. You were overpaying by €60 per month or €720 per year. You now appear to be overpaying by €30 per fortnight or €780 per year.

Same principle. If you overpay your mortgage, you will pay it off earlier.
 
shay23, that warning is a standard warning or a variation of a standard warning that is required to be placed on letters to customers.
 
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