Positive look due to redress payment from AIB?

[aibredress]

Hi All,

I know it can be hard to look at a positive while we are waiting for AIB to pay the redress, but can I put something forward.

If the payment is delayed from AIB, we get interest on the redress amount per month that it is outstanding, so if this is August interest is worked out to August and so on. When the redress and interest is paid back by AIB, then no future credits are given. With the interest based on the redress amount and keeps on adding up with the redress amount not being reduced, this is slightly better than a mortgage where you are paying off some of the credit and interest each month.

I hope this makes sense, or I could be going crazy in these lockdown times.

 

[RedOnion]

Not really. All you're getting back is the interest they are charging you. So the longer it goes on, the more you'll have been charged, which you'll then get back as a refund. Net zero benefit.

AIB have committed to CBI that this money will be refunded during July & August.

 

[aibredress]

@RedOnion I disagree, as your mortgage amount is reducing each month, both capital and interest, with the redress the capital does not reduce so the interest amount we get is larger.

 

[RedOnion]

@RedOnion I disagree

You can disagree all you want. The maths is simple.

 

[aibredress]

@redonin, can you prove the maths then please showing a decreased capital amount with interest and a capital amount that does not decrease with interest?

 

[aibredress]

	3%​	capital
10000​	300​	0​	10300​
10300​	309​	0​	10609​
10609​	318.27​	0​	10927.27​
10927.27​	327.8181​	0​	11255.09​
11255.09​	337.6526​	0​	11592.74​
11592.74​	347.7822​	0​	11940.52​
11940.52​	358.2157​	0​	12298.74​
12298.74​	368.9622​	0​	12667.7​
12667.7​	380.031​	0​	13047.73​
13047.73​	391.432​	0​	13439.16​
13439.16​	403.1749​	0​	13842.34​
13842.34​	415.2702​	0​	14257.61​
14257.61​	427.7283​	0​	14685.34​
14685.34​	440.5601​	0​	15125.9​
15125.9​	453.7769​	0​	15579.67​
15579.67​	467.3902​	0​	16047.06​
	6047.064​

 

[aibredress]

	3%​	capital payment
10000​	300​	-50​	10250​
10250​	307.5​	-50​	10507.5​
10507.5​	315.225​	-50​	10772.73​
10772.73​	323.1818​	-50​	11045.91​
11045.91​	331.3772​	-50​	11327.28​
11327.28​	339.8185​	-50​	11617.1​
11617.1​	348.5131​	-50​	11915.62​
11915.62​	357.4685​	-50​	12223.08​
12223.08​	366.6925​	-50​	12539.78​
12539.78​	376.1933​	-50​	12865.97​
12865.97​	385.9791​	-50​	13201.95​
13201.95​	396.0585​	-50​	13548.01​
13548.01​	406.4402​	-50​	13904.45​
13904.45​	417.1334​	-50​	14271.58​
14271.58​	428.1474​	-50​	14649.73​
14649.73​	439.4919​	-50​	15039.22​
	5839.22​

 

[aibredress]

point proved?

 

[Megafan]

It is a nice idea for a thread. The value to us now has always been the cumulative value of the adjustment, maths or no maths, and this impacts psychologically anyway. Had AIB done the right thing way back when, no one would have blinked an eyelid about a monthly saving from 10 years ago because it would be in your budget from then and you wouldn't notice in the long term.

It would also explain some peoples disappointment in the decision because the cash payment in peoples head was higher than where it ended up but it is still a good thing. Most of us are probably still wishing for an extra bit of compensation on top of what is in the public presently, which is human nature.

 

[RedOnion]

point proved?

No, that doesn't prove it. Or more, it proves something else.

But you might have a point overall that you didn't realise (or it's different to what you explained).

The 12% refund isn't reducing. But the interest is compounded. So you are 'earning' 3% on the compounded 12%, rather than just the 12%.

Take 100k loan, at 3%, with 20 years remaining 10 years ago. The balance reduction on that is 12k. But the interest compounded on that 12k is a little over 4k. The interest charged in the 12k is less than the refund on the 16k (12k plus the 4k accrual/refund). It's 8 or 9 euro per month on that amount. So there is a benefit, but it's only on the interest amount, not the total amount. Talking about reducing capital & interest confuses the whole thing, and has already been discussed in another thread.

If you want the same effect after the refund, then just pay the interest refund against the mortgage balance.

 

[Brendan Burgess]

Hi Red

I don't follow that at all. Is this what you are saying?

Let's say that AIB were due to pay redress on 1 July 2019. For simplicity, let's say it was a write down of €12,000 + €4,000 interest.

They pay it on the 1 July 2020 instead.

In the intervening 12 months,they charged me 3% of €16,000 or €480.

So they are now refunding me an additional €480.

If they had refunded it to me a year ago, I would have got €16,000

I have saved 3% on the €12,000 or €360

If I had used the €4,000 to pay down my mortgage, I would have saved another €120.

So the total savings are the same €480.

I am no better or no worse off.

Of course, if I had put the €4,000 in a current account earning no interest, I would be €120 worse off.

Brendan

 

[RedOnion]

That's exactly it @Brendan Burgess
If you'd got the refund, and put it somewhere earning 0%, you're marginally worse off.

 

[Megafan]

No, that doesn't prove it. Or more, it proves something else.

But you might have a point overall that you didn't realise (or it's different to what you explained).

The 12% refund isn't reducing. But the interest is compounded. So you are 'earning' 3% on the compounded 12%, rather than just the 12%.

Take 100k loan, at 3%, with 20 years remaining 10 years ago. The balance reduction on that is 12k. But the interest compounded on that 12k is a little over 4k. The interest charged in the 12k is less than the refund on the 16k (12k plus the 4k accrual/refund). It's 8 or 9 euro per month on that amount. So there is a benefit, but it's only on the interest amount, not the total amount. Talking about reducing capital & interest confuses the whole thing, and has already been discussed in another thread.

If you want the same effect after the refund, then just pay the interest refund against the mortgage balance.

Just to confirm, am I correct to say we are getting refunded the interest, rather than the compound interest (being the amount added to the 12% for the calculation of interest refund (just referring this to October2019 template on the other thread))? From October2019's template, when I put in our details, the interest refund was only a couple of hundred euros different from the end value of the compound interest (that being the difference of the compound interest plus the 12%) . I wasn't sure whether to raise it or not since I thought I was just missing something obvious as to why this was.

Just referring to another issue last year or the year before, AIB as I understand it, had to refund compound interest to personal loan customers who topped up loans online. This was something I got a refund for as did many others, I wonder is there any equivalence here with regard the compound interest element in the refund calc (which might be considered notional in that it exists just to facilitate the calculation of the interest refund)?

 

[Brendan Burgess]

I put a refund of €10,000 into October's calculator
I put in an interest rate of 3% constant for the whole period.
October 2008 - July 2020 would be 12 years @3% simple interest would be €3,600

It is €4,243 according to the calculator.

So that is an extra €600 in interest over 12 years.

It's not that surprising as the interest rate is so low.

Most people will be less than 12 years.

Brendan

 

[Megafan]

I put a refund of €10,000 into October's calculator
I put in an interest rate of 3% constant for the whole period.
October 2008 - July 2020 would be 12 years @3% simple interest would be €3,600

It is €4,243 according to the calculator.

So that is an extra €600 in interest over 12 years.

It's not that surprising as the interest rate is so low.

Most people will be less than 12 years.

Brendan

Thanks Brendan, I did something similar myself to see if it held true.

I suppose though that they are two distinct types of interest and for the calculation to follow Karen's calculation, which you noted largely matched October2019's template, AIB would be adding compound interest to the 12% just to facilitate a refund over however many years, but then in effect it stops existing because the principal reduction reverts to the 12%, it just seems to be a bit of a fudge to my uneducated eyes anyway,

That is why I noted the personal loan issue from the other year re compound interest. Using my conspiratorial brain, thought about the mysterious additional €150m provision AIB are taking this year. Idle and pointless speculation on my part...

 

[Brendan Burgess]

it just seems to be a bit of a fudge to my uneducated eyes anyway,

No fudge. Just maths.

 

[RedOnion]

Just referring to another issue last year or the year before, AIB as I understand it, had to refund compound interest to personal loan customers who topped up loans online.

This was a completely separate issue, and has no bearing on this. By not including interest accrued at the point in time in the 'topped up' loan balance documents, AIB were actually lending more than they said they were. It's a completely separate issue.

 

[Megafan]

This was a completely separate issue, and has no bearing on this. By not including interest accrued at the point in time in the 'topped up' loan balance documents, AIB were actually lending more than they said they were. It's a completely separate issue.

Thanks, understood.

Just as I am not in any way an expert in these things, are you saying the compound interest will go nowhere and is purely a function of calculating the interest refund? Obviously, the compounding of the interest onto the principal refund, actually increases the interest refund, but once that interest refund is calculated and finalised, the compound interest then falls away?

I only ask in that some people may wish to pursue this matter further, and given AIB appear to insist no wrongdoing as such, their position seems to be a strange one, and perhaps and again, I not an expect in such matters, this is something that just jumps out at me, and I did draw a parallel to a separate matter in which AIB did refund compound interest to customers.

 

[RedOnion]

are you saying the compound interest will go nowhere and is purely a function of calculating the interest refund?

No, I'm definitely not saying that.

You brought in a completely separate issue, which has nothing to do with this. They didn't refund compound interest - they refunded the interest charged on an amount that they didn't explain to the customer that they were borrowing (which was the interest outstanding, but not capitalised, at the date of the top-up).

Discussing it clouds the topic here.

 

[Megafan]

No, I'm definitely not saying that.

You brought in a completely separate issue, which has nothing to do with this. They didn't refund compound interest - they refunded the interest charged on an amount that they didn't explain to the customer that they were borrowing (which was the interest outstanding, but not capitalised, at the date of the top-up).

Discussing it clouds the topic here.

Ok, understood re the 2nd point.

Just to close this out, and I completely appreciate I run the risk of being shown to be an idiot, what exactly are you saying re the existence or otherwise of the compound interest with regard to the interest refund based on the principal reduction of 12%?

Is it a complete red herring on my part to even mention it in any context with regard to refunds in the next couple of months or actions otherwise of/to the cohort in the future?