i am paying back considerably more than my monthly repayment amount to my mortgage company on my house. it is a tracker mortgage. i was doing this thinking that the term of my mortgage would decrease automatically. i was talking to someone over the weekend and they said no, the repayments would be reduced and i would still ahve my mortgage over the same term. Any opinions? ( i know the easiest thing to do would be to contact the mortgage provider and i intend to do this!!)
reduce term of mortgage
- Thread starter viztopia
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If you are making accelerated regular or lump sum capital repayments on a mortgage then you really need to agree in writing with your lender how you want these dealt with - e.g. taken off capital immediately and reducing the effective term would be the most cost effective. Don't just assume that things will automatically work out as you would like!
LDFerguson
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Since you started overpaying, have you been notified that your ordinary repayments have decreased?
I found this recently with PTSB, I changed my monthly DD payment to a weekly standing order and paying a bit more. The way they deal with it is to put the money in a holding account, which reduces the interest, but they won't put any extra against the mortgage until there is at least €1300 in the holding account. I had this set off the other day and they asked when setting it off if I wanted to reduce the payments or the term. I reduced the term. The amount I overpaid was approximately 2 months payments and it reduced the term by an extra 6 months, so it's well worth doing.
mocky-Dower
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I made an lump sum payment recently and I'm also making regular Lump sum payments (2K monthly) each of which I aggreed with the bank (in writing) to reduce the capital amount. I have left the term as it was.
I thought is was best to leave the term as it was because it kept the repayments at a low level, howerver, if I asked them to reduce the term this would result in higher repayments.
I presume that it (reduce term or leave the term as is) is much the same and depands on personal circumstances, the net effect of making any accelerated repayments is that you get to clear the mortage earlier. When I'm finished my accelerated payments I can then ask the bank to reduce the term !!
I stand corrected, and would love to hear from others if I'm doing the right thing.
Note: on Tracker Rate LTV < 50%
I thought is was best to leave the term as it was because it kept the repayments at a low level, howerver, if I asked them to reduce the term this would result in higher repayments.
I presume that it (reduce term or leave the term as is) is much the same and depands on personal circumstances, the net effect of making any accelerated repayments is that you get to clear the mortage earlier. When I'm finished my accelerated payments I can then ask the bank to reduce the term !!
I stand corrected, and would love to hear from others if I'm doing the right thing.
Note: on Tracker Rate LTV < 50%
Not true. If you make a lump sum capital repayment then you can keep the repayments at their "normal" (pre-lump sum capital repayment) scheduled level and reduce the effective term. You don't necessarily need to explicitly renegotiate the term. You could just as easily look at this as making regular capital repayments which simply bring what would be the reduced repayment up to the level at which it would have been before the lump sum capital repayment. Got that!?
mocky-Dower
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Not true. If you make a lump sum capital repayment then you can keep the repayments at their "normal" (pre-lump sum capital repayment) scheduled level and reduce the effective term. You don't necessarily need to explicitly renegotiate the term. You could just as easily look at this as making regular capital repayments which simply bring what would be the reduced repayment up to the level at which it would have been before the lump sum capital repayment. Got that!?
Yeah, this is what I had to do because the bank sent me a letter to say the my monthly repayment have been reduced, but I had said in my letter to them that I want the normal monthly repayment maintained, so I had to write another letter to confirm this with them, so not only am I making accelertaed lump sum payment each month I'm also overpaying.
On the term, I'm confused on this, I never negotiateed with the bank about my term, so I presume its at the level it was at pre lump sum payment, I was planning on asking then to reduce the term in 12 months time when I'm finished paying my 2k a month.
I thought that what happened was that that you over paid or put in a lump sum and that reduced the capital amount outstanding. The term of the mortgage was then suitably reduced, while the repayment amounts stayed the same monthly, but just over a shorter period of time. Does that make sense? I stand corrected also.
mocky-Dower
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Hi PaddyW
Yes I did pay a lump sum but I never asked for the term to be reduced, and to be honest I'm not sure if the bank automaticallly reduced the term, but I never mentioned it to them when I wrote the letter asking to make the accelerated payments.
Reading these post I'm wondering if its such a good idea not mentioning the term, maybe I should have them adjust the term according to the accelerated payments I make.
Yes I did pay a lump sum but I never asked for the term to be reduced, and to be honest I'm not sure if the bank automaticallly reduced the term, but I never mentioned it to them when I wrote the letter asking to make the accelerated payments.
Reading these post I'm wondering if its such a good idea not mentioning the term, maybe I should have them adjust the term according to the accelerated payments I make.
In the past when I made lump sum capital and regular repayments on my EBS mortgage they wrote to me to explain the impact in terms of the effective term of the mortgage due to the accelerated repayments. We never explicitly renegotiated the term downwards. Presumably other banks can also deal with things like this? It's possible that you could save a few more bob by explicitly renegotiating the term downwards and getting shorter term mortgage protection life assurance but I doubt that it'd be worth the hassle in most cases.
See above. If they did not explicitly reduce the term then the effective term will still have reduced - i.e. if you keep up your repayments the mortgage will be cleared before the original term agreed.
mocky-Dower
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Yes Clubman this is exactly as I thought - phew you had me going there for a while . . .
I'm with AIB and when I first made the Lump sum payment (€20,000) they wrote back to me saying the repayment have now reduced to . . . . even thought I had explicitly asked them to keep them at normal schdeule levels pre lump sum payment, and they sent me another letter to say my payments were adjusted(downwards) again when I made the first of my 2k repayments, this is when I had to write to them again and agree a monthly repayment.
The term was never mention in these letters, I can still reduce the term in 12 months time, is this right, and the net effect is the same ?
I'm with AIB and when I first made the Lump sum payment (€20,000) they wrote back to me saying the repayment have now reduced to . . . . even thought I had explicitly asked them to keep them at normal schdeule levels pre lump sum payment, and they sent me another letter to say my payments were adjusted(downwards) again when I made the first of my 2k repayments, this is when I had to write to them again and agree a monthly repayment.
The term was never mention in these letters, I can still reduce the term in 12 months time, is this right, and the net effect is the same ?
Whenever I make overpayments, I ask for a statement of my mortgage account....it shows all regular payments/interest and overpayments...and shows that this comes off the capital amount owing. I find this is a useful record to have. One bit of advice, for personal reasons, I requested a reduction in the monthly payment (instead of a reduction of the term) and in one instance, when I checked the letter telling me what my new monthly payment was, I noticed that the no. of repayments had actually increased by 1!! When I queried this, the bank apologised for its 'mistake' and fixed it. If I had not noticed, then I would be in a position where I would be paying them for 1 additional month. So, my advice is....get everything in writing and also make sure that what is on paper reflects what you expected, incl. the number of remaining payments...
I agreed with NIB to pay about 150E a month extra against my mortgage,thus shortening the term, I also transfer my TRS via the internet banking off the capital each month.They can't automatically transfer the TRS off my mortgage only into my saving account, from here I transfer back into mortgage account.
same here. AIB reduce the repayment by default, but will only reduce the term upon written consent.
Does the former generate more interest over the term for a bank that the latter? Haven't given it much thought
Would also like to have this all clarified as I have just begun putting additional money each money (approx €500) into my AIB account which my mortgage is taken out of, and everytime it reaches say €2,000 I was going to write to them to inform them to take this sum off my mortgage.
Ok, here's my take on it.
You start with a mortgage of 100,000. Normal payments starting off, say 625 a month. You then decide to put an extra 200 a month in, taking it off the capital. After, say, 30 months of doing this, the capital has now reduced by 6000 plus what ever the bank has taken off the capital, say 3000. The capital is now down to 91,000 so you now have less to pay off the capital and as such the term is reduced by so many months. You also have less interest to pay over the term of the mortgage as you now have, let's say 3 years taken off the entire capital payments. Correct?
You start with a mortgage of 100,000. Normal payments starting off, say 625 a month. You then decide to put an extra 200 a month in, taking it off the capital. After, say, 30 months of doing this, the capital has now reduced by 6000 plus what ever the bank has taken off the capital, say 3000. The capital is now down to 91,000 so you now have less to pay off the capital and as such the term is reduced by so many months. You also have less interest to pay over the term of the mortgage as you now have, let's say 3 years taken off the entire capital payments. Correct?