Capital repayments not reducing the interest charged?

Discussion in 'Mortgages and buying and selling homes' started by Winter Miles, Jan 6, 2017.

  1. Winter Miles

    Winter Miles New Member

    Posts:
    3
    Hi,

    This might seem like a remedial question, but I have an IO mortgage with BOS for my family home. I make capital repayments every month to the tune of €900 in addition to the IO payment, say €500.

    I don't see a reduction in the interest amount, despite paying off the capital.

    Should I be seeing a gradual reduction in the interest payment as I pay off the capital?

    Thanks
     
  2. vandriver

    vandriver Frequent Poster

    Posts:
    1,506
    Have you got a statement to hand?
    Does it accurately record all your capital repayments?
    Has the I/O part risen and fallen with prevailing interest rates?
    How long have you been repaying capital?

    Could you give the figures?
     
  3. Winter Miles

    Winter Miles New Member

    Posts:
    3
    Hi

    It records the repayments each month but the interest does not reduce. I have been paying for about 2 years now. The interest has gone down with the reductions in interest rates.

    I actually called Pepper the other day and queried this. The rep didn't know what I was talking about and said she would refer it to the IO team who would call me back within a week. I actually raised this with them over 12 months ago and I didn't get a satisfactory / definitive answer. I felt as if I was being fobbed off but reps that didn't know what they were talking about.

    Getting concerned now. I gather the interest payment should reduce with each capital payment??
     
  4. Joe_90

    Joe_90 Frequent Poster

    Posts:
    2,014
    What does your loan agreement say?

    It makes sense that if you owe the bank less then the interest should be charged on the lower amount if the agreement allows for capital repayments.
     
  5. Brendan Burgess

    Brendan Burgess Founder

    Posts:
    30,299
    Last edited: Jan 11, 2017
    It should not matter much what your loan agreement says. If you make loan repayments, the balance reduces and the interest reduces. The only issue might be whether they calculate interest daily or monthly.

    I suspect that they are making some systemic error. They are allocating your payments to some separate account which does not affect the mortgage balance. I remember hearing something similar before,but I don't think it was BoSI.

    I presume that the interest charged is not falling at all? With a cheap tracker, the fall would be very small each month. For example, reducing the balance by €900 should reduce the interest charged the following month by 37 cents - assuming an interest rate of ECB +0.5%

    So the good news is that their mistake has not been very expensive for you. €10,800 would save you €54 a year (10,800 @0.5%).

    You need to write to them formally. The people in the call centres would not understand this.
    If you get no reply, or if you get an unsatisfactory reply, go to the Ombudsman.

    Brendan
     
    Last edited: Jan 11, 2017