Lump sum off mortgage

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bobo

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Hi, We took out a €420,000 mortgage 6 months ago (term = 35yrs). 1st yr rate = 4.6%, remaining years is ECB+1.1% (5.1%) (AIB Tracker).

We used our savings of €25,200 and asked specifically in writing for this to be taken off the outstanding mortgage amount in order to reduce the term.
Our outstanding principle prior to sending in the cheque was €416,954. After our cheque is applied to our account the revised outstanding principle should be €416,954 - €25,200 = €391,754.

Using Karl Jeacles mortgage calculator I estimated that this would wipe off 4 years and approx 9 months off the term. However, AIB has just confirmed to me that my term has been reduced by 3years 5months which falls far short of that expected. Their explanation is that the outstanding principle prior to cashing our cheque is €416,954 plus interest accrued to date of €3,267 which totals €420,221 which is more than my original mortgage amount !!!! What is interest accrued to date? For each monthly payment i assumed that i was paying off some principle but mostly interest so with this in mind where does the 'interest accrued to date' come from?

We are very annoyed about this as it leaves us with a longer mortgage term than expected. Is this normal? Why is there a marked difference between Karl Jeacles calculator and AIB's term reduction??

Any advice gratefully received.
thanks
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If you've been repaying the loan without any repayment breaks there's no way the outstanding balance could be above what you borrowed.

Are you on a fixed rate loan with an early repayment penalty?

If it's a tracker or variable rate loan then KJ's calculator figures are correct. I don't know how AIB calculate the penalty for early repayment of a fixed rate loan. Even assuming AIB's figure of an outstanding balance of €420,221 you should be looking at a 4.5 year term reduction.

It's definitely worth querying this with AIB more.
 
GeneralZod said:
If you've been repaying the loan without any repayment breaks there's no way the outstanding balance could be above what you borrowed.

Are you on a fixed rate loan with a early repayment penalty?

If it's a tracker or variable rate loan then KJ's calculator figures are correct. I don't know how AIB calculate the penalty for early repayment of a fixed rate loan.
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Hi, thanks for the reply. We are on an AIB tracker mortgage. We have had no repayment breaks at all. We have only had the mortgage 6 months so far with each payment direct debited in full.
Am i being had by AIB? What i don't understand is that they are saying that I have accrued interest to date of €3,267 when in actual fact i have been paying interest + capital in my monthly lump sums so far.
 
I don't know the terminology and I am probably not going to explain this very well but I'll give it a go. I have a mortgage with AIB and the interest is only added quarterly. So even though you make payments every month the interest is only added at the end of the third month. eg. mortgage is 420,000, repayment is 3,000 a month so over 3 month the full 9,000 comes off your capital = 411,000. At the end of that 3 months the interest for that period, say 5,000, is added back on to the capital making your capital 416,000.

Ask for a statement and you will see what I mean.
 
If the facts are exactly as you've presented them I'd be very concerned. Can you present any more details for us to mull over?

I had a tracker from AIB and the interest was only charged quarterly (but calculated daily on the outstanding principal) as described by MB05. But this doesn't account for the major discrepancy between the OP's expected and AIB's term reductions.

I also made numerous early repayments on the loan and it always came straight off the outstanding principal which is all the daily interest calculation is based on.
 
MB05 said:
I don't know the terminology and I am probably not going to explain this very well but I'll give it a go. I have a mortgage with AIB and the interest is only added quarterly. So even though you make payments every month the interest is only added at the end of the third month. eg. mortgage is 420,000, repayment is 3,000 a month so over 3 month the full 9,000 comes off your capital = 411,000. At the end of that 3 months the interest for that period, say 5,000, is added back on to the capital making your capital 416,000.

Ask for a statement and you will see what I mean.
Click to expand...

This is interesting. Thanks.
 
Print off KJ calculator figures and forward to AIB and ask them to explain the difference
 
Bobo,

If I put your numbers into KJ's calculator but assume a 30 year term instead of a 35 year term I get a 3.5 year term reduction which is what AIB told you.

Could this account for it?
 
bobo said:
Hi, We took out a €420,000 mortgage 6 months ago (term = 35yrs). 1st yr rate = 4.6%, remaining years is ECB+1.1% (5.1%) (AIB Tracker).
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Click to expand...

Note this question was posted 8 years ago.

The answer to the original question might be that year 1 appears to be a fixed rate, reverting thereafter to a tracker.
 
welcome to AAM Davina. No 2 situations are exactly the same. Post the details of your issue and you will get some advice!
 
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