AIB A quick way to calculate how much you will get

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Trackscandal

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Brendan Burgess said:
To calculate how much the cash payment will be you need to know what interest you paid on the €12,000 since July 2011.

You will need to know the actual interest rate - this will vary from person to person , depending on your Loan to Value and whether you fixed or not.

If will also depend on when your fixed rate ended. If it finished in October 2008, you will be getting 12 years' interest. If it finished in 2012, you will be getting 8 years interest so it will be less.

If you have all this information, you can work it out exactly, but if you don't, you can use 4% as a very rough estimate.

Here is a typical case for the guy whose €100k mortgage came off a fixed rate in July 2011 and has been on the SVR since. For simplicity , I have used the average SVR for each year.

View attachment 4465

So he paid €4,314 interest on the €12,000 write down.

His mortgage was €100k, so that works out at 4.3% of the balance.

Brendan
Click to expand...

Another method of calculating the cash payment is add up the interest you were charged from the date you exited the fixed rate and multiply this by 12%.

(This will give a fairly exact figure - but for those who want to be technical it will only differ from the actual refund because of interest accrued and not charged until after the fixed rate ended and interest accrued and not charged up to the point of getting the refund).

A person's can calculate what their monthly repayment will reduce to by using the following formula where:

A - Loan Balance at time of fixed rate exit
B - Today's Loan Balance
C - Current Loan Repayment

New Loan Repayment = C x (B - 12%A) ÷ B
 
Trackscandal said:
Another method of calculating the cash payment is add up the interest you were charged from the date you exited the fixed rate and multiply this by 12%.
Click to expand...

I was thinking of that since, but it's not correct.

Take a mortgage of €100k at the start with 20 years to go.

4665


The €12k is 12% of the balance at the start of year 1.

But it's 20% of the balance in year 10.

Brendan
 
Brendan Burgess said:
I was thinking of that since, but it's not correct.

Take a mortgage of €100k at the start with 20 years to go.

View attachment 4665

The €12k is 12% of the balance at the start of year 1.

But it's 20% of the balance in year 10.

Brendan
Click to expand...
Brendan,

My understanding of the settlement is that AIB will reduce a persons loan by 12% at the date of exiting the fixed rate and repaying the overcharged interest on that amount. In effect a person is taking out a loan 12% less than they had at the date the fixed rate ended. If a person takes out a loan of 50% of planned then they will be charged interest of 50% of planned. The same is true if one takes our a loan of 1% of planned or 88% of planned. The interest charged will reduce proportionally.

I am not near a computer but if you run your model with an $88,000 starting principal versus a $100,000 starting principal in your first model above then the cumulative interest charged to year 10 will be 88% of your first model.

You mention above that it is a 20% balance of year 10 but we are not starting in year 10. The second part of my earlier post where I set out the reduction in monthly repayment takes account of the proportionate amount of the loan reduction and how it impacts on the monthly loan repayment amount from now, (yr 10), on. It is true the reduction of 12% of the say 2010 balance will be a greater percentage of the current balance hence the reduction in the loan repayment going forward will be greater than 12%. That is separate to the interest charged from year 1 to year 10.

I'm sorry but not very good as linking replies but you also stated that the 12% would work in all cases except in cases that ending dates were extended etc. I don't agree. It will work in those cases too. The way to think about it is if I took out a loan smaller that a previous loan then interest charged will reduce in proportion.

I think you also mentioned about the effect of a lump sum payment during the term. One could argue that the lump sum payment should proportionally have repaid the portion of the loan that was subsequently reduced by 12%. I'm sure this is the way the bank would argue. However if the bank gave a top up during the term then they would offer a counter argument that the interest should not reduce by 12% overall. I think what should happen in this case is that one should adjust the interest the 12% is calculated on by a factor of the top up or bullet payment versus the loan balance at that time.

I apologise if above is not very clear.
 
Trackscandal said:
I am not near a computer but if you run your model with an $88,000 starting principal versus a $100,000 starting principal in your first model above then the cumulative interest charged to year 10 will be 88% of your first model.
Click to expand...
Hi,

No, Brendan is correct here.

In your example above, you need to use 88k balance, but making repayments as if on 100k balance. If not, in effect you're reducing the impact of the 12k adjustment in the opening balance. On a normal mortgage the balance reduces, and thus the interest charged reduces (if interest rate is constant). To work out the interest due on the 12k, the 12k needs to remain constant.

The only scenario your logic works is on an interest only mortgage.
 
Hi Scandal

Think of it like this.

Let's say that there were 13 years left when the fixed rate ended and that was ten years ago.
The balance then was €100k
The balance at the start of this year was €12k

Under the Ombudsman's ruling, the borrower is entitled to the full interest on the €12k

Under your system, they get only 12% of the interest paid.

Brendan
 
If you want to calculate the amount of redress. Think of it as a savings account. Unless you owe less than the 12% on your mortgage now. Use a compound interest calculator.... Start with the 12% and calculate for each interest rate and period since you rolled off fixed in 2009 or 2010
 
Brendan Burgess said:
Hi Scandal

Think of it like this.

Let's say that there were 13 years left when the fixed rate ended and that was ten years ago.
The balance then was €100k
The balance at the start of this year was €12k

Under the Ombudsman's ruling, the borrower is entitled to the full interest on the €12k

Under your system, they get only 12% of the interest paid.

Brendan
Click to expand...
Brendan,

AIB's statements reads as follows:

We are currently reviewing each account individually and calculating the balance adjustment and interest payment required in each case. This relates to reducing a mortgage account balance by 12% from the date the fixed rate period in question ended, refunding by cheque interest charged on that 12% capital amount during the intervening period and adjusting the repayments going forward given the capital reduction. Where accounts are closed the adjustment will be made by a cheque payment.

I actually received the excel files they utilised to calculate 3 previous refunds on other tracker redress accounts. They calculated the refund, (jnterest and capital), by running two models 1) How it actually happened - your $100,000 mortgage utilising actual repayments and 2) A proforma model on how it should have happened i.e. the $88,000 model I mentioned utilising expected payments. They then compared the differences in interest charged and repayments made. If they the use the same model now then the interest refund will equate to the difference in interest charged under the $100k and €88k which equates to 12% of the interest charged under the $100k model. One should remember that monthy repayments and interest charged will both reduce by 12% when comparing the two models. Basically the cumulative cost will reduce by 12% when both models are compared, same as the cost per €1,000 figure they often quote.

The remaining saving in interest associated with the $12k reduction in capital will be received over the remaining, (from now forward), life of the loan as part of the reduced repayments. Again the payment going forward can be calculated as follows:

A persons can calculate what their monthly repayment will reduce to by using the following formula where:

A - Loan Balance at time of fixed rate exit
B - Today's Loan Balance
C - Current Loan Repayment

New Loan Repayment = C x (B - 12%A) ÷ B

They compensated people for the over payment of capital in the $100k scenario by providing an amount for the Time Value of Money, (TVM). I agree with RedOinion in that the correct way of doing the calculation should have been to use the actual repayments made i.e. use the repayments in the $100k example, as these were the actual payments made and utilise the reduced Tracker interest rate. This would result in a lower TVM payment but a higher reduction in the loan balance. I'm not sure if they will compensate for the TVM now - I haven't seen it mentioned as part of the Ombudsman ruling. The TVM does not adequately compensate for the overpayment of capital because a higher rate of interest was charged in the pro forma model, i.e. $88k than was used to compensate for TVM. I have a complaint in with the ombudsman on this point. I mentioned this in another Thread.


I hope this helps and at least I think I'm correct but have been wrong before!
 
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This is completely wrong, and will mislead people who don't understand interest calculations.
 
Jb1234 said:
If you want to calculate the amount of redress. Think of it as a savings account. Unless you owe less than the 12% on your mortgage now. Use a compound interest calculator.... Start with the 12% and calculate for each interest rate and period since you rolled off fixed in 2009 or 2010
Click to expand...
Hi jb1234,

I'm not sure this is correct because AIB will assume the capital amount you gain interest on in year 5 say will not be the full $12k as they will assume part of the capuital will have been repaid. The interest is calculated on a reduced capital amount each year in line with the amortisation rate of the loan.
 
I doubt you are intending to mislead, but that's what you are doing.

Take a really simple example of 100k annuity at 3% over 20 years, and we're now 10 years into it.

The interest charged would be 23,986

12% of that is only 2,878

However, 3% interest charged on a 12,000 balance over 10 years is 4,192

That's the refund due to the customer.
 
Brendan Burgess said:
I was thinking of that since, but it's not correct.

Take a mortgage of €100k at the start with 20 years to go.

View attachment 4665

The €12k is 12% of the balance at the start of year 1.

But it's 20% of the balance in year 10.

Brendan
Click to expand...
Brendan,

I'm not sure you can use €12,000 @ 3% compound = €4,126.997 as the €12k will reduce from year to year as the loan is repaid.
Brendan if you wish I can show you the AIB models off line and talk you through what I mean. It is difficult to explain these things by writing posts.
 
RedOnion said:
I doubt you are intending to mislead, but that's what you are doing.

Take a really simple example of 100k annuity at 3% over 20 years, and we're now 10 years into it.

The interest charged would be 23,986

12% of that is only 2,878

However, 3% interest charged on a 12,000 balance over 10 years is 4,192

That's the refund due to the customer.
Click to expand...
Hi RedOinion,

I understand your point but I disagree on one issue. It is not an annunity and cannot be caculated by compounding €12k year on year at 3%. Under a mortgage the €12k will be reduced each year so the interest will be caculated on a reduced capital amount each year. I think that is the difference.
 
Hi Track

Sorry, you are wrong on this one. And if you have an AIB model which shows it that way, it's wrong too.

AIB is deemed to have overcharged you €12,000 10 years ago.

They must refund you that with interest.

Let's say, for example, that you had paid off the mortgage in full 9 years ago.

AIB would still have to pay you interest for the full 10 years.

So your argument that you made monthly capital repayments on the €12,000 is not relevant.

Brendan
 
You seem to be confusing this specific AIB redress with a normal redress where the customer is being restored to a tracker rate without a capital reduction.

Any existing AIB model you have does not deal with this treatment.
 
Brendan Burgess said:
Hi Track

Sorry, you are wrong on this one. And if you have an AIB model which shows it that way, it's wrong too.

AIB is deemed to have overcharged you €12,000 10 years ago.

They must refund you that with interest.

Let's say, for example, that you had paid off the mortgage in full 9 years ago.

AIB would still have to pay you interest for the full 10 years.

So your argument that you made monthly capital repayments on the €12,000 is not relevant.

Brendan
Click to expand...
Hi Brendan,

The models I have relate to my mortgages. I've been redressed on 3 accounts already. I am also in this new grouping for a fourth account. I understand you say AIB will refund a person the $12k compounded. If that transpires then great.

However if you read AIB's statement it states: It will reduce the mortgage by 12% and will then "refunding by cheque interest charged on that 12% capital amount during the intervening period".

We are currently reviewing each account individually and calculating the balance adjustment and interest payment required in each case. This relates to reducing a mortgage account balance by 12% from the date the fixed rate period in question ended, refunding by cheque interest charged on that 12% capital amount during the intervening period and adjusting the repayments going forward given the capital reduction. Where accounts are closed the adjustment will be made by a cheque payment.

To me this reads AIB will use the same model. If they do then my quick method of calculation will work. If not then the compound method you suggest will be the answer. Will AIB choose the cheaper option?
 
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RedOnion said:
Exactly.

So the AIB statement says exactly what Brendan and I have been saying. Thanks for clarifying.
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Hi RedOinion,

I agree it could be interpreted either way.

But also consider AIB statement says "reducing a mortgage account balance by 12% from the date the fixed rate period in question ended," and then calculating the interest charged on the 12% capital amount in the intervening period. This is in my view where AIB are leaving it open to how they calculate it. It's like they are suggesting they will refund interest charged on a $12k mortgage, (using examples previously set out), in the intervening period.

I'm only trying to debate this issue. I still feel AIB may use the model I'm suggesting as it is cheaper for them. So don't feel I'm trying to say I'm endorsing your position.

As I stated hopefully AIB will use the compounding method Brendan and you suggest as the refunds will be greater. Let's wait and see.
 
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