AIB mortgage interest charged quarterly?

I have a mortgage through AIB Finance and Leasing and I notice that the Interest is charged quarterly rather than monthly. My repayments go out on a monthly basis but the Mortgage Interest is charged quarterly.

Is this normal? Am I gaining (presume not!) or losing by this arrangement?

Re: Interest Charged Quarterly

I have a mortgage with AIB and my statement shows interest is charged/debited every quarter.

I called AIB about this a month ago and was told that "interest accrues daily and charged quarterly".

I also asked do I get the full benefit of my monthly mortgage payment? Answer: Yes. Not losing out.

Do other institutions charge interest daily?

Re: Interest Charged Quarterly

Yes - many institutions charge interest daily and some monthly. I'm not sure if anybody still does it annually. INBS did on some or all mortgages up to recently but I'm not sure what the story is now. Kelmar - you should query how interest is being charged on your account just in case. Do this in writing to make it official. If you are being charged interest quarterly then you are losing out.

Kelmar,

Just called AIB, all mortgages and current accounts are charged quarterly.

That is very surprising to me. I thought that most or all of the banks charged mortgage interest daily with some of the current or former mutuals charging it less frequently. I am very surprised to hear that AIB are ostensibly charging mortgage interest quarterly. Are you sure that this does not apply to AIB Finance and Leasing specifically?

I also asked do I get the full benefit of my monthly mortgage payment? Answer: Yes. Not losing out.

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If they are charging interest quarterly and you are making repayments monthly then you are losing out as far as I can see. Monthly capital repayments will only be deducted from the outstanding balance each quarter and in the meantime interest on the full amount is accruing. You may as well be making three times your monthly repayment each quarter if this is the case.

Maybe somebody in the business could clarify?

Just had a look again at my mortgage statements.

While interest is charged every quarter, the mortgage balance is reduced every month by the full mortgage payment - interest and principal.

Applies to all AIB loans - not just AIB Finance & Leasing. Their only exception is interest-only mortgages.

techman said:

While interest is charged every quarter, the mortgage balance is reduced every month by the full mortgage payment - interest and principal.

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This still does not make sense to me. If interest is calculated every quarter then this will inflate the effective rate (CAR) charged and consequently the cost of the loan compared to what it would be if interest was charged monthly or daily. For example when EBS moved from annual to monthly calculation of interest a few years back it knocked c. 0.4% off the effective CAR charged. I would get confirmation in writing of what approach AIB take to mortgage repayments and interest calculation just to be sure. These may already be outlined in the terms and conditions of the loan.

There might be some confusion between calculating interest daily and charging quarterly. I'll do my best to explain.........

I'm assuming that Day 1 of Month 1 is the first day of the quarter....


Month 1 Balance 1,000 (interested calculated at relevant rate of interest by number of days at this balance, but not charged to the account)

Month 2 Say repayment of 100 - balance now 900 - interest now calculated on this balance by the relevant number of days)

Month 3 Another repayment of 100 - balance now 800 - interest now calculated on this balance by the relevent number of days - then at the end of the quarter - all interest calcualated(accrued) is charged to the account and the process goes again. Repayments are calculated to cater for this accrual and charging process. On say a standard variable rate, APR will normally be slightly higher than the actual quoted rate, due to this compounding of interest on an ongoing basis. Hope I've helped rather than confused..............

Thank you Guys, it is exactly what I was curious about.

I'd like to add, that it in spite it seems to looks a bit unfair, the final result(total interest charges per annum) is below the Apr you agreed witha bank?

Anyway it applies to me, where I summed all 4 charges and divided that total to the opening balance for that year.

Also, you notice that the charges for the first quarter of the year are the lowest, because, as I believe, February has only 28/9 days? The charges for the 2nd qrt are much higher, which totally puzzled myself.

See last post here for example of how AIB mortgages work.