AIB overpayment reduce repayment amount

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Newtotheworld

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Hi i make regular overpayments to my AIB mortgage account.
The term stays the same and the monthly repayment amount reduces.
if i keep plugging away a this the monthly amount will keep going down
Do i have to put my original monthly amount put back every time i over pay to get the benefit of overpaying.
 
ClubMan said:
This doesn't really make sense.
Please clarify what you mean here.
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if i overpay and the amount i pay back each month is reduced rather than the term.
Example
current payment 1050
For arguments sake I overpay by 5000
new payment 1040
If i overpay 100 euro monthly going forward should I be paying the difference between 1050-1040 =10euro plus my overpayment to get the benefit of overpaying.
 
Newtotheworld said:
if i overpay and the amount i pay back each month is reduced rather than the term.
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The effective term is also reducing.
Newtotheworld said:
Example
current payment 1050
For arguments sake I overpay by 5000
new payment 1040
If i overpay 100 euro monthly going forward should I be paying the difference between 1050-1040 =10euro plus my overpayment to get the benefit of overpaying.
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I still don't really understand what you are trying to do.
If you are paying over the expected repayment (possibly adjusted for previous accelerated repayments) then you're continuing to accelerate the loan clearance and effective term.
 
ClubMan said:
The effective term is also reducing.

I still don't really understand what you are trying to do.
If you are paying over the expected repayment (possibly adjusted for previous accelerated repayments) then you're continuing to accelerate the loan clearance and effective term.
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Hypothetical Current payment 1050.
overpay 5000 euro today then all payments going forwards are 1040 given same rate.
next time i overpay do i overpay plus the difference between 1050 and 1040
 
Hi NewToTheWorld.
It looks like your mortgage payment is by direct debit.
The bank's system calculates the repayments based on your balance at that time so as to give you level repayments from then until the end of your mortgage.
You could still make regular overpayments, just factor in the next payment automatically reducing.
 
It's up to you really. Using your example, if your repayment reduces to 1040 a month you can choose to base your overpayment on this amount or 1050. There won't be a huge difference but if you keep overpaying and base your repayments on the original amount then it will accelerate.

But you can also just pay the requested amount if there is a surprise hit some months. That's what I do.
 
The Oggster said:
It's up to you really. Using your example, if your repayment reduces to 1040 a month you can choose to base your overpayment on this amount or 1050. There won't be a huge difference but if you keep overpaying and base your repayments on the original amount then it will accelerate.

But you can also just pay the requested amount if there is a surprise hit some months. That's what I do.
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Thanks. my understanding was, take long term and overpay if when you can. but when they reduce the monthly amount you are also reducing the amount that goes off your principle on the next payments.
 
Newtotheworld said:
Thanks. my understanding was, take long term and overpay if when you can. but when they reduce the monthly amount you are also reducing the amount that goes off your principle on the next payments.
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Yes, they recalculate the repayment based on the new capital over the original remaining term. It will reduce the amount of capital and interest you're paying. But as long as there is no break fee due, you can pay whatever amount you like.

I have a spreadsheet somewhere, where instead of the payment being recalculated, the repayment remains static. As you say this accelerates the repayments as more and more goes off the capital each month.
 
The Oggster said:
Yes, they recalculate the repayment based on the new capital over the original remaining term. It will reduce the amount of capital and interest you're paying. But as long as there is no break fee due, you can pay whatever amount you like.

I have a spreadsheet somewhere, where instead of the payment being recalculated, the repayment remains static. As you say this accelerates the repayments as more and more goes off the capital each month.
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Thanks id appreciate that
 
I think I understand what you ask. You just need to account for the difference but it is a moving target each month (assuming you plan on overpaying each month).

Below example is just for simple illustration (figure does not reflect reality, just nice round figure for ease of understanding)

Example:
- Current payment is 1,000, lets say you overpay by 500 (and you plan to keep overpay the same amount) and new payment is 990.
- For next payment, the bank will take 990 so you need to make overpayment by 510 and your new payment is 980.
- For next payment, the bank will take 980 so you need to make overpayment by 520 and your new payment is 970.
- The cycle repeats....

The easiest way is if you know the specific total payment you will consistently want to make, as long as your payment add up to that amount, that's really all that matters. You can work it out because every time you overpay, the bank will send you a letter telling you what the new figure is that they will take next month.


Newtotheworld said:
Do i have to put my original monthly amount put back every time i over pay to get the benefit of overpaying
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Yes and no. It depends on what you are trying to achieve here.

Yes: If you overpay once and leave the bank to take the new repayment value, you will save on interest of the overpayment amount you made over the remaining lifetime of the mortgage.

No: To take the full benefit, you should at least try to keep the monthly repayment total (i.e. new repayment figure + overpay to get back to the original figure) the same as it was before, in my example above, that would be 1,000 (This would be near equivalent to reducing the "term" at the end of the mortgage. While the process is a little bit of manual work to keep an eye on the total amount each month but you get the benefit of reducing the "term" but maintaining the flexibility of stopping the overpay portion should you get into any financial difficulty). This is why it is generally recommended to not reduce the term with the bank but rather overpay because the bank will not extend the term when you need it later on.
 
ClubMan said:
The effective term is also reducing.
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What do you mean by effective term? If there's 30 years remaining and the overpayments only reduce the monthly repayment and not the term, there's still 30 years remaining.

What is the difference between term and effective term?
 
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Corola said:
What do you mean by effective term? If there's 30 years remaining and the overpayments only reduce the monthly repayment and not the term, there's still 30 years remaining.

What is the difference between term and effective term?
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Sorry, my mistake.
If overpayments are used to reduce the ongoing repayments then the term does remain fixed.
 
I think I understand you. I was overpaying also and used periodically also pay off a lump sum. Whenever I paid lump sum I would get a statement recalculating my reduced monthly payment so I'd have to send them a letter to revise it upwards to my previous monthly amount
 
I am on AIB Green rate 2.15% and looking to overpay a lumpsum.
Any idea if there will be a break fee?
Thanks
 
masterboy123 said:
I am on AIB Green rate 2.15% and looking to overpay a lumpsum.
Any idea if there will be a break fee?
Thanks
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Before you do this you might want to consider the merits of saving rather than overpaying.

With rising deposit interest rates is it time to stop overpaying low interest mortgages?

I currently have a mortgage of €248000 at 2.2% fixed until 2027 with PTSB (originally Ulster Bank). I have a public sector pension. We currently overpay the mortgage by €1000 per month. This is not our forever home and will likely trade up in 4-5 years or so. I liked the idea of overpaying my...
www.askaboutmoney.com
 
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