#### Brendan Burgess

##### Founder

- Messages
- 38,131

Update 3rd January 2018. Different banks have different approaches. This is how ptsb does it.

This has come up a few times, and it's hard for people to understand the process. If they don't understand the process, it's difficult for them to be confident that the lender is doing it right.

John took out a €100k mortgage over 30 years, 6 years ago at 1% tracker.

But the bank charged him 4.5% in error.

He repaid €506 a month

The balance today is €89,138

The bank applies the 1% rate to the mortgage.

The repayments are historical, so they remain the same.

If they had charged 1%, and John had paid €506 a month, the balance today would be €69,000.

So the overcharge is €20,000 ( €89,000 - €69,000)

Option 1 Send John a cheque for €20,000

This is very easy to understand. He was overcharged and now he has got a refund of €20,000. His mortgage balance is still €89,000

Option 2 Simply adjust the balance to €69,000 . This is also very easy to understand.

However, both of these solutions are not quite right.

Had John been charged 1%, his repayments would have been €321 and the balance today would be €82,234

So he has paid €506 a month instead of €321 or €185 extra per month.

So John has overpaid by €13,000 ( 72 months @€185) and this is the amount of the cheque which he should receive.

1)Correcting the interest rate to 1% brings the balance down to €69,000

2) Refunding you the overpayment of €13,000 brings the balance back up to €82,000 which is where it would have been.

This has come up a few times, and it's hard for people to understand the process. If they don't understand the process, it's difficult for them to be confident that the lender is doing it right.

**Scenario**John took out a €100k mortgage over 30 years, 6 years ago at 1% tracker.

But the bank charged him 4.5% in error.

He repaid €506 a month

The balance today is €89,138

**Step 1 – calculate the***overcharge*The bank applies the 1% rate to the mortgage.

The repayments are historical, so they remain the same.

If they had charged 1%, and John had paid €506 a month, the balance today would be €69,000.

So the overcharge is €20,000 ( €89,000 - €69,000)

Option 1 Send John a cheque for €20,000

This is very easy to understand. He was overcharged and now he has got a refund of €20,000. His mortgage balance is still €89,000

Option 2 Simply adjust the balance to €69,000 . This is also very easy to understand.

However, both of these solutions are not quite right.

Had John been charged 1%, his repayments would have been €321 and the balance today would be €82,234

So he has paid €506 a month instead of €321 or €185 extra per month.

So John has overpaid by €13,000 ( 72 months @€185) and this is the amount of the cheque which he should receive.

**Summary**1)Correcting the interest rate to 1% brings the balance down to €69,000

2) Refunding you the overpayment of €13,000 brings the balance back up to €82,000 which is where it would have been.

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