FAQ Calculating the refund when a tracker is restored

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.

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.

Calculating the interest overcharged

See attached file for roughly estimating the overcharge

This is the most important part of the correction exercise.

The lenders input the correct interest rate into their system and that calculates what the balance should be today given the repayments actually made.

You will not have the facility to calculate this exactly, but you should be able to an approximation.

You check each year on its own.

1) Check that they have used the correct interest rates - this is the most likely source of further error.
2) Work out the average interest rate for the year e.g. 2% for 6 months followed by 4% for 6 months, is an average of 3% for the year.
3) Work out the average balance for the year. If the opening balance is €100,000 and the closing balance is €90,000, the average balance is €95,000
4) The interest charged should have been €95,000 @3% or €2,850
5) Compare this with the actual interest debited on the statement.

You can do it more precisely by multiplying the average balance in the first 6 months by 2% and then the average balance in the next 6 months by 4%.

Brendan

Say that a borrower is charged 3% a year, instead of 1% a year for five years.

Their account would be as follows:



Total interest charged: €13,584.62 (Roughly 3% year for five years)

Had they been charged the correct rate of 1%, their account would have been:



Total interest which should have been charged: €4,435.53*




Now the borrower owes €76,841.86 which he would now owe had he been charged the correct level of interest and has cash of €5,682.18


*The interest which should have been charged is slightly different from this figure because of the overpayments, but the above explains the principle.

Actually my Ulster overcharged me and refunded me 5 figures, off the mortgage/loan and I never fully understood how they calculated it. So this might be a very helpful exercise, (mine is more complicated as the interest rate was variable every two weeks). I had the choice of taking the money or it being offset against the mortgage.

In the example above, wouldn't we need an amortization table for the mortgage at 1% and at 4.5% to figure out the difference. Because from your examples it's imposible to figure out how you got there. The problem being that each month the capital is reducing and therefore the amount of interest is less each month.

Also there is a loss of deposit interest on the money that was used to pay the mortgage instead of contributing to one's savings.

But I think the customer should be offered the better outcome, as it is after all the banks fault. So he would be better off as though he had made overpayments on his mortgage bringing it down to 69K rather than 82K. In addition, a customer has the option to overpay, so we should take the view he would have overpaid.

Is there a formula for your calculations or an excel table?

Hi Bronte

In the above example, I used fairly simple figures to illustrate the principles involved. I assumed an interest rate of 4.5% throughout the period. Of course, interest rates changed.

The calculations are complex. I did not show these calculations in the example, as they would have made the first post unreadable.

The bit which people need to get their head around is that two separate calculations need to be done

1) Calculate the interest overcharged
2) Calculate the overpayment made.

Unfortunately, these are not the same figure, because of the way mortgages are amortized.

If the interest overcharge is correctly fixed, the rest is less important.

Another point that is probably applicable to many is that the TRS you would have received during this time would need to be recalculated and taken into account in the calculations?

So for example if I say that for one month on SVR, the total interest due might have been €1000 - I would been charged €800 and received €200 in TRS. For that same month if I had had a tracker, the total interest due might of only been €400 - I would have been charged €320 and would have received TRS of €80.

So when I am calculating the interest overcharged for that month, it would be €480 (800-320) and revenue would be due back €120 (200-80) - is that correct?

Excellent point kaza.

If you overpaid interest, it would have been reduced by the TRS.

So ptsb will have to recalculate the TRS.

Brendan

Just wondering has anyone got a simple excel sheet formula that we could estimate our refunds. The above seen to go slightly over my head!!! I tried a simple "what I would pay against what I did pay" calculation but found it hard to find the exact PTSB rates and tracker rates per month from 2008z

Hi Kiffa

I have done a rough and ready calculator on the attached. I have not tested it against actual figures, so please don't rely on it.

If someone wants to send me your statements by email to brendan at this website, I will input them and then check them against your letter when you get it.

I am not an Excel wizard, so if someone who is wants to improve the spreadsheet, I would be delighted.

Brendan

Brendan Burgess said:

I am not an Excel wizard, so if someone who is wants to improve the spreadsheet, I would be delighted.

Brendan

Click to expand...

One would imagine that the PRTB has a better system than yours. Perhaps they might share it with you in the interests of being consumer friendly that the banks are always telling us about in their ads. After all this website gets a lot of traffic on this issue. Alternatively they might put their calculation system on their website like they do for mortgage calculations.

Hi Bronte

They would use their normal mortgage admin system for doing these calculations, so it's not they type of thing which they could lend out.

However, you raise a good point, and borrowers should insist on getting a print out to show how the calculation was done.

In this case, Ulster bank has refused to show how the refund was calculated.
Ulster restored my tracker, gave me a refund, but say I am in arrears!

On reading that, I see that Joe 90 has a spreadsheet.

Brendan

Brendan Burgess said:

However, you raise a good point, and borrowers should insist on getting a print out to show how the calculation was done.

In this case, Ulster bank has refused to show how the refund was calculated.
Ulster restored my tracker, gave me a refund, but say I am in arrears!

Click to expand...

That's crazy that Ulster won't show how the refund was calculated. How riduculous is that. How on earth are people going to be able to check the figures. I would actually have thought it was standard they would be given the calculations. It's also odd to me that in all my years banking in Ireland I was never given an amortisation table which is standard here, but I notice a few posters do seem to have one from the PRTB. The only time I remember one in Ireland is from the Life insurance as it was a reducing term one.

Hi Brendan

Used yours and it actually came in close to my manually one so happy enough. Wouldn't it be nice if we didn't have to give back the trs too than we would be sitting pretty!!!

Thanks again

Bronte said:

One would imagine that the PRTB has a better system than yours. Perhaps they might share it with you in the interests of being consumer friendly that the banks are always telling us about in their ads. After all this website gets a lot of traffic on this issue. Alternatively they might put their calculation system on their website like they do for mortgage calculations.

Click to expand...

They would use excel spreadsheets, manually inputted by workers to calculate overpaid interest and capital.
I would not think they have a better system than that, but I would believe that the spreadsheet is more detailed and would be down to daily calculations and not yearly.

If somebody has overclaimed TRS, unless the bank has agreed to cover the cost of the money due to the revenue, the customer will have to pay the revenue back, this may be done before any refund is passed to the customer.

rameire said:

If somebody has overclaimed TRS,

Click to expand...

TRS and CGT on the refund?

rameire said:

They would use excel spreadsheets, manually inputted by workers to calculate overpaid interest and capital.

Click to expand...

Hi rameire

I don't think that they do use Excel.

They have a mortgage administration system.

They input the correct rates into this and this would show a new balance. The difference between the old balance and the new balance is the overcharge.

they must have put some money into the system to work well, elsewhere excel is used.

I have put together a Excel that everyone can use to calculate the over-charging and the 12% compensation, by simply entering their mortgage amount.
As a rough guide, assuming ten years of over-charging, the outcome will be about 25K for each 100K borrowed.

I also include below some Usury legislation that would be great if we could get it into Irelands books.

In some American jurisdictions, the lender on a usurious loan is subject to the following civil penalties: (1) forfeiture to the borrower of all interest on the loan, e.g. (EUR20K*10years=EUR200K), not just the usurious part; and (2) payment to the borrower of triple the amount of interest collected before the mortgagers bring suit. (EUR200K*3=EUR600K)

Click to expand...

Gimme a shout if you can upload the file for me, because I don't have the permissions.

I am not skilled enough in these matters to use the spreadsheet to calculate what I might be owed.

In order to get a rough estimate, I am approaching it like this:

Mortgage was returned to tracker in January 2017 and my monthly DD was reduced by x euros.

Therefore I am owed x * 12 months + 12% compensation for 2016.

My case goes back to around 2008.

In general, should I be calculating a higher interest rate during the years 2008 - 2015, than in 2016 (i.e. is the 2016 calculation indicative of the preceding years, or higher/ lower)?

Hope I'm making sense.