Implications of PTSB limiting the 10% credit to 50% of the mortgage

[Brendan Burgess]

I was wondering why PTSB limited the amount repayable under the 10% credit scheme to 50% of the mortgage. But at the time, I hadn’t realised that you had to retain the same monthly repayment. The scheme does not allow you to reduce the montly payment and pay the mortgage off over the original term.

Taking the two together means that by paying some money up front, you are also accelerating the repayment of capital on the balance quite significantly. I am trying to get my head around this.

Take a case of a €100,000 mortgage at 2.5% with 10 years left to go. The capital repayments are:

Year|1|2|3|4|5|6|7|8|9|10
Capital repayment|8,900|9,100|9,370|9,607|9,850|10,100|10,400|10,600|10,900|11,100

Now, if you pay 50% of the loan immediately, the capital repayments are:

Year|1|2|3|4
Capital Repayment|12,000|12,300|12,600|12,900

A 10% credit on the full repayment of a short loan is great value. But it’s not as good value if you can only repay 50% of it, and have to speed up the repayment of the balance.

 

[DerKaiser]

This is a drawback, I personally would prefer the option to reduce payments and maintain the term as this would provide extra flexibility (you could always bump them up to shorten the remaining term at your discretion afterwards).

€100k at 2.5% for 10 years would require level monthly repayments amounting to about €11.3k p.a.

If you paid €45,450 to knock €50k off the capital immediately, your monthly payments would remain untouched and the mortgage would be paid down in about 57 months (half payment in the final month).

So you are putting away €45,450 now to gain back your current monthly repayment level from month 57 onwards. This is a return of about 3.7% APR.

 

[snowdrop]

FYI, PTSB have verbally agreed to allow me to maintain term and pay off the smaller monthly payment relevant to the reduced capital balance.

Waiting to get this in writing.

Have posted thread on this subject with more detail looking for advice too