Interest rate gone down repayment gone up??

Discussion in 'Mortgages and buying and selling homes' started by blueyes, Dec 2, 2008.

  1. blueyes

    blueyes Guest

    This may have been asked and answered before, but for the second month my mortgage interest rate has gone down but my repayment has gone up. The letter I received says my repayment is now €872.84 per month up from approx €857. The new rate is 4.88%.

    I'm with the EBS, I have a 30 year mortgage with about 95k remaining. I have been overpaying to try to clear it and I've about 16 years remaining at the current repayments, which I fixed at €900 per month inclusive of house insurance and life assurance - I have the mortgage since September 2002 and am a first time buyer.

    I rang the EBS last month and was told that since the interest rates had gone down so would the trs, but I'm now back at a rate I was paying earlier this year (on a two year fixed) and I'm paying more. Surely if this is the reason everyone else in the country is seeing an increase in their repayments. I realise it has only gone up by approx. €7.50 each time, but I feel something is not quite right.

    Can anyone explain this to me to arm me a little before I ring the bank? I usually have no difficulty working out my tax and the like but this has me a bit stumped!!
  2. Dreamerb

    Dreamerb Frequent Poster

    I *think* I see what's going on here.

    You say you've fixed your payment at €900: that means €900 goes out no matter what happens to the rate? And then you get your mortgage interest relief back?

    But the rate's gone down by 1% - so 1% of your current mortgage balance per annum is around €950 (a bit less, since it's amortised, but close enough for estimation purposes), or about €79 per month.

    So, €79 per month more of your €900 payment is paying off the principal, but you're further below the mortgage interest relief cap. And €79 * 20% is €15.83 - so that's €15.83 less mortgage interest relief you're getting.
  3. blueyes

    blueyes Guest

    Thanks Dreamerb,
    I think that is probably what is happening. The repayment is fixed and the trs is deducted at source so I'm not actually getting anything back. The sum you've suggested €15.83 is about the extra I'm paying over the past two months, I'm still overpaying at the same amount though, which is what I want to do. I'm now wondering if there's another half % cut this month is it going to go up another 7.50 or so?
    A colleague here is on the same rate with EBS and hasn't been affected like this either.
  4. Dreamerb

    Dreamerb Frequent Poster

    Maybe your colleague's principal is higher, so the TRS isn't affected. Or perhaps they've given an instruction for the total net payment to stay constant (though I suspect that would be awkward for EBS to keep recalculating so more likely the former). But what's really happening is that your interest has reduced substantially, so although your payment is constant the overpayment has actually increased and your projected term has probably also decreased a good deal. Without knowing how much the life assurance and home insurance are, it's not possible to say exactly how much, but I'd estimate that'll take two years or so off the term.
  5. blueyes

    blueyes Guest

    Well that's the plan...thanks for the help Dreamerb!
  6. huskerdu

    huskerdu Frequent Poster

    Hi blueeyes,

    This happened us close to the end of our mortgage a number of years ago. You have the choice of reducing your payments, or knowing that your mortgage will be paid off even sooner than you think.
  7. mcaul

    mcaul Frequent Poster

    I'd guess it will, and it may be more than .5% too!:) Some parts of the market are now sying it could be 1% tomorrow.

    Looks like you'll be mortgage free a couple of years before you had palnned.
  8. blueyes

    blueyes Guest

    Thanks everyone for all your replies...

  9. Jane1

    Jane1 Frequent Poster

    Hi Blueyes,
    I'm with EBS as well and paying extra each month on PPR. Same happened to me, interest rates went down repayment went up. Phoned EBS they explained my annual interest on the loan decreases with a drop in interest rates and so less TRS.
  10. twofor1

    twofor1 Frequent Poster

    Even as a single first time buyer with a mortgage of €95K you would be well below your relevant threshold and any interest you would pay would be allowable for TRS.

    A .5% reduction in the interest rate on your mortgage should reduce your monthly interest payment by roughly €39.58 and your TRS will reduce by €7.92, but your repayment should be €31.66 lower than your previous month’s repayment because what you are saving in interest is far greater than what you are loosing in TRS. Only a percentage of interest paid can be claimed in TRS.

    The explanation from EBS for the two consecutive €7.50 increases in your repayments after two consecutive .5% interest rate reductions, are as a result of reduced TRS does not make sense. If the interest rate applied to your mortgage goes down and the term remains the same, your repayment should go down not up, even with reduced TRS. The fact that you have made overpayments since the last rate change should further reduce your new repayment.

    To get a higher repayment after a reduction in the rate applied, they must be recalculating over a shorter term. Could this be the case?

  11. Dreamerb

    Dreamerb Frequent Poster

    @ twofor1: The fixed element is the gross repayment, at €900 per month. It's the net payment that has changed, since a smaller proportion of the gross payment is interest, and therefore the amount of mortgage interest relief has reduced. This obviously will reduce the term (if not formally, then de facto).
  12. Redstarlet

    Redstarlet Registered User

    I am a very similar problem. Just come off a 2 yr fixed rate of 4.54% and our monthly mortgage repayments were E1,350 [after TRS]. I have received a notification from First Active that my new rate is now 4.40% but my new payment is 1,377.84!. I rang them yesterday to ask them to explain why our payments have increased by nearly €28.00 p.m. The girl on the phone did not know & said to contact the revenue about my TRS - but there is no change in our status and we are entereing year 3 of our mortgage so the full rate TRS is still applicable....could any-one suggest why my payments have gone up. And this rate does not address the most recent rate reduction of .75% so are my payments going to increase even more?? [On tracker plus 1.15]
    I dont know what questions I need to ask to find the answer so if anyone could give me pointers I would really appreciate it.
  13. twofor1

    twofor1 Frequent Poster

    I understand the o/p has chosen to pay €900 monthly.

    The required repayment has increased from €857 to €872 as a result of two interest rate reductions applied to the mortgage.

    The question from the o/p was why has the repayment gone up when the interest rate applied to the mortgage has gone down?

    The answer from the EBS was interest rates have gone down, so has your TRS. I can’t see how this can be correct, as I’ve pointed out, only a percentage of interest paid can be claimed in TRS, the interest saved is far greater than the lost TRS, so the repayment should go down. Had they answered the repayments have gone up as they have reduced the term of your mortgage, I could understand that.

    I have been overpaying my mortgage for years and qualify for TRS on all interest paid, my repayments have never gone up as a result of interest rate reductions, they have always come down. When they come down I increase the amount I over pay.
  14. Dreamerb

    Dreamerb Frequent Poster

    You're still missing the fundamental point that the gross repayment is set at a fixed sum of €900. This means that the OP has set an override on the account so that no matter what happens the gross payment stays at that level and the overpayment increases by default if the interest rate drops - it doesn't have to be re-established or readjusted as you do.

    Effectively what's happened here is not that there has been any change to the OP's payment, merely a reduction in the credit back to the account as a result of mortgage interest relief. This is much easier to see when the transaction is shown as two separate items e.g.
    payment -€900
    tax relief +€XX

    The variable here is the XX since the interest element of the OP's payment has reduced further so the relief available is smaller.
  15. twofor1

    twofor1 Frequent Poster

    I think we will just have to differ on this one.
  16. Dreamerb

    Dreamerb Frequent Poster

    Differ? On what, exactly?

    It's really very simple: the OP has said "No matter what happens to the rates, take €900 from my account and apply any overpayment to the capital balance". Rates have gone down, OP is still paying €900 and therefore will pay the mortgage off earlier. The interest savings are somewhere in the region of €80 a month - but the OP is still paying €900 a month, so that extra €80 a month is reducing the capital balance.

    However, TRS on that €80 would have been credited back to the account - €80 * 20% = €16.

    => although OP's gross payment remains the same due to the instruction in place, TRS reduces by €16 a month because there's less qualifying interest paid.

    I really don't understand what there is to differ on.
  17. amcell

    amcell Guest

    Hi Dreamrb you seem to know your stuff. Can you advise please

    Lets say We were paying €700 originally then op to €900 with EBS.
    Payment is now €998 before TRS as interest rates went up.
    We got interest rate reductions and TRS went down and we end up paying more now than before Interest rate reduction.

    I understand that inthe first few years you are paying off your interest and is this why we are feeling the brunt at this stage of morgate repayment?

    My Questions are

    1 am I at a disadvantage in the way we are setup?

    When will morgate payment decrease in this scenario?

    Can I change this for better?

    Are we being overcharged? or are we just overpaying and should I hen see a difference in the term?

    My understanding is that the OP went on for as long as the Repayment value was lower than op value and would revert when this went higher that op amount.

    Thanks for your help in advance