Mortgage Overpayment

T

Terrence1

Registered User
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I've recently taken out a mortgage with AIB.

I had some extra cash left over and decided to pay it off the mortgage using the AIB online banking app. (I never contacted AIB to advise them I was doing this)

Will this overpayment (20k) reduce my monthly payments or term of loan?

Thanks in advance as I'm a novice when it comes to this.
 
Terrence1 said:
I had some extra cash left over and decided to pay it off the mortgage using the AIB online banking app. (I never contacted AIB to advise them I was doing this)
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You should contact them to ensure that they pay it off the capital balance if that's what you want. Otherwise they might just keep it deposited on the account but not deducted from the capital balance.
Terrence1 said:
Will this overpayment (20k) reduce my monthly payments or term of loan?
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If you pay it off the capital balance (see above) then your ongoing scheduled repayments will remain the same as before (subject to interest rate changes) but the effective term of the mortgage will reduce. I.e. you will have cleared the mortgage sooner than originally agreed. And you will pay (possibly a lot!) less interest over the remaining term of the mortgage because you have reduced the capital balance quicker than scheduled.

You can use a mortgage calculator such as this to model the effects of stuff like accelerated lump sum repayments.

Karl's Mortgage Calculator

Mortgage calculator with graphs, amortization tables, overpayments and PMI
www.drcalculator.com www.drcalculator.com
Note that I'm assuming that you're on a variable rate. If you're on a fixed rate then you need to check with the lender how any accelerated lump sum payment will be handled as the repayment of a fixed rate mortgage generally can't be accelerated the way that a variable rate mortgage can be. And there will often be penalties for breaking a fixed rate mortgage agreement or accelerating repayment.
 
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You need to fill out the overpayment form and tell them should it be off the balance or off the term of the loan. I reckon the monies deposited will remain sitting in the mortgage account doing nothing.
 
In my case when I did similar (smaller amount) they sent a letter a few days later acknowledging the payment and reducing my monthly payment, I had to complete a Form to have the term reduced instead.
 
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