Mortgage overpayments and loan term

Blossom

Registered User
Messages
46
I’m probably missing something here but I’m sure AAM members can help me.

We have a 20 year mortgage which we took out in 2009. We overpaid our mortgage repayments for 15 months and also added one lump sum. These payments were deducted from the principal/capital of the mortgage.

For the duration of our additional monthly payments it was stated on our annual loan statement that the loan was scheduled to mature at a date much earlier that than 2029 (2020 I think).

Of course, I understand that that date would change once we discontinued our additional payments. However, I note on our annual loan statement, that since we stopped the additional payments, the date that our loan is scheduled to be repaid is once again the same date in 2029.

I know that by making the additional payments we will be paying less interest on the loan overall but should it not mature at an earlier date also?

I’m usually ok at this sort of thing but just can’t get my head around this one so any input will be much appreciated.
 

Blackrock1

Frequent Poster
Messages
425
Did your repayment amount (excluding the overpayments) stay the same or has it decreased?
 

Blossom

Registered User
Messages
46
Our repayments have stayed the same (depending on the variable rate). We're with the EBS.
 

Brendan Burgess

Founder
Messages
38,131
Hi Blossom

Let's say you have a mortgage of €100,000 at 3% with 20 years remaining.

Your monthly repayment will be €554.

If you pay a lump-sum of €20,000, you will be charged interest on €80,000.

You will be given a choice of reducing the repayment to €443 or
Keeping the repayment the same and reducing the term to 15 years and 4 months.

If you just overpay without giving them any instructions, you will automatically reduce the term but their system might base it on the scheduled repayments, rather than the actual repayments.

If some event happens e.g. an interest rate rise or you give them an instruction, they will then recalculate the repayment and the term.

Brendan
 

Blossom

Registered User
Messages
46
Many thanks for your reply, Brendan.
When we stopped the overpayments we instructed them to do so in writing and notified them that we were reverting to the normal monthly payments. We didn't ask them to recalculate the term but I shall call them to do that now. A number of interest rate changes have happened in the meantime and they haven't recalculated the term. I'll see how I get on.
Many thanks again.
 

Blossom

Registered User
Messages
46
Just an update on my original post. The situation is as follows:


Original loan: 450,000 20 year mortgage

Variable rate c. 2,400 per month.

15 months of additional payments of 2,200 a month – to be deducted from the principal.

While we were making the additional payments we were advised of a new maturity date.

When we stopped the additional payments the maturity date of the loan reverted to the original of 2029.

When we subsequently made one additional lump payment sum the term of the mortgage was reduced.

When we queried why the extra payments over 15 months hadn’t resulted in a change of maturity date we were told the following by the EBS 'During the period of your fixed repayments, you were benefiting by paying interest on a lower outstanding balance monthly. When your fixed payments was removed your loan reverted to the original maturity date'.


Is this correct or am I missing something? Any input much appreciated.
 

Brendan Burgess

Founder
Messages
38,131
Blossom, it's very hard to follow.

The main thing to check is that they calculated the correct interest. If they calculate the interest correctly and credit all the repayments, then the rest of the stuff is just irrelevant and confusing.

Your mortgage statement is just like any bank account.

upload_2019-1-22_11-10-22.png

If that is correct then it doesn't matter what they tell you about the repayment amount or the scheduled term.

Brendan
 

Blossom

Registered User
Messages
46
I'm sorry that you find some of the information I provide irrelevant and confusing, Brendan. I also find it confusing which is why I'm on AAM seeking advice clarification.

You said in your initial reply that
'You will be given a choice of reducing the repayment to xxx or
Keeping the repayment the same and reducing the term to xxx years and x months'
As I stated, we choose to keep the repayments the same and when we stopped the regular overpayments we thought that the term would have been reduced based on the extra payments already made.
 

Brendan Burgess

Founder
Messages
38,131
I'm sorry that you find some of the information I provide irrelevant and confusing, Brendan.
Hi Blossom

That is not what I meant.

The topic is very confusing and very difficult to understand and explain.

That is why I suggest you check the interest charged and payments made. If that is correct, you are not losing out.

Brendan
 

elcato

Moderator
Messages
3,174
Did you stop the overpaying around the same time as the lump sum ? They may have reduced it by more given that you informed them you were stopping it so they had a definite amount each month from there on in ?
 

Blossom

Registered User
Messages
46
No, Elcata, there was a gap of a few years between stopping the overpayments and paying the lump sum.
 

Hegocork

Registered User
Messages
15
Hi blossom
With my last mortgage with ptsb we did the same and the overpayment was shown on our yearly statement as a credit .
When we came near the end of the mortgage the bank deducted it from the principle and finished the loan early.up to that time it still showed as the expected completion date albeit adjusted from the original due to a seperate lump sum paid off .
The type of account we had and you suggest you have also allows the principle to minus off the built up credit and so you pay less interest on it
 
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