Understanding the Time Value of Money

Brendan Burgess

Brendan Burgess

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This is something which it seems to me some lenders are actually paying twice. I am trying to understand and explain it.

This thread is not about the fairness of the rate. It's about the mechanics and principle.

Lets say you were overcharged a year ago by Bord Gáis
You discover that a year ago, BGE overcharged you by €1,000.
It's not enough for them to return the €1,000 to you.
They have had use of it for a year, so they should pay you, say 2%, or €20 to compensate you.

Let's say AIB overcharged you by €1,000 a year ago on your mortgage

Your balance today is € 60,000 and you discovered that AIB overcharged you a year ago.

Of course, it's not enough for them to reduce your mortgage balance by €1,000 as they have charged you interest for the year.

So they recalculate your statement and give you credit for the €1,000 one year ago.

So your balance today will be reduced by €1,020 to €58,980

So by recalculating the balance they are giving you TVM.

Let's say that ptsb overcharged you by €1,000 a year ago, but you switched lender 6 months ago.

PTSB will recalculate your account and show that you had a balance due to you of €1,010 six months ago.

And because you switched, they owe you TVM for the most recent 6 months as well.

So how does this apply to tracker mortgages?

If the lender recalculates the statement and applies the correct rate of interest and the actual payments made, then the TVM is automatically incorporated in the revised balance.

There is no need for the additional TVM which they are paying.
 
As I understand it, the TVM payment is a compensation payment to reimburse you for the loss of the money. So the TVM is not actually TVM, it's a compensation payment under another guise.
 
If I recall I received a flat 5% for time value from BOI
Regardless whether it was 1 year ago or 5 years ago

In other words 5% of the interest overcharge
 
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