Who decides if I can pay mortgage fortnightly?

Q

Could you please clarify the situation with regard to paying mortgages fortnightly. I have heard that if someone elects to pay a mortgage fortnightly, a bank cannot refuse.

I have a mortgage of €475,000, which, after five years, has only reduced to around €420,000. It is halfway through a three-year fixed rate.

If you change to fortnightly repayments, does the mortgage rate or total monthly repayment have to be re-negotiated? Do you just pay half the monthly instalment, or how does it work?

– D H, E-mail

A

The first, and most important, point is that there is no obligation on any lender to allow someone pay off their mortgage fortnightly – unless such latitude was specifically included in the original mortgage contract that you signed.

The other factor mitigating against such a switch at this time in your case is that, as you say, you are only half- way through the term of a three-year fixed rate. As a rule, lenders – even those minded to consider fortnightly repayments – will not allow you to exit a fixed term rate without paying a financial penalty.

Having said that, if at the end of your fixed rate term a fortnightly repayment arrangement still suited you, there is no harm in at least approaching your lender to see if they would be open to it. In today’s straitened times, it may be that your lender would welcome the increased cash flow.

The other important thing to note is that moving to fortnightly payment is not some panacea to mortgage debt. You still have to pay off the full sum. The major advantage is that by paying fortnightly, assuming each fortnightly repayment equates to half the monthly sum, you are effectively making 13 “monthly” payments in a calendar year rather than the 12 you would be expecting to pay under the more normal arrangement currently pertaining.

This will naturally have the effect of lowering the amount of interest accruing on your capital sum. While it will not reduce your “monthly” bill, it will cut the cost to you of repaying the mortgage over the lifetime of the loan.

Assuming the money is credited against your account when it is paid and not just once a month, the reduction interest accumulation will be maximised.

Of course, you could seek to spread the 12 existing monthly payments over 26 fortnightly periods but this would negate most of the gain to you and might incur the wrath of a lender looking to minimise administration costs.

The mortgage interest rate applied by the lender will not change.

Clarifying the tax liability on An Post savings

Q

Can you clarify if interest earned under the national instalment scheme which is operated by An Post is subject or not to income tax and the universal social charge?

I’ve been advised by An Post that there are no charges and that I do not have to file interest earned on income return tax forms.

– Mr K R, E-mail

A

Interest on national Solidarity Bond savings is subject to Dirt tax but the far more significant bonuses are entirely tax free. My understanding is that the universal social charge does not apply. On other An Post State-guaranteed savings bond and certificates, no tax, including the universal social charge, is levied and no return to Revenue required.

This column is a reader service and is not intended to replace professional advice. No personal correspondence will be entered into.

Please send your queries to Dominic Coyle, Q&A, The Irish Times, 24-28 Tara Street, Dublin 2. E-mail: dcoyle@irishtimes.com