Permanent TSB gets into a mortgage muddle

Q

I have a mortgage with PermanentTSB and I am making an overpayment of €500 per month. The bank does not apply the overpayments to the principal of the mortgage, but appears to hold them almost in a separate account, which they have called a “credit” against my mortgage.

I have been told that once the balance in the “credits” reaches €5,000, I can transfer this sum to pay off that amount of the principal. Then I have to reinstate the overpayment again. I have also been assured that I am receiving all the benefits of having paid off the principal, including reduced mortgage payments.

I have tried and failed twice to get an explanation from bank staff as to why the account is handled in this way. I am naturally curious as I suspect that this manner of treating my overpayment suits them rather than me. Can you explain what is going on?

- Ms UC, Email

A

Talk about making life complicated. I can certainly see why you are confused. When I approached the bank to get a formal “two syllable” explanation of how they operate overpayments on mortgages, the response I got provided not a scintilla of clarification – merely a reassurance that the customer was “getting all the benefits of any overpayment”.

When it went on to state overpayments are “not taken immediately off the capital”, I was even more alarmed. The bank’s explanation that this was to provide “flexibility” should the customer fail to meet fully their monthly obligations subsequently did nothing to set me at ease.

That sort of logic smacked of both condescension and profiteering – the bank protecting you from yourself and, in the process, making a profit by failing to set your overpayment against the capital sum of your mortgage.

I couldn’t believe any bank in the current crisis could attempt to get away with what appeared to be gouging of customers and went back to PermanentTSB for further clarity.

As it turns out, this is not the case. The bank is segregating your overpayments in a separate account attached to your mortgage account to give you a “reserve” that can be tapped if the need arises but it is at the same time using the sum in that account to offset against the capital sum in your main mortgage account.

This means that, from the time you make the monthly overpayment, that sum is “set against” the capital – even though it is in what is effectively a parallel account. The capital sum is adjusted by the bank’s computers in assessing monthly interest accrual.

You could think of it as a “virtual”account where both elements are combined for the purposes of calculation but separated physically for ease of administration.

The bank protests that it is being misunderstood when all it wants to do is provide maximum security and flexibility for the customer. Following nearly two days of tortured enquiry, that does indeed appear to be the case.

However, the whole exercise – and your own experience in trying to get a satisfactory explanation of the situation – is testament to the fact that PermanentTSB is doing a lousy job of marketing that flexibility. Neither its staff nor its customers seem to able to explain the “customer friendly” nature of its initiative. Methinks the company needs to look again at its marketing material on this one and its training schedule for staff.

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