Although debate still rages on the pros and cons of accelerating mortgage repayments, basic paperwork requirements are causing problems for homeowners. The reduction in interest rates meant variable mortgage repayment amounts were greatly reduced. Some homeowners decided that paying the original repayment amount before the rate cut was a quick way to lower interest costs and the length of the loan.

Unfortunately, some mortgage-holders who failed to notify their financial institution of the decision may find they are conducting a meaningless exercise.

As Mr S, from Wicklow discovered, some lenders are not automatically applying the extra amount to the principal balance.

Mr S claims his lender, Irish Permanent "split the monthly payment into two parts, the first to repay the mortgage on the term originally agreed, the second to build up a non-interest bearing credit balance. This information, with difficulty, can be gleaned from a very detailed examination of the annual loan statement, but I am certain to most readers would not be evident".

This is common practice by most lenders says Ms Sarah Wellband, mortgage consultant at REA Mortgage Services. "If you notify them that payment goes towards the balance it does but some people overpay and don't notify the bank so it is automatically split."

This means mortgage-holders are not paying down the interest as they had hoped. "For them, it's basically the equivalent of putting money under the mattress, it's not working for them. From the lender's point of view, they haven't been notified by the customer."

Mr Niall O'Grady, deputy head of marketing at Irish Permanent, says that most of their mortgages are paid by direct debit. When interest rates are lowered, the direct debit amount is automatically reduced. Older mortgages paid by standing order cannot be automatically changed and therefore permission must be obtained from the customer.

"The onus is on us to communicate this to the customer, but if we don't receive a response the funds will initially be split and we will continue to seek instructions by writing out to the customer," says Mr O'Grady.

A letter is sent out to mortgage-holders when rates change and if there is no response the extra funds are used to build up a separate non-interest bearing balance within the mortgage account.

Once this credit balance reaches a certain level the customer is again reminded of their choices. The information is also included in annual loan statements, he said.

If customers do not respond, there is nothing the building society can do. "We are not legally entitled to change the mortgage payment process above and beyond what we've been instructed to do by the customer," said Mr O'Grady.

Unfortunately, it appears that many borrowers are not aware of their mortgage repayment status. A recent survey conducted for National Irish Bank found that of 334 mortgage-holders at various institutions questioned, 17 per cent did not know if their repayments had changed.

Those aware of their options were more likely to reduce monthly repayments in line with the reduction in interest rates, than to keep paying the higher amount. Forty-six per cent reduced repayments while 37 per cent continued to pay at the higher rate.

Reading letters and marketing material from your lender can save you money over the long-term. Once you make a decision on mortgage repayments, "put it in writing to the lender and make sure you get a written response", says REA's Ms Wellband.