Banks willing to remove 25% of your mortgage if you give up tracker

ongarboy

Read about this in the Metro Herald today that banks would consider writing off up to 25% of the principal of your tracker mortgage if you gave up the tracker rate and moved to a variable as they are losing so much money on your tracker.

I have 160K left on my mortgage over 28 years and am on a 1.75% tracker rate at the moment (0.75 above the ECB rate of 1%). The thought of the bank removing 40K is very tempting. Does anyone know in the long run if I would lose money by paying variable on 120K? The writer of the article said it would cost the bank more to pay the surplus interest that they are paying for the remainder of the term under current arrangement than it would to write off up to 25% of such trackers now.

I know my monthly repayments would possibly be about the same in the short term with lower interest/higher principal being replaced with higher interest/lower principal but just trying to figure out if giving up the tracker is financially sensible. Obviously would discuss the minute details with the bank before making a decision but would be interested in peoples opinions and advice on any catch that I might be missing.

daltonmd

ongarboy wrote: »

Read about this in the Metro Herald today that banks would consider writing off up to 25% of the principal of your tracker mortgage if you gave up the tracker rate and moved to a variable as they are losing so much money on your tracker.

I have 160K left on my mortgage over 28 years and am on a 1.75% tracker rate at the moment (0.75 above the ECB rate of 1%). The thought of the bank removing 40K is very tempting. Does anyone know in the long run if I would lose money by paying variable on 120K? The writer of the article said it would cost the bank more to pay the surplus interest that they are paying for the remainder of the term under current arrangement than it would to write off up to 25% of such trackers now.

I know my monthly repayments would possibly be about the same in the short term with lower interest/higher principal being replaced with higher interest/lower principal but just trying to figure out if giving up the tracker is financially sensible. Obviously would discuss the minute details with the bank before making a decision but would be interested in peoples opinions and advice on any catch that I might be missing.

Go to one of the Mortgage amoritization calculator (just google that) and you can work it out yourself. It really depends on the interest rate, if you changed now then the interest payment at 3% over the next 5 years works out at 4k more than the rate you're paying now - again though the ECB rate may climb.

Your repayments would go down by about 80 euro pm. Worth a look - have a pen and paper handy lol..

n900guy

Depends on how much of your 160k owing has interest on it. For example, if it's early in a 30 yeat mortgage (first 5-6 years) or half way through or more where the effect of a variable rate hike is minimal. If you started at 250k there is probably only 30k say or of interest that could be affected.

If it's early, I think the risks are big that you will have a potential for significant interest rate change effects, but after 7-8 years on a 25-30 year loan, much of the payment is capital and more so substantially every year.

3DataModem

n900guy wrote: »

Depends on how much of your 160k owing has interest on it. For example, if it's early in a 30 yeat mortgage (first 5-6 years) or half way through or more where the effect of a variable rate hike is minimal. If you started at 250k there is probably only 30k say or of interest that could be affected.

If it's early, I think the risks are big that you will have a potential for significant interest rate change effects, but after 7-8 years on a 25-30 year loan, much of the payment is capital and more so substantially every year.

He said there was 160k balance and 28 years left.

The original term doesn't matter when calculating the effect of the change in balance / interest he is proposing.

shangri la

n900guy wrote: »

Depends on how much of your 160k owing has interest on it. For example, if it's early in a 30 yeat mortgage (first 5-6 years) or half way through or more where the effect of a variable rate hike is minimal. If you started at 250k there is probably only 30k say or of interest that could be affected.

If it's early, I think the risks are big that you will have a potential for significant interest rate change effects, but after 7-8 years on a 25-30 year loan, much of the payment is capital and more so substantially every year.

does this make sense to anyone else?

Lambsbread

shangri la wrote: »

does this make sense to anyone else?

Interest rate changes have a bigger impact on repayments at the start of the mortgage (where payments are mostly interest) than at the end of the mortgage (when payments are mostly capital).

ntlbell

banks don't give away money.

ongarboy

thanks for all the responses. Just to clarify on some of the questions, it was a 35 year mortgage for 185K taken out in 2005. I'm 7 years into it and have about 160K outstanding. The interest portion of my monthly repayments are still way more than the capital amounts so I'm thinking I would be vulnerable if there were significant hikes in variable rates in the next 5 years or so. I'll check out that amort calculator but without certainty of what the interest rates will be, it would still be a speculative exercise. Might just stay with what I have while the monthly repayments are comfortable to my pocket!

3DataModem

Lambsbread wrote: »

shangri la wrote: »

does this make sense to anyone else?

Interest rate changes have a bigger impact on repayments at the start of the mortgage (where payments are mostly interest) than at the end of the mortgage (when payments are mostly capital).

Correct, however if the balance now is 160k and the remaining term from now is 28 years, it doesn't matter if it's a brand new 28 year mortgage for 160k or was originally a 40 year mortgage for 300k.... The interest and capital components of the current payment will be the same in both cases.

seamus

As said above, banks don't give away free money. You can be fairly sure you're losing on this deal.

Simple sums;

€160k @ 1.75% over 28 years = €603/month. Total Interest Repayable €42,503.

€120k @ 3.3% over 28 years = €548/month. Total Interest Repayable €64,012.

So while on one hand it looks like you're massively winning - a drop in your mortgage and €50/month off your repayments, at the end of the day your interest cost has increased by more than 50%.
Also, most crucially you are at the whims of the variable rate, so that extra €50/month in your pocket won't be there for long.

3DataModem

seamus wrote: »

So while on one hand it looks like you're massively winning - a drop in your mortgage and €50/month off your repayments, at the end of the day your interest cost has increased by more than 50%.

Yes, it's up by 22k. And your capital cost is DOWN by 40k. That's an 18k win in my book.

seamus wrote: »

Also, most crucially you are at the whims of the variable rate, so that extra €50/month in your pocket won't be there for long.

This is exactly right. They can do whatever they want with a variable rate at any time, and if they need to make the loan profitable, they will.

JDxtra

And you may be restricted from paying lump sums off.

bobbyg

seamus wrote: »

As said above, banks don't give away free money. You can be fairly sure you're losing on this deal.

Simple sums;

€160k @ 1.75% over 28 years = €603/month. Total Interest Repayable €42,503.

€120k @ 3.3% over 28 years = €548/month. Total Interest Repayable €64,012.

So while on one hand it looks like you're massively winning - a drop in your mortgage and €50/month off your repayments, at the end of the day your interest cost has increased by more than 50%.
Also, most crucially you are at the whims of the variable rate, so that extra €50/month in your pocket won't be there for long.

Sorry this may seem like a stupid question but in this example providing the interest rates remain the same does he still not gain?

Yes he is paying more interest but he is still paying the bank less money each year.

€603 x 12 x 28 = €202,608
€548 x 12 x 28 = €184,128

Or am I missing something?

McG

bobbyg wrote: »

Sorry this may seem like a stupid question but in this example providing the interest rates remain the same does he still not gain?

Yes he is paying more interest but he is still paying the bank less money each year.

€603 x 12 x 28 = €202,608
€548 x 12 x 28 = €184,128

Or am I missing something?

yes but what are the chances the interest rate remains the same? there is reward but it comes with risk.

ntlbell

the problem here is "variable"

there will be no downward variance, just a constant up

seamus

bobbyg wrote: »

Sorry this may seem like a stupid question but in this example providing the interest rates remain the same does he still not gain?

I did actually overlook that. The bank wouldn't be too concerned that you're "up" by €18k, because they can perform all sorts of calculations and accounting tricks such that the €40k they write off your mortgage doesn't actually cost them €40k at all. Chances are, that €18k difference is probably coming from the taxpayer at the end of the day. So you're up €18k and the bank are up €22k in interest.
In any case, as others say the variable rate will go up and your 18k "bonus" will soon disappear into the bank's balance sheet. We won't see the same low interest rates in this country again.

Part of the idea of such a write-off on the bank's part would also be to give you wiggle room to move home. This means that you will likely take out a larger mortgage on a variable rate, and the bank wins again.

NIMAN

Owe €70k over 11yrs, can see me getting 25% off.

daltonmd

ongarboy wrote: »

thanks for all the responses. Just to clarify on some of the questions, it was a 35 year mortgage for 185K taken out in 2005. I'm 7 years into it and have about 160K outstanding. The interest portion of my monthly repayments are still way more than the capital amounts so I'm thinking I would be vulnerable if there were significant hikes in variable rates in the next 5 years or so. I'll check out that amort calculator but without certainty of what the interest rates will be, it would still be a speculative exercise. Might just stay with what I have while the monthly repayments are comfortable to my pocket!

That's not the only issue - if you do choose to take the deal and at some point you have to fix (and I think that could be a certainty) you could find it costing you an extra 2% or more on top of your variable to fix for 5 years.

If you look at any mortgage calculator now you will see them offering variables at 3.24% and then a fixed 5 year of 5.25%, so while you are sure of paying less than the banks at all times on a tracker, you could pay interest of at least 5 or 6% on the balance, if you do take up the offer.

Less capital but higher interest.
More capital but lower interest.

ongarboy

ongarboy wrote: »

Read about this in the Metro Herald today that banks would consider writing off up to 25% of the principal of your tracker mortgage if you gave up the tracker rate and moved to a variable as they are losing so much money on your tracker.

I have 160K left on my mortgage over 28 years and am on a 1.75% tracker rate at the moment (0.75 above the ECB rate of 1%). The thought of the bank removing 40K is very tempting. Does anyone know in the long run if I would lose money by paying variable on 120K? The writer of the article said it would cost the bank more to pay the surplus interest that they are paying for the remainder of the term under current arrangement than it would to write off up to 25% of such trackers now.

I know my monthly repayments would possibly be about the same in the short term with lower interest/higher principal being replaced with higher interest/lower principal but just trying to figure out if giving up the tracker is financially sensible. Obviously would discuss the minute details with the bank before making a decision but would be interested in peoples opinions and advice on any catch that I might be missing.

Put it this way, it must be better for the bank in the long run otherwise why would they do it?

bobbyg

Maybe it could be a win win situation but as many said the variable rate will almost certainly go up. The other thing is the tracker rate will almost certainly be going up too in the coming years.

I honestly can't see the bank doing this, there has been talk of this for a long time now but nothing ever seems to materialize.

ongarboy

thanks again - I have definitely made up my mind now. The tracker stays put!

Kaner2004

There is a way to win with this.
You take the offer and then pay off your mortgage or significantly increase your monthly overpayments.

If you just take it and dont accelerate your mortgage payments then i'm pretty sure the bank will win.

http://www.drcalculator.com/mortgage/ie/

ntlbell

Kaner2004 wrote: »

There is a way to win with this.
You take the offer and then pay off your mortgage or significantly increase your monthly overpayments.

If you just take it and dont accelerate your mortgage payments then i'm pretty sure the bank will win.

http://www.drcalculator.com/mortgage/ie/

I would have to see the T&C's but imagine they have looked at things like this and I imagine you won't be allowed to pay off early without a penalty etc

worth looking into but i'm doubtful

The house always wins or eh the bank in this case

MidlandsM

rockdrummer4 wrote: »

Put it this way, it must be better for the bank in the long run otherwise why would they do it?

100% - so they can FECK OFF!

I'm staying on my tracker !

NIMAN

I also visit AAM, and there has often been a lot of talk about banks giving reduction for coming off trackers.

Not a single poster was able to come on and say "I got that".

Only time deals were done was if the mortgage went into default. Mortgages that were being serviced weren't offered the deal.

Kaner2004

NIMAN wrote: »

I also visit AAM, and there has often been a lot of talk about banks giving reduction for coming off trackers.

Not a single poster was able to come on and say "I got that".

Only time deals were done was if the mortgage went into default. Mortgages that were being serviced weren't offered the deal.

I know two people who told me "I got that". One being my sister.
Most people just take no for an answer and are useless at negotiating. So they ask and give up, instead of turning up with all the figures and insisting on a meeting with a decision maker. No point talking to drones at all.

Kaner2004

ntlbell wrote: »

I would have to see the T&C's but imagine they have looked at things like this and I imagine you won't be allowed to pay off early without a penalty etc

worth looking into but i'm doubtful

The house always wins or eh the bank in this case

If you are on variable they cant stop you overpaying whatever you want, whenever you want.

NIMAN

Kaner2004 wrote: »

I know two people who told me "I got that". One being my sister.
Most people just take no for an answer and are useless at negotiating. So they ask and give up, instead of turning up with all the figures and insisting on a meeting with a decision maker. No point talking to drones at all.

What bank were they with?

I asked AIB and got chased. Said "not a hope".

Zamboni

It is a fantastic idea.
I think everybody that can should take the offer especially from any of the banks in state ownership.

In the interest of the Irish tax payer

Kaner2004

NIMAN wrote: »

What bank were they with?

I asked AIB and got chased. Said "not a hope".

My sister is with AIB. My friend is with Ulsterbank.

NIMAN

AIB?

Did she approach their headquarters or just her local branch?

Was her mortgage being paid ok with no arrears? (don't have to answer this one).

Kaner2004

NIMAN wrote: »

AIB?

Did she approach their headquarters or just her local branch?

Was her mortgage being paid ok with no arrears? (don't have to answer this one).

Mortgage was being paid normally. Shes not in an financial trouble at all. Far from it actually.

She got her husband to work out all the costings for her and for the bank, showing what the bank would gain or lose depending on their decision.
Asked to see the branch manager about a mortgage and told them she only wanted to talk to the manager. Eventually the manager met her and she showed him the figures and struck a deal with him. It took about 2 months for him to come back with the go-ahead.

My friend asked my sis what she did, so his story is the same.

Lantus

periods of recession are typically followed by inflation.

The only stick the economy has to beat inflation with is interest rates to stabilise markets and currency values.

Over the next 20+ years will inflation go up?

Over the next 20+ years will interest rates go up?

Banks are offering this deal not because they feel like their customers need a hand/money off their mortgages or because the love us dearly (delete as appropriate.)

They are doing it because a group of hard nosed accountants has worked out that on average they can screw customers much harder and much longer for the next 20+years if they take a little offer like this now.

variable rates puts all the control back at the domestic bank level where they can ignore the ECB and any government or regulator and concentrate on squeezing the customer until either they make huge gains from interest payments or get the actual asset in exchange for the imaginary money they offered in the first place.

DONT DO IT!!!

Jaysoose

Zamboni wrote: »

It is a fantastic idea.
I think everybody that can should take the offer especially from any of the banks in state ownership.

In the interest of the Irish tax payer

I wish people would stop spouting this bullcrap.

ntlbell

Kaner2004 wrote: »

If you are on variable they cant stop you overpaying whatever you want, whenever you want.

if you show me t&c's that state with _this_ specific deal. Untill then I would be very doubtful

Kaner2004

ntlbell wrote: »

if you show me t&c's that state with _this_ specific deal. Untill then I would be very doubtful

Well go and make a deal with your bank then. Then you can see whatever you agree with them to put in the contract.

There are two sides to a negotiation. You dont agree to it if you dont like their terms. Get them to change them to what you will agree to.
If its not a winning situation for you then negotiate until it is a win/win.

The bank wants rid of anything that costs them. That includes your tracker mortgage. Whether it be the entire mortgage, a significant portion of the mortgage or just the interest rate - they want it gone. Thats the win for them. Once the decision maker realizes you know this is in the banks interest as well as yours, you have the upper hand. Now you just have to make sure their win, also works out as a win for you.