Is it possible to get lower mortgage interest rate for less risk

Harpon · 02-07-2020 11:04am #1

For example, if I want to buy a house valued at 250k and want a mortgage of 200k, could I say to a bank I will keep 100k of savings in a bank guarantee account with them that I can’t touch until the mortgage is paid off. And ask them to give me an interest rate of say 1.25% in return, as they would only have a max of 100k at risk on a 250k house. Has anyone tried anything like this or would banks not be interested?

L1011 · 02-07-2020 11:07am

The bank will laugh at you and hang up the phone.

There are lower rates for lower LTV%, but nobody offers offset mortgages (which is what you are looking for) and nobody offers rates even vaguely that low.

djan · 02-07-2020 11:08am

Harpon wrote: »

For example, if I want to buy a house valued at 250k and want a mortgage of 200k, could I say to a bank I will keep 100k of savings in a bank guarantee account with them that I can’t touch until the mortgage is paid off. And ask them to give me an interest rate of say 1.25% in return, as they would only have a max of 100k at risk on a 250k house. Has anyone tried anything like this or would banks not be interested?

From my experience, in private mortgages, Irish banks are quite inflexible. Regardless, I fail to see how this would benefit you? Either take out a lower mortgage or invest the 100k.

3DataModem · 02-07-2020 11:11am

Offset mortgages are no longer a thing, they were big in the UK for a while. NIB launched them in Ireland in 2005 (see https://www.irishtimes.com/business/nib-offering-first-offset-mortgage-1.407496) and now they are no longer a thing either.

If you want the liquidity that keeping the cash affords, you'll have to pay higher interest on your mortgage.

ldy4mxonucwsq6 · 02-07-2020 11:11am

Harpon wrote: »

For example, if I want to buy a house valued at 250k and want a mortgage of 200k, could I say to a bank I will keep 100k of savings in a bank guarantee account with them that I can’t touch until the mortgage is paid off. And ask them to give me an interest rate of say 1.25% in return, as they would only have a max of 100k at risk on a 250k house. Has anyone tried anything like this or would banks not be interested?

No because the mortgage is secured on the property and any other collateral doesn't really come into it. That's the legalities of a straightforward mortgage.

Why would you even do this if you can't go near the savings for the term of the mortgage?

What would be the perceived benefit other than protecting yourself from property market fluctuations.

Simply, you can lower the risk to the bank by putting up the savings at the beginning and getting a lower mortgage amount, therefore a lower LTV and usually a better interest rate (1.25% is never going to happen either).

Hairy Japanese BASTARDS! · 02-07-2020 11:15am

Why wouldn't you just pay the 100 k off as a lump sum on the property???

theteal · 02-07-2020 11:16am

L1011 wrote: »

There are lower rates for lower LTV%, but nobody offers offset mortgages (which is what you are looking for) and nobody offers rates even vaguely that low.

As someone who thinks they'd like to move back to Ireland in the next few years and currently has a UK mortgage (~70% LTV) with a lower rate than mentioned, this obviously raised an eyebrow. What kind of rates should be expected back home?

Harpon · 02-07-2020 11:16am

djan wrote: »

From my experience, in private mortgages, Irish banks are quite inflexible. Regardless, I fail to see how this would benefit you? Either take out a lower mortgage or invest the 100k.

It’s just an example, not my current situation. Not everyone wants to put all their life savings into a house, it’s very hard building savings up again especially once kids arrive etc. If the monthly mortgage repayments are manageable and the interest rates are good it would be a good option for a lot of people.

We are frequently told we have one of the highest interest rates in Europe because banks can’t repossess houses. But what if we take that excuse away from them and say instead ok repossess my savings in a worst case scenario, then they are left with little excuses for having such high interest rates compared to the rest of Europe.

L1011 · 02-07-2020 11:18am

theteal wrote: »

As someone who thinks they'd like to move back to Ireland in the next few years and currently has a UK mortgage (~70% LTV) with a lower rate than mentioned, this obviously raised an eyebrow. What kind of rates should be expected back home?

2.3% is the absolute lowest rate you can get anywhere from anyone. 2.7-2.9% should be available for that LTV.

The security provided to a lender here is appalling (years to evict a non payer), hence the risk is higher and they have to charge higher rates to get the margins they want.

Harpon wrote: »

We are frequently told we have one of the highest interest rates in Europe because banks can’t repossess houses. But what if we take that excuse away from them and say instead ok repossess my savings in a worst case scenario, then they are left with little excuses for having such high interest rates compared to the rest of Europe.

a: Its still not the full value of the mortgage
b: Its a product banks simply do not offer.

Harpon · 02-07-2020 11:23am

Ok let’s say the guarantee is for the full value of the mortgage then

L1011 · 02-07-2020 11:27am

Harpon wrote: »

Ok let’s say the guarantee is for the full value of the mortgage then

Still not going to happen - the product you are looking for does not exist in Ireland.

ldy4mxonucwsq6 · 02-07-2020 11:34am

Harpon wrote: »

It’s just an example, not my current situation. Not everyone wants to put all their life savings into a house, it’s very hard building savings up again especially once kids arrive etc. If the monthly mortgage repayments are manageable and the interest rates are good it would be a good option for a lot of people.

We are frequently told we have one of the highest interest rates in Europe because banks can’t repossess houses. But what if we take that excuse away from them and say instead ok repossess my savings in a worst case scenario, then they are left with little excuses for having such high interest rates compared to the rest of Europe.

But it is the same as putting the 100k up at the beginning or locking it up as collateral for the term.

The only risk you're minimising is the risk to yourself in terms of market fluctuations when you come to sell, you'll either make a profit, break even or make a loss.

You're not minimising the risk to the bank which is why this arrangement does not exist in reality.

Harpon · 02-07-2020 12:37pm

Tony Hundreds Mortal wrote: »

But it is the same as putting the 100k up at the beginning or locking it up as collateral for the term.

The only risk you're minimising is the risk to yourself in terms of market fluctuations when you come to sell, you'll either make a profit, break even or make a loss.

You're not minimising the risk to the bank which is why this arrangement does not exist in reality.

No it’s not the same. Not everyone wants to throw every cent they have on their mortgage. There are many many people out there with mortgages and then separate savings earning 0% per year on them.

You are minimising the risk to the bank because it’s almost impossible to repossess in this country. Whereas a bank guarantee account to the value of the mortgage would mean zero risk to the bank.

Banks can’t make any money on deposits due to negative interest rates, customers can’t make any money on their deposits, this is a solution to both of those problems also.

ldy4mxonucwsq6 · 02-07-2020 1:23pm

Harpon wrote: »

No it’s not the same. Not everyone wants to throw every cent they have on their mortgage. There are many many people out there with mortgages and then separate savings earning 0% per year on them.

You are minimising the risk to the bank because it’s almost impossible to repossess in this country. Whereas a bank guarantee account to the value of the mortgage would mean zero risk to the bank.

Banks can’t make any money on deposits due to negative interest rates, customers can’t make any money on their deposits, this is a solution to both of those problems also.

Good luck explaining that to the bank! If it benefitted them then the option would already be there.

Yes people have mortgages and have savings, they are separate for a reason and don't go hand in hand because they are regulated differently.

Most people actually do put a lot of savings towards buying a home as a deposit out of necessity and to reduce the amount of their overall borrowing figure or increase their buying power.

Those that want to reduce term or repayment amount of the mortgage do so through overpayment (be that a lump sum or regular monthly overpayment).

The bank will facilitate an overpayment but they won't allow you to hold on to the 100k as security.

Why do you think the laws are so complicated around mortgage arrears and repossession, do you think the laws around them repossessing your savings would be any different if that was even an option?

Harpon · 02-07-2020 2:12pm

As another poster said, NIB used to offer such mortgages in 2005, when most of the country was leveraged up to their eyeballs, so no doubt there was little take up in that offer. But things are different now as can be seen by the levels of deposits in Irish banks at the moment.

Forget about it being used for a house for a second and let’s just say this is a loan with a savings deposit backed against the full amount. I could get a 100k loan from the bank for 6.5% interest or so. After a month I could lose my job, not get another due to the current jobs market and default on the payments. That’s the banks 100k gone up in smoke.

What if instead I said give me 100k at 1.5% that’s fully secured against my savings deposit, so is completely risk free for the bank.

In this economic environment do you not think any bank would prefer option 2?

listermint · 02-07-2020 2:18pm

Harpon wrote: »

As another poster said, NIB used to offer such mortgages in 2005, when most of the country was leveraged up to their eyeballs, so no doubt there was little take up in that offer. But things are different now as can be seen by the levels of deposits in Irish banks at the moment.

Forget about it being used for a house for a second and let’s just say this is a loan with a savings deposit backed against the full amount. I could get a 100k loan from the bank for 6.5% interest or so. After a month I could lose my job, not get another due to the current jobs market and default on the payments. That’s the banks 100k gone up in smoke.

What if instead I said give me 100k at 1.5% that’s fully secured against my savings deposit, so is completely risk free for the bank.

In this economic environment do you not think any bank would prefer option 2?

Phone them all and see. This thread cant do it for ya

One suspects you know the answer

Eric Cartman · 02-07-2020 2:18pm

Harpon wrote: »

As another poster said, NIB used to offer such mortgages in 2005, when most of the country was leveraged up to their eyeballs, so no doubt there was little take up in that offer. But things are different now as can be seen by the levels of deposits in Irish banks at the moment.

Forget about it being used for a house for a second and let’s just say this is a loan with a savings deposit backed against the full amount. I could get a 100k loan from the bank for 6.5% interest or so. After a month I could lose my job, not get another due to the current jobs market and default on the payments. That’s the banks 100k gone up in smoke.

What if instead I said give me 100k at 1.5% that’s fully secured against my savings deposit, so is completely risk free for the bank.

In this economic environment do you not think any bank would prefer option 2?

I dont know what youre trying to achieve though, the banks only issue mortgages to make money , not to do favours so less interest is not in their...interest .

If youve the 100k around a much lower ltv is the only place youll get a saving on the rate.

Like ot or not banks charge interest and are determined to make money on it. You could agree a private loan with a business or other such but doubt theyd be interested in that guarantee either.

I dont know if this is just a hypothetical question or what but I get the feeling youve an idea in your head of how to use this to game the system be it to access more credit, try flip and trade up houses till you end up in one youve nowhere near the earnings for etc.. but youre trying to get an answer without asking us the whole question.

If we knew the whole story there might be an alternative solution.

alias no.9 · 02-07-2020 2:20pm

I may be imagining it but I thought I saw it mentioned here before that you could overpay on KBC mortgages and withdraw money at a later date up to an amount that would leave the balance as it would have been per the original payment schedule.

Cape Clear · 02-07-2020 2:31pm

alias no.9 wrote: »

I may be imagining it but I thought I saw it mentioned here before that you could overpay on KBC mortgages and withdraw money at a later date up to an amount that would leave the balance as it would have been per the original payment schedule.

Have never dealt with KBC for mortgages but that would seem completely different to how the other banks handle overpayments.

Harpon · 02-07-2020 2:35pm

Eric Cartman wrote: »

I dont know what youre trying to achieve though, the banks only issue mortgages to make money , not to do favours so less interest is not in their...interest .

If youve the 100k around a much lower ltv is the only place youll get a saving on the rate.

Like ot or not banks charge interest and are determined to make money on it. You could agree a private loan with a business or other such but doubt theyd be interested in that guarantee either.

I dont know if this is just a hypothetical question or what but I get the feeling youve an idea in your head of how to use this to game the system be it to access more credit, try flip and trade up houses till you end up in one youve nowhere near the earnings for etc.. but youre trying to get an answer without asking us the whole question.

If we knew the whole story there might be an alternative solution.

The banks wouldn’t be losing interest, they would be gaining interest on the additional 100k that I am taking on the mortgage. I would ultimately pay more interest to the bank overall, but do so at a lower percentage rate to reflect that the bank is not taking on any risk on the mortgage.

As for the rest of your post, that’s some story you have made up in your head!

ldy4mxonucwsq6 · 02-07-2020 2:36pm

alias no.9 wrote: »

I may be imagining it but I thought I saw it mentioned here before that you could overpay on KBC mortgages and withdraw money at a later date up to an amount that would leave the balance as it would have been per the original payment schedule.

It was definitely an option for their overpayment facility but not sure is its something that's still available, I think they stopped it about 5 years ago.

Harpon · 02-07-2020 2:36pm

listermint wrote: »

Phone them all and see. This thread cant do it for ya

One suspects you know the answer

The point of the thread was to see if anyone else had asked a bank something similar, give it time the threads only been up a few hours!

ldy4mxonucwsq6 · 02-07-2020 2:41pm

Harpon wrote: »

Forget about it being used for a house for a second and let’s just say this is a loan with a savings deposit backed against the full amount. I could get a 100k loan from the bank for 6.5% interest or so. After a month I could lose my job, not get another due to the current jobs market and default on the payments. That’s the banks 100k gone up in smoke.

What if instead I said give me 100k at 1.5% that’s fully secured against my savings deposit, so is completely risk free for the bank.

In this economic environment do you not think any bank would prefer option 2?

Well for starters an unsecured personal loan of 100k at 6.5% is pie in the sky.

If you find a bank lending that much unsecured at those rates let me know.

antimatterx · 02-07-2020 2:47pm

Hairy Japanese BASTARDS! wrote: »

Why wouldn't you just pay the 100 k off as a lump sum on the property???

Opportunity cost. Having 100K in cash with an upcoming recession will allow the OP to take advantage of cheaper assets prices. I'd hold onto as much cash as possible OP.

02-07-2020 2:51pm

Harpon wrote: »

As another poster said, NIB used to offer such mortgages in 2005, when most of the country was leveraged up to their eyeballs, so no doubt there was little take up in that offer. But things are different now as can be seen by the levels of deposits in Irish banks at the moment.

Forget about it being used for a house for a second and let’s just say this is a loan with a savings deposit backed against the full amount. I could get a 100k loan from the bank for 6.5% interest or so. After a month I could lose my job, not get another due to the current jobs market and default on the payments. That’s the banks 100k gone up in smoke.

What if instead I said give me 100k at 1.5% that’s fully secured against my savings deposit, so is completely risk free for the bank.

In this economic environment do you not think any bank would prefer option 2?

The simple answer is that there's very little reward for the bank in this situation. Yes, they would get your 1.5%. Will they get any other customers? Highly doubtful, since it makes zero sense to pay interest for your own money (and that is essentially what you would be doing). So they get your €1,500. Against that, they have to establish a new channel of business, with all the associated collateral that involves. They have to have their legal team draw up new agreements, establish a model of how it would work in practice, figure out how to ensure the funds are secured in both directions, and at what point ownership is transferred.

02-07-2020 2:53pm

Harpon wrote: »

Ok let’s say the guarantee is for the full value of the mortgage then

You'd be better off just buying the house outright, rather than paying interest on a loan.

I do see on American forums a lot, people talking about remortgaging their houses so they can get lower interest rates as they have more equity. I'm unsure how much difference there is in the interest rate in real-world usage though.

StupidLikeAFox · 02-07-2020 3:31pm

I think you misunderstand how retail banks operate. They have a handful of mortgage products, and if you want a mortgage they will give you a package within the parameters you fall into.

They don't have employees wheeling and dealing over the phone and there is zero chance you will be able to ring up out of the blue and negotiate some brand new, bespoke mortgage structure. You might have some luck if you had €10m and wanted to borrow €25m

Diemos · 02-07-2020 3:49pm

I'm really confused, OP is talking about having 100k on hold until the mortgage is paid, sitting in a locked down account earning no interest.

So at the end of your mortgage you will have a paid off house and access to your 100k?
You want to give the bank 100k to hold and then loan 100k at a reduced rate? (Plus 50k extra in this example)

Why not just put it towards the mortgage, have a much smaller mortgage and pay it off faster then save up 100k again? With very few outgoings it should be easier. Also you'll be better off mathematically at the time the original loan would mature.

Feisar · 02-07-2020 3:55pm

Harpon wrote: »

No it’s not the same. Not everyone wants to throw every cent they have on their mortgage. There are many many people out there with mortgages and then separate savings earning 0% per year on them.

You are minimising the risk to the bank because it’s almost impossible to repossess in this country. Whereas a bank guarantee account to the value of the mortgage would mean zero risk to the bank.

Banks can’t make any money on deposits due to negative interest rates, customers can’t make any money on their deposits, this is a solution to both of those problems also.

Agreed however lets say one borrows 160K, they will pay back 240K. A great way of "investing" 100K would be to only borrow 60K and pay back 90K. Only an example, I don't even know if banks give 60K mortgages over 25 years, however do you see my point?

silver2020 · 02-07-2020 4:05pm

I can get a 0.8% mortgage interest rate for the OP.

1.5% National solidarity bond (no dirt tax) on the lump sum. Fixed 10 years

2.3% mortgage.

net cost 0.8% on the amount borrowed up to the lump sum value.

Diemos · 02-07-2020 4:08pm

silver2020 wrote: »

I can get a 0.8% mortgage interest rate for the OP.

1.5% National solidarity bond (no dirt tax) on the lump sum. Fixed 10 years

2.3% mortgage.

net cost 0.8% on the amount borrowed up to the lump sum value.

I can get 0%
The op uses the 100k.

Seriously, who in their right mind would borrow cash at 2.3% to place it in an investment vehicle that returns 1.5%.
I think it would be a bad idea if they got a higher ROI than 2.3% as it doesn't account for risk.

Diemos · 02-07-2020 4:18pm

Feisar wrote: »

Agreed however lets say one borrows 160K, they will pay back 240K. A great way of "investing" 100K would be to only borrow 60K and pay back 90K. Only an example, I don't even know if banks give 60K mortgages over 25 years, however do you see my point?

I assume that the op know all this. They've just come up with a strange idea for a product that does not exist. Because it's just not a good idea.

phormium · 02-07-2020 4:40pm

What you want is the old First Active offset/current account mortgage, now both long gone unfortunately, great product but very poor take up on offset mortgages in this country, people don't like change! Very common in Australia at that time too as returnees were far more likely to seek out this sort of mortgage. NIB and PTSB both had varieties of it as well.

Harpon · 02-07-2020 5:27pm

phormium wrote: »

What you want is the old First Active offset/current account mortgage, now both long gone unfortunately, great product but very poor take up on offset mortgages in this country, people don't like change! Very common in Australia at that time too as returnees were far more likely to seek out this sort of mortgage. NIB and PTSB both had varieties of it as well.

Hopefully we will see a return given the uncertain economic environment, banks will be looking at reducing their risk.

Harpon · 02-07-2020 5:31pm

silver2020 wrote: »

I can get a 0.8% mortgage interest rate for the OP.

1.5% National solidarity bond (no dirt tax) on the lump sum. Fixed 10 years

2.3% mortgage.

net cost 0.8% on the amount borrowed up to the lump sum value.

Lol that’s one way I suppose. Not sure how comfortable I would be buying Irish bonds given brexit is starting soon, Ireland’s tax haven status is under serious threat, government debt is exploding due to Covid, and the new government plan on spending like its 2006! Would not be able to sleep well at night owning those bonds.

phormium · 02-07-2020 5:35pm

Harpon wrote: »

Hopefully we will see a return given the uncertain economic environment, banks will be looking at reducing their risk.

The offset mortgage did not reduce the risk for the bank, it reduced the interest paid by the customer if used properly. In the example mentioned the 100k would remain in a separate account always available to the customer but while it was there then no interest would be payable on an equivalent amount of the mortgage thus lowering cost of credit overall while retaining savings.

02-07-2020 5:51pm

phormium wrote: »

The offset mortgage did not reduce the risk for the bank, it reduced the interest paid by the customer if used properly. In the example mentioned the 100k would remain in a separate account always available to the customer but while it was there then no interest would be payable on an equivalent amount of the mortgage thus lowering cost of credit overall while retaining savings.

I'd never heard of that. It's actually a really good idea, and would encourage saving, too.

L1011 · 02-07-2020 6:06pm

Harpon wrote: »

Hopefully we will see a return given the uncertain economic environment, banks will be looking at reducing their risk.

It does not reduce their risk, as has been explained multiple times.

Eric Cartman · 02-07-2020 6:14pm

Harpon wrote: »

Hopefully we will see a return given the uncertain economic environment, banks will be looking at reducing their risk.

With ever increasing pressure to not repossess homes, mortgage lending is only getting more risky, no amount of savings are going to make underwriters feel better here.

guyfawkes5 · 02-07-2020 6:45pm

Harpon wrote: »

For example, if I want to buy a house valued at 250k and want a mortgage of 200k, could I say to a bank I will keep 100k of savings in a bank guarantee account with them that I can’t touch until the mortgage is paid off. And ask them to give me an interest rate of say 1.25% in return, as they would only have a max of 100k at risk on a 250k house. Has anyone tried anything like this or would banks not be interested?

No.

You could use the 100k to help purchase the house and hence have a lower LTV ratio, which in turn usually allows you to access lower interest rates, although no currently available interest rate will be as low as 1.25%.

I don't believe there is an incentive structure here for the bank either, as with almost nil or even negative ECB interest rates, there is far less of an incentive to build up large deposits on their books. So the bank would presumably want to loan it back out, but your example insinuates that a there is currently a risky lending market...

brisan · 02-07-2020 8:02pm

silver2020 wrote: »

I can get a 0.8% mortgage interest rate for the OP.

1.5% National solidarity bond (no dirt tax) on the lump sum. Fixed 10 years

2.3% mortgage.

net cost 0.8% on the amount borrowed up to the lump sum value.

I have one of those bonds but at 2.5%

riclad · 02-07-2020 11:59pm

Banks have to make a profit. There's fixed rates mortgages, and there's variable rate mortgages
Eg the interest rate can go up or down depending on market rates, I think the rate at the moment is 3.5 variable approx
If you borrow less than 80 per cent of the house value you might get a slightly lower interest rate than a 90 per cent loan
When a bank gives out a mortgage they are taking a risk, house prices might fall in ten years,
The person who borrows the money might lose their job and then be unable to pay the monthly loan payment for some time
You can go to a mortgage broker and get advice
I Don, t think there's any way you, ll get a loan under 3 per cent interest rate
There's a lot of pubs and shops which are closed
Some company's will go out of business due to
Covid crisis as their income was zero for the last 4 months so many people will lose their jobs
Having 100k savings will help you to get a loan ,
it might not make much difference to the interest rate you pay on a mortgage
A fixed rate loan means the rate will stay the same for a certain length of time,
So you know exactly how much the loan will cost per year

Springy Turf · 03-07-2020 4:38pm

riclad wrote: »

I Don, t think there's any way you, ll get a loan under 3 per cent interest rate

The going rate is currently 2.3% to 2.5% for fixed rate, and around 3% variable.

L1011 · 03-07-2020 8:19pm

riclad wrote: »

I Don, t think there's any way you, ll get a loan under 3 per cent interest rate

I have been paying under 3% for about four years now.

Is it possible to get lower mortgage interest rate for less risk

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