How much is your tracker deal worth... to your bank?
Banks are trying to buy back their tracker mortgages. Should you bite, asks Louise McBride
LENDERS should be offering payoffs of as much as half of your mortgage to make it worth your while giving up your tracker mortgage, the Sunday Independent has found.
This finding comes a few weeks after Permanent TSB launched its 10 per cent bonus offer to borrowers who pay lump sums of at least €5,000 off their tracker mortgage.
Other lenders are expected to follow suit. Some lenders might even go as far as offering borrowers a payoff if they give up their tracker mortgage completely.
This paper asked the mortgage brokers, the Independent Mortgage Advisers Federation (IMAF), and the financial advisers, advisors.ie, to outline what kind of payoffs would justify a borrower giving up a tracker mortgage. Both used different methods to calculate the size of the payout to trade in your tracker, which explains the variance in amounts. In one case, it emerged that a payoff of €48,000 would be needed for a borrower to give up a 25-year tracker mortgage of €100,000.
A payoff of that magnitude suggests that the Permo offer falls far short of what it should be. Under the Permo offer, borrowers can pay off up to half of their tracker mortgage. A borrower paying a lump sum of €50,000 would get a €5,000 bonus, meaning they'd pay €55,000 in total off their mortgage.
Michael Dowling of the IMAF believes you should only take up Permo's bonus offer if you have already decided to sell your house -- or if you have less than four years outstanding on your mortgage.
"The average Permo tracker rate is 2.3 per cent -- yet it's costing Permanent TSB between 5.2 and 5.3 per cent to borrow money on the open market," said Dowling. "An incentive of €5,000 on a €50,000 lump sum doesn't add up."
Others however believe that the Permo offer is worth considering.
"Getting rid of debt is a good idea, and the new Permanent TSB bonus scheme puts a sweetener on it," said Karl Deeter, head of customer advice with the financial advisers, advisors.ie. "If you don't have a rainy-day fund, this is not for you. If you have debt elsewhere that is at a higher interest rate, it is a bad idea."
Any decision to give up your tracker should not be taken lightly. So just what should your lender be offering you to make it worth your while kissing goodbye to your tracker?
Sunday Indo Business