Experts urge caution over bank's tracker mortgage deal
Published 19/04/2011 | 05:00
MORTGAGE holders were warned yesterday to carefully examine the 10pc bonus being offered by Permanent TSB for lump-sum overpayments on trackers.
One financial adviser said the bonus for overpayments was far too low and should be set at 25pc for those with longer-term mortgages.
Michael Dowling of the Independent Mortgage Advisers Federation said Permanent TSB would be the big winner if someone with a 20 or 25-year mortgage took up the deal.
"The offer is a step in the right direction, but for those who have longer-term mortgages, the 10pc incentive is too low. It should be 25pc."
Customers of the bank who have tracker mortgages and who make additional payments of at least €5,000 will receive bonus payments of 10pc from the bank on their payments, as first reported in the Irish Independent yesterday.
The offer means that someone who makes an overpayment of €10,000 will have €11,000 written off their mortgage.
The deal only applies to lump-sum payments, and those taking up the deal will not lose their trackers.
Yesterday, mortgage experts warned that the offer would not suit those with cheaper trackers, or those with long-term home loans.
The offer is open until June 17, but is expected to be extended after that.
Frank Conway of personal finance website MoneyCoach.ie said the scheme would work for someone with lots of cash.
Paying off a lump sum on a mortgage could be a way to wipe out some or all of the negative equity. This is a situation where the value of the property has fallen and more money is owed on the mortgage than the house is worth.
There was also a huge psychological advantage in paying off a mortgage early, and it was hard to put a value on this, Mr Conway added.
The bonus offer will also benefit those moving home who are paying off that mortgage anyway with the proceeds of the sale.
But for many others who have spare cash the deal was best avoided, Mr Conway said.
"The deal does not make sense for consumers who already carry lots of expensive unsecured debt (personal loans and credit cards) as the cost of that type of borrowing means it should be paid off first," he said.
And the bonus deal will not work for someone on a low-cost tracker mortgage as the cost of funds is already minimal.
Most of the €17bn in trackers on Permanent TSB's books are set at 1.1pc above the European Central Bank rate, which means a borrowing rate of 2.3pc. However, some are as low at 0.5pc above the ECB, with a rate of just 1.5pc.
The deal made sense for buy-to-let investors, if they had the spare cash, Mr Conway said. But he advised consumers to get financial advice before availing of the offer.
"I would say that consumers should weigh up their options carefully. Consumers who have limited cash should keep a reserve of cash to cover their living expenses for six to 12 months and I would urge them to treat their cash with care."