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Calculate how much a mortgage is worth

If your bank is putting you under pressure to give up your tracker mortgage – or if you're negotiating a debt deal with your bank and your tracker is at stake, just how much of a discount off your mortgage should you be asking your bank for in return for giving up your tracker?

The Sunday Independent lined up mortgage expert, Michael Dowling of the IMAF, to calculate exactly how much your tracker mortgage could be worth. Dowling compared the cost of an average tracker mortgage with the cost of a typical standard variable mortgage that would be offered today. In his calculations, Dowling used an interest rate of 1.75 per cent for the tracker mortgage, and a rate of 4.25 per cent for the more expensive standard variable mortgage.

25-YEAR TRACKER MORTGAGE OF €250,000

Worth €97,462 to a homeowner; €142,675 to an investor

If you're a homeowner, you would need to get a discount of €97,462 off your mortgage to make it worth your while giving up your tracker, according to Dowling's calculations. The interest on a €250,000 tracker mortgage of 1.75 per cent would add up to €58,842 after 25 years, said Dowling. However, the interest under a standard variable rate mortgage of 4.25 per cent would clock up to a whopping €156,304 after 25 years – that's almost three times the interest you'll pay under your tracker.

If you're an investor with a 25-year tracker mortgage of €250,000, your bank would need to offer you a discount of €142,675 to make it worth your while giving up your tracker mortgage, according to Dowling. Your tracker mortgage in this case will be worth more than it is to a homeowner because the interest rates on buy-to-let mortgages are higher. If for example, you have a buy-to-let tracker mortgage with an interest rate of 2 per cent, the interest bill on that mortgage would be €67,891 after 25 years. However, the interest rate on a buy-to-let mortgage today could easily be about 5.5 per cent and under that rate, you could pay €210,566 in interest over 25 years, said Dowling.

15-YEAR TRACKER MORTGAGE OF €150,000 Worth €31,459 to a homeowner

Your bank would need to knock almost €32,000 off your mortgage to make it worth your while giving up a tracker mortgage of €150,000. If you've €150,000 left to pay on your tracker mortgage, the interest will clock up to €20,657 over 15 years under a tracker rate of 1.75 per cent. However, under a more expensive standard variable mortgage of 4.25 per cent, you'll pay €53,116 in interest after 15 years – €31,459 more than you will under your tracker, according to Dowling.

10-YEAR TRACKER MORTGAGE OF €80,000 Worth €11,087 to a homeowner

Dowling reckons your bank would need to offer you €11,087 to give up a ten-year tracker mortgage of €80,000. The interest under a tracker mortgage of 1.75 per cent will add up to €7,262 after 10 years – however, you'll have to cough up €18,340 in interest over 15 years if you're paying an interest rate of 4.25 per cent on a standard variable mortgage, according to Dowling.

Louise McBride

Irish Independent