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Monday 24 June 2019

Karl Deeter: Don't be so nice - get mortgage loan savvy and play the banks at their own cash-back game

(Stock photo)
(Stock photo)

Karl Deeter

Why don't people take advantage of banks the way that banks take advantage of them?

What I'm about to describe could be worth over €10,000 to you in the space of a year - and yet the chances are very few people will do it.

If a lender knew they could get a higher amount of money out of you they'd naturally do it. If you doubt this, just look at the variable rate many of them charge to get a loan with them and you'll see that it's really high versus the fixed rates.

This is because they want you to take out a loan with them and then not move elsewhere.

Some banks even go so far as offering people 2pc cash-back when then do take out a loan with them.

Initially, they made a rule that they could 'claw back' this sum (take it back) if you left. But regulators didn't agree. That means you could take out a loan, get cash back and then leave - and there is nothing the bank can do about it. That is why they make the fixed rates so much cheaper, it forces you into a rate where the borrower can be penalised for 'breaking' it (going elsewhere).

If a lender knew they could get a higher amount of money out of you they’d naturally do it. If you doubt this, just look at the variable rate many of them charge to get a loan with them and you’ll see that it’s really high versus the fixed rates.
If a lender knew they could get a higher amount of money out of you they’d naturally do it. If you doubt this, just look at the variable rate many of them charge to get a loan with them and you’ll see that it’s really high versus the fixed rates.

I was delighted to see that Charlie Weston broke the news in this paper that, due to new European rules, the banks couldn't do this the way they thought they could.

It was largely down to the work of Brendan Burgess from AskAboutMoney.com, who doggedly chased down the answers.

He had told me about it months ago.

But when I called banks they spun me a different line and, foolishly, I accepted it. Brendan didn't. He kept pushing for specifics and, in the end, he was right about it.

Now that we know this, will many people take advantage of the banks and play them at their own game? I should make it clear that what I'm about to describe goes for people who don't have tracker mortgages.

What you need to do if you have a mortgage is this: write to your bank and ask them to give you the details of any break fee if you are on a fixed rate, if you aren't you can just leave straight away.

In many cases it will be zero, so find out if Bank of Ireland will do your loan and get 2pc cashback from them, take their lowest fixed rate. Wait a year and go to the next lender offering you 2pc cashback (EBS or PTSB) and get the same again.

If you have a mortgage of €300,000, that'll make you a tax-free sum of €12,000 in just over 12 months.

The usual caveats apply - do get advice.

Karl Deeter @karldeeter is the compliance manager atmortgagebrokers.ie Charlie Weston is away

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