Wednesday 21 February 2018

Homeowners told to ignore lenders' call to overpay on tracker mortgages

Charlie Weston Personal Finance Editor

HOMEOWNERS with tracker mortgages have been told not to make overpayments on their home loans despite the urgings of banks.

A number of banks, including Belgium-owned KBC Bank, have written to their tracker customers encouraging them to use their savings to make higher payments on their mortgages.

This would mean the mortgage would be paid off faster, and the customer would save on interest payments over the life of the loan.

But financial experts said that homeowners with trackers should not increase their monthly mortgage payments across the board.

They are better off putting spare cash into making extra payments on a more ad-hoc basis. This is because once a customer raises their mortgage payment, it might be difficult to get it reduced again if circumstances change.

At the moment, many tracker-holders are paying record low amounts, thanks to the cut in European interest rates in May.

The latest drop in rates has seen a household with a €300,000 mortgage save around €150 a month.

But banks are losing vast amounts of money on trackers, as they are priced much lower than banks can now access money on international money markets.

Brendan Burgess, of the website, warned tracker-holders not to make regular higher repayments.

He claimed that homeowners were in danger of weakening their tracker contract and claimed banks that accepted higher payments would not always allow homeowners to lower the amount again.

Mr Burgess suggested tracker-holders with spare cash pay random amounts.

"I would not put it past KBC to try to get you to change your mortgage agreement," he said.

"If, after a few years, you want to reduce your repayments, they won't allow you."

In response, KBC Bank said it had written to its tracker mortgage holders but said any decision to overpay a mortgage was optional.

"The letter suggests that tracker mortgage holders may wish to consider paying an additional amount each month (above their scheduled repayments).

"With interest rates at a historical low, borrowers who are in a position to increase their monthly repayments (or maintain their pre-rate decrease) will reduce the interest paid over the lifetime of their mortgage, and reduce the term of their loan," the KBC Bank spokeswoman said.

Some 375,000 homeowners have trackers, the cheapest mortgages in the market.

But trackers are coming under attack. In the past week, there have been calls for trackers to be taxed.

Last month, the IMF said homeowners with trackers should lose tax relief. This would be a way for the State to subsidise domestic banks for the huge losses they are making on these mortgages.

From yesterday, lenders can do a deal to take a tracker off a mortgage-holder in arrears as an alternative to repossession.

Irish Independent

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