Thursday 23 November 2017

Mortgage holders to get 10pc bonus for paying lump sum off trackers

Customers who make a minimum lump sum payment of €5,000 on their tracker mortgage will get an extra 10pc of that sum paid off by Permanent TSB. Photo: Thinkstock
Customers who make a minimum lump sum payment of €5,000 on their tracker mortgage will get an extra 10pc of that sum paid off by Permanent TSB. Photo: Thinkstock

Charlie Weston Personal Finance Editor

THE State's largest mortgage lender is to offer its tracker customers a 10pc bonus if they overpay their mortgage using a lump sum.

Permanent TSB will announce the incentive deal today as it bids to get loss-making trackers off its books.

Customers who make a minimum lump sum payment of €5,000 on their tracker mortgage will get an extra 10pc of that sum paid off by Permanent TSB.

Mortgage experts were surprised Permanent TSB had set the incentive rate at 10pc as it had been expected to be around 5pc. The rate is around three times higher than the best savings rates available in the market. The move sets a benchmark and is likely to be replicated by other lenders, the Irish Independent has learned.

Some six-out-of-10 of Permanent TSB's mortgages are trackers, with these home loans costing the lender around €400m a year.

Mortgage holders will not be asked to give up their trackers and switch to other types of mortgages.

Instead they will be encouraged to pay off the mortgage faster than originally agreed, or at least reduce its size, using a lump-sum payment.

The deal will be open to tracker holders whether their mortgage is residential, commercial or buy-to-let.

Under the deal, someone who has a spare €90,000 and could make an overpayment, would end up wiping an extra 10pc -- or a total of €99,000 -- off their mortgage.

It is unlikely that large numbers of people will have the funds to avail of the initial deal -- it is open to customers who make lump-sum payments of at least €5,000 and is available up until June 17 next.

But it could be extended after that date if the scheme is a success. It will not, however, apply to homeowners who are in arrears. Arrears will have to be cleared first.

Customers will be able to pay off a maximum of half the outstanding mortgage balance under the deal.

It had been expected that Permanent TSB would also announce a deal that would allow people who move house for a new job, or who downsize, to take their trackers with them. But that does not form part of today's announcement.

The bank has a target of €500m for the overpayments under the scheme. Once it reaches this figure the offer will be reviewed.

But the Irish Independent understands the offer may be extended if it proves popular.

Personal finance experts explained that overpaying a mortgage means a homeowner would pay off the mortgage quicker -- and save themselves money on interest payments.

Tracker mortgages are a problem for banks because they have low interest rates -- which can only rise when the European Central Bank decides to raise rates. Some of Permanent TSB's borrowers have tracker rates as low as 0.75pc above the ECB rate.

This means these people have rates of 2pc, compared with variable rates, which are currently as high as 5.45pc.

Tracker holders are repaying €500 less a month on a typical home loan compared to someone with a variable rate.

Chief executive of the Irish Brokers Association, Ciaran Phelan, welcomed the offer.

"It has potentially got something in it for many customers, as well as the bank. It will really suit some customers," he said.

However, he said that the arrangement was worth a lot more than 10pc to the bank.

And if the customer intended borrowing again in the future, say for a house extension, they may still be better off holding on to their tracker instead of paying it off.

This is because once the tracker is paid off, the customer will never be able to borrow money at that low rate again.

Mr Phelan said consumers needed to assess their finances. If they have credit card debt at a 20pc interest rate, they would be better off paying this off first before considering the tracker deal.

"Age and life stage is an important factor -- as we get older we are less likely to need to borrow again, so this offer will really suit those heading towards retirement.

"For a young family with future financial needs, they are probably better off saving for future needs and keeping the tracker for a long as possible."

Irish Independent

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