# How much to give up your Tracker?

Mike Soden was on Newstalk on Friday:
media.newstalk.ie/listenback/49/friday/2/ - From 0:48:05 on.

He said a tracker could be worth €1k - €2K a year to someone and the bank could offer to bring the next 10 years savings forward and make a deal with the mortgage holder by lodging €20K in the person’s account if they agree to come off their tracker.

Keeping things simple - if we use Karl Jeacle’s Mortgage Calculator:
drcalculator.com/mortgage/ie/

A €500K mortgage, starting from Jan 20111, over 30 years @ 2% gives:

• A monthly repayment of €1,848
• An outstanding capital balance after 10 years of €365,320 - so a repayment of €134,680
• A total interest payment after 10 years of €87,088

At the same time someone on a 3% rate would be paying:

• A monthly repayment of €2,108
• An outstanding capital balance after 10 years of €380,099 - so a repayment of €119, 901
• A total interest payment after 10 years of €133,058

So after 10 years they would have paid €45,970 more in interest and have €14,779 less in capital repaid.

More realistically, anyone moving would probably get a 4% rate quoted, meaning:

• A monthly repayment of €2,387
• An outstanding capital balance after 10 years of €393,919 - so a repayment of €106,081
• A total interest payment after 10 years of €180,363

So after 10 years they would have paid €93,275 more in interest and have €28,599 less in capital repaid than @ 2%.

So a difference of €121,874

But what if you wanted to shop around?

Any mortgage provider is going to take the current value of the house - which if we say is 40% less - means €200,000 needs to be financed to allow movement to another provider.

So how much should someone be considering if they were to get an offer from the bank that they could not refuse?

Anecdotal,I know of a chap who was offered e1k to move off his tracker of .85% to a short term fix and then onto an old varaible…needless to say he declined,I wonder how many less financially literate have jumped at this offer?

Another way to consider the numbers above, is to see what happens if you keep your monthly repayment similar to your tracker at the new interest rate and new/same principle.

Current situation would be €500,000 mortgage on 2% tracker for 30 years gives a monthly repayment of €1,848.

So if you moved off a tracker and kept the same principle, but now had it at 4% interest:

• Then to maintain a monthly repayment of €1,928 would require a mortgage for 50 years.

If you moved off a tracker and took a new €300,000 mortgage at 4% interest:

• Then maintaining a monthly repayment of €1,817 needs only a mortgage of 20 years.

Karl Deeter thinks 25% of your tracker is impossible.

mortgagebrokers.ie/blog/inde … r-tracker/

I’ve crunched some numbers on Karl’s scenarios - and I gotta say - this is fucking atrocious advice/opinion to be coming out with:

Take this example:
Person gets a tracker in 2006 and is looking to crunch the numbers from start of 2011 to see what it’s worth to give it up?

A €250,000 mortgage at 2% at the start of 2006.

By end of 2010 they would have an outstanding balance of €209,462 and have paid €23,040 in interest.

Any bank worth their salt will say the new arrangement is a new contract which would now be:
A €209,462 mortgage at 3% at the start of 2011

Note how everything in Year 3, 5, 15 and 20 is more expensive in the re-priced product.

Also, The interest from the first 5 years rolls over into the 20 year product - meaning you end up paying €25K more in interest.

This is all based on the assumptions outlined by Karl - I would actually test against being on 4% for 20 year.

Even still - anyone getting offered this deal and accepting €10K for their tracker is nuts!

And anyone promoting it is nuts!

I would consider fix for the balance, no overpayment penalties , reducing monthly balance and a lump sum to break a tracker…don’t mean I would accept it.

Over the remaining 20 years some will likely be at 6% even on a low spread tracker. Were the bank to offer a 3.5% Fix and no overpayment impediments for the term balance one would be well advised to consider it.

Changing to variable would require a large lump sum in Ca\$h€€\$h of course.

My 2c

10k for swapping out of a tracker?there are plenty of double deckers whose first reaction would undoubtedly be woooohoooo jack pot baaaby!!

Fail…

Okay - this has been bugging me - because I don’t know of any bank who are offering people a ECB+2% to replace their ECB+1% tracker.

The more I think about it, the more it seems nuts to me. Why would a bank try and move customers from a huge loss-making product to a less-huge loss-making product? Surely they are going to try and move them to a Fixed or Variable? And also at more current rates, like 4%.

So running the number again:
A €209,462 mortgage at 4% at the start of 2011

Which ends up costing €50K more than the original 2% tracker - and if you see that 50K as a % of the new mortgage of €209,462, then it’s 25% - which is exactly what others have been recommending as a minimum for surrendering your tracker.

Have any of the banks actually made any serious offers to buy-out trackers? The only things that I can see that they have tried to do is to make a derisory offer of €1,000 to buy-out trackers and have targeted the most naive of customers. Are any of the banks looking at making a reasonable level of compensation to get mortgagees to switch to a variable/fixed product? From what I can see, except in certain isolated cases where the baks are trying to pull the wool over the eyes of consumers, they are not currently consider buying-out trackers at all, and are willing to take the full amount of the loss, as the taxpayer will make up the difference.

I am actually surprised that non-Irish banks e.g. Ulster Bank, NIB etc have not made some sort of effort to make it worth peoples while to give up their tracker. The Irish taxpayer will not fund the difference in their particular situations.

Banks go after the numpties. I moved onto my tracker about 18months ago after two years of fixed and got a couple of sinister calls prior to changeover wondering whether there was anything they could do for me with regard to moving to a new arrangement-fixed rate. Obviously sounding me out to see whether I was a financial knucklescraper.Am close to being but even mine don’t scrape that hard. Haven’t heard a dicky bird since.

You might give up your tracker to move. e.g. you have an investment property in negative equity but youre repaying the tracker mortgage comfortably (from rental income)
You want to buy a family sized home.The bank allow you to keep your negative equity property but insist you surrender your tracker and moved to fixed on both properties. only then will they give you your mortgage. I think this idea has been mooted in some of the banks.

Yeah - but how much do you surrender it for? Zero?

yes you surrender it for zero.
why?
because the bank is “allowing” you to move from a two-bed apartment (in negative equity) to a three bed family home. They know you can repay it from rent and your own income (if for example you are a high rank permanent civil servant). Certain banks are considering offering this on the assumption that certain people are so desperate to move (e.g. have small kids)they might agree.

guardian.co.uk/business/irel … -mortgages

independent.ie/business/pers … 22209.html

Money talks – if only you can spare the cash
Monday April 18 2011
independent.ie/opinion/edito … 22276.html

**Deal would cut €1,087 repayment to €870 **
Monday April 18 2011
independent.ie/business/pers … 22175.html

This looks like a pretty good deal to me. All the previous speculating has been about compensation for giving up a tracker. Here it’s a straight swap between cash on deposit and paying down the loan. With the current low rates, it makes sense to keep money on deposit, if you have a good tracker, but as rates rise, this will not be as attractive. Even if deposit rate rise in line with the ECB rate, the effect of DIRT will mean that it will pay less and less to keep money on deposit as the rate rises…

Anyway, I’d be interested in this deal if my mortgage provider were to offer it.

After some back of envelope sums and thinking about this, I think it is a pretty good deal.

The only things that I am nervous about is:

1. If I pay off early and the government do a write down of outstanding mortgages as part of a homeowner bailout, will it be more attactive (unlikely to happen).
2. Will PTSB offer better terms in future (unsure)
3. Losing access to ready cash (but if the Euro fails, having lower debts could be better than a drawer full of equivalent Euros)

I have been holding off paying a large lump sum (to me) against my mortgage, but I reckon I will go for this offer.

namawinelake.wordpress.com/2011/ … anent-tsb/

namawinelake.wordpress.com/2011/ … anent-tsb/

Well at that rate I think I’d treat the offer like those with cash were treating the Allsop auction the other day. Let the panicky folks pile in now, let PTSB look at the success/failure of the “offer”, assuming its a good deal for them (and it certainly looks like it from NWL’s figures above) then surely they’ll come back with a better offer in the future? Saving yourself €4,410 in interest is certainly attractive though.

I think there is a slight flaw in his analysis, at least from the borrower’s perspective. He doesn’t seem to be taking into account the cost of funds. If you choose not to pay down the mortgage, you are effectively borrowing to invest. So you need to take into account the mortgage rate too.
E.g. he says over a 5 year horizon, PTSB are offering a “measly” 2%. (The 10% discount over a five year period). But you should add the 2.25% charged to borrow those same funds.

Example:
Mortgage outstanding 100,000. Say rate of 2%, to make it easy. Say also that you can get a 4% return on savings and that the mortgage holder has 50k on deposit.
To make it simple, let’s imagine he is on interest only.
Mortgage interest 2000
Deposit interest 2000 - DIRT at 27% = 1460.
Net interest payment per year = 540

Say he pays down the 50k, gets 5k bonus. Outstanding mortgage now 45k.
Mortgage interest 900,
Deposit interest 0.
Net interest payment per year = 900.

So the difference in net interest payments is only 360 per annum. Would take nearly 14 years to wipe out the benefit of the 10% bonus.

Obviously, the greater the difference between the mortgage rate and the investment return (or indeed if you are still availing of mortgage interest relief) the less attractive the deal, but I still think this would be attractive to many borrowers.