Discount for clearing Mortgage

cremeegg

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I contacted Certus (Bank of Scotland) this morning to enquire if I would get a discount if I cleared my mortgage with them.

They told me that if I make an offer in writing it will be considered.

Background. I have a number of buy to let properties. Including 2 on interest only, for 20 odd years remaining, with BOS. Each €200k. Both on trackers ECB +0.75%

The rents pay the interest only with a bit left over. I am self employed and have enough savings to clear one mortgage, however my own income is only barely adequate, I have young kids.

I also have a mortgage €220k on my home with ICS. They have told me that they will not offer any inducement to clear that mortgage

Any suggestions what kind of offer BOS might accept. Or what figure would make sense for me.

Thanks
 
Can you give the details of the buy to let properties - amount remaining, years remaining, interest rate etc.
 
Hi CremeEgg

This is very difficult to advise on. Consider the following:

The interest rate is 2.25%

You can set 75% of it against the rent for tax purposes
So you are getting 0.85% "back" so to speak.
The net rate you are paying is 1.6%
You can put money on deposit at 3.5% less DIRT = around 2.6% net.

So you are better off leaving money on deposit by 1% a year.

20 years interest only is worth a lot.

If, by any chance, you are paying more than 3.5% on your home loan, you effectively "earn" 2% net by paying it off instead. Even if you are not paying 3.5% now, you might be later if you were ever to trade up.

Under the circumstances, you should probably want around 30% and it's unlikely that BoS will entertain such an offer.

To complicate things further, it appears that you are overexposed to property and should consider selling some of your investment properties. Obviously you would lose your tracker if you did so. So if you were selling a property with a cheap tracker, getting 10% off now would be great value. Having said that, you would need to put all your properties on the market to have a chance of selling one or two. You might want the cash in the bank to make up any negative equity.

Brendan
 
Thanks for your comments.

I agree that I am over exposed to property, and to Ireland. I concluded this in 2006 so I borrowed against the Irish investment properties to invest in the UK stockmarket. It was a textbook sensible decision, but I still got burned. The FTSE was at 6200 at the time.

The mortgage on my own home is ECB + 1.25%. I dont expect to move, not unless forced by financial circumstances.

Although I am overexposed to property I am not sure that selling property now is a good idea. Warren Buffet has a saying "dont just do something, stand there" that seems applicable to the Irish property investor at the moment.

I am not too concerned whether paying off the mortgage would benefit me by 1% pa.

My concerns are more strategic, is money in the bank at risk in case of a Euro crisis, if the markets are demanding 9% on Irish govt debt, getting 3% in an Irish bank which relies on Irish govt guarantee is obviously concerning.

My second reason for posting is just to get opinions on the "game" of making an offer to BOS. If I offered 95%, I think they would take it, but that would not be in my interest. If they would take 50% that would be great for me but is there any chance they would consider it.
 
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