Will Morgage Companies give a discount for early repayment of Trackers

Macca

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We have a hefty morgage with 17+ yrs to run at ECB+0.9%. We have substantial savings and could pay €200k off the principle. We would like to reduce our Morgage with a view to owning our home outright within the next 7/8 yrs. I recall a post from Brendan some time ago where it was suggested that making such a payment would only make sense if a c.20% discount could be achieved from the mortgage provider (in our case it is ICS). Given that these guys are losing on our mortgage are they likely to deal? If so are there specialists out there who are good at handling this type of negotiation?
 
I think that the major issue with queries such as yours is getting to speak with the right person. If you speak with front of the house staff, you'll more than likely be laughed out of the place. But if you manage to speak with the right high level person in head office, who knows? There's anecdotal evidence of bespoke deals being negotiated by the banks...they just don't want details of these deals being leaked to the public and such deals evolving into more widely available concessions.

Offer them €200,000 to eliminate €250,000 of debt. What's the worst that can happen? They say no. The gas thing is that they should say yes.
 
There is always the assumption here that the bank is losing on trackers, and will do so for the whole life of the deal. that is not always the case, nor does it have to be true for the whole life of the deal. If one looks at the like of PTSB, where they were heavily reliant on wholesale funding to fund the mortgages, then they are more exposed to short-medium term rises in funding costs. Other banks may not be as reliant on wholesale funding and may have large books of current account credit funds that can cross-subsidise the mortgage, as would be the case for BoI, AIB and Ulster. To a lesser extent NIB would be another case. These banks may be losing on the trackers now due to increased funding costs, but in e.g. 5 years time they may have been able to sort themselves out sufficiently to be able to once again raise relatively cheap funding in the covered bond (borrow money secured with e.g. low ltv mortgages) market at sufficiently cheap rates, combined with their average deposit funding rates in order to be able to wipe out the negative cost of trackers.

So for those banks with better funding positions, and access to covered bond markets in the future will not be rushing to do the kind of deals that PTSB are offering. Just in case one expects that all banks will eventually do these deals and that it would be an idea to hold off on paying off loans that over a long term you will be paying a chunk of interest on.
 
There is always the assumption here that the bank is losing on trackers, and will do so for the whole life of the deal. that is not always the case, nor does it have to be true for the whole life of the deal
Is there a tracker rate at which it could be guesstimated the bank will not - over the lifetime of the loan - turn a profit on? Taking my own as a case in point, I have 27 years to run on a NIB tracker at ECB + 0.59%. Is that likely to be profitable for them in the long run?
 
Is there a tracker rate at which it could be guesstimated the bank will not - over the lifetime of the loan - turn a profit on? Taking my own as a case in point, I have 27 years to run on a NIB tracker at ECB + 0.59%. Is that likely to be profitable for them in the long run?

depends on what they could potentially securitise it at - as part of Danske, that could well be possible
 
depends on what they could potentially securitise it at - as part of Danske, that could well be possible
Thanks for your thoughts on this Mark. Does anyone else have any insight into whether its likely that ECB+0.59% is profitable for NIB?

I'm open to correction, but the best tracker deals at the height of the boom were offered by NIB at ECB+0.50% (I didn't quite qualify for this as LTV was lacking a smidgen).
 
At ECB + 0.59% you'd be better off not paying too much off your mortgage (It's the cheapest debt you'll ever have!). Better to pay off any other debt you may have instead - overdraft, credit cards, car/personal loans etc. - and put the rest into savings accounts. (That's assuming you can manage the 17+ years remaining as per the OP) That said, even paying off a few extra thousand from your savings against the mortgage will bring down your term and/or interest payments. Its a question of balance.

In terms of banks making money from trackers or other mortgage types, it all depends on how they buy their money on the markets. The likes of NIB/KBC etc. are part of major international banking groups that buy combinations of long- and short-term funds on an ongoing basis, so they're not the same as the Irish banks who buy a lump of money at a set rate and then sell it to mortgage customers at that rate plus a premium. The Irish banks have had to sell at a loss as a result - hence the "unprofitable" tag, which may not always be the case...
 
There is always the assumption here that the bank is losing on trackers, and will do so for the whole life of the deal. that is not always the case, nor does it have to be true for the whole life of the deal.

I don’t fully understand the complexities of bank’s funding, but accept the argument that possibly over the 20 or 30 year term some banks might still make money on these low trackers, but surely there is potential to make substantially more.

In the case of say a 0.5% tracker, the bank have already funded this loan and today are getting 2% from their customer, if through an incentive the bank got this money back today, they would have plenty of takers at say 4% for this same money instead of the current 2%.

Is this to simplistic or what am I missing ?
 
I'm not a banking expert but my understanding is that there's a mismatch in relation to the mortgage and the bank's funding.

For example, in 2006 the bank advance me €500,000 at ECB + 0.5% over 25 years. The bank fund that over (say) three years at ECB + 0.25%.

As they saw it, the low margin would be made up by other more expensive services that they'd sell to me over the lifetime of the loan. However, once the credit crunch hit the bank couldn't refinance when the three years were up and now they're refinancing at (say) ECB + 2% and losing their shirt on the deal.

It's hard to see them being able to raise funds at less than ECB + 0.5% anytime soon so logically they should accept less than the value of the outstanding loan to discharge it in full. Again it's just my view but it seems to be bureaucracy and fear that's preventing them from offering wholesale tracker redemption deals. If I owned the bank I'd get someone to do the maths and then offer a fair deal to all tracker holders (fair being one where we split the "benefit"). That would be grasping the nettle but such a move seems to be alien to our culture of kicking the can down the road.
 
At ECB + 0.59% you'd be better off not paying too much off your mortgage (It's the cheapest debt you'll ever have!). Better to pay off any other debt you may have instead - overdraft, credit cards, car/personal loans etc. - and put the rest into savings accounts.
Yes - that's the approach I have been and I am taking currently. Concerns as regards where to put savings (as discussed ad nausem on AAM) have led me back to this subject - as if NIB could offer a 'deal' - then I could close out 50% of the loan in one hit.
 
exact same position NIB +.51%, know its cheapest money I'll ever but love if NIB offered something
 
Spoke to 2 different mortgage advisors in NIB who advised there wont be any incentive on offer for overpaying, anyone have any other ideas on where to go
 
Spoke to 2 different mortgage advisors in NIB who advised there wont be any incentive on offer for overpaying, anyone have any other ideas on where to go
It would sound like there is nowhere to go in this regard. At the end of the day, it's their call. However - as the one upside out of all of this - it's the cheapest financing you or I will probably ever see - so I don't intend to surrender one cent of it ahead of schedule. I can only suggest that you do the same.
 
It would sound like there is nowhere to go in this regard. At the end of the day, it's their call. However - as the one upside out of all of this - it's the cheapest financing you or I will probably ever see - so I don't intend to surrender one cent of it ahead of schedule. I can only suggest that you do the same.

Maybe you are looking at this from only one point of view and one point in time. Historically, the maxim used to be to overpay when interest rates are low to maximise the capital paid off, so that when general interest rates rise, there will not be so much exposure to rising interest rates. Your position is focussed on margin rather than the absolute interest rate. Yes 0.51% is fantastic margin over an ECB rate of 1 or 1.5%, but if ECB was up at 4%, then 4.51% is not so pretty, and you may be thinking it would have been better to overpay a bit at low interest rates.

The other argument about having low margin mortgage financing is that you put surplus cash into a deposit account and use it to pay-off when interest rates start to rise - but what is the optimum time to do that?
 
Your position is focussed on margin rather than the absolute interest rate.
Yes - your quite right it is - and I can see the merit in what your saying (re. overall rate as it exists now and is likely to exist in the future). I suppose everyones circumstances will be different but I think I could sustain a higher interest rate so not overly concerned about that.

The other argument about having low margin mortgage financing is that you put surplus cash into a deposit account and use it to pay-off when interest rates start to rise - but what is the optimum time to do that?
I guess i'm approaching it from the point of view of deposit savings rates being higher than the mortgage rate. I understand that deposit rates are artificially high right now and I guess if they reduce, there may not be so much merit in taking this approach.
 
Maybe you are looking at this from only one point of view and one point in time. Historically, the maxim used to be to overpay when interest rates are low to maximise the capital paid off, so that when general interest rates rise, there will not be so much exposure to rising interest rates. Your position is focussed on margin rather than the absolute interest rate. Yes 0.51% is fantastic margin over an ECB rate of 1 or 1.5%, but if ECB was up at 4%, then 4.51% is not so pretty, and you may be thinking it would have been better to overpay a bit at low interest rates.

The other argument about having low margin mortgage financing is that you put surplus cash into a deposit account and use it to pay-off when interest rates start to rise - but what is the optimum time to do that?

Someone on a tracker of ECB + 0.5% should in my view NEVER overpay or set a lump sum against their mortgage. It's highly unlikely that you'll ever be able to borrow at such a rate again and it's highly likely that you'll always be able to get a guaranteed after tax rate of return in excess of such a rate.
 
An acquaintance of mine with a €450,000 tracker mortgage with a foreign-owned bank was offered €100,000 to convert it into a standard variable-rate loan. That's the equivalent of a 22pc writedown. Add that to the mix and the Irish-owned banks are looking at a further €13bn of losses. In other words, between arrears and losses on trackers, it's hard to see how the Irish-owned banks can escape with losses of much less than €40bn on their mortgage books.

http://www.independent.ie/business/why-the-mortgage-crisis-could-be-a-euro40bn-problem-and-not-a-euro6bn-one-2866134.html
 
That is an amazing write down. But still one would have to do the sums to make sure that it makes sense.
 
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