Is there a catch with Tracker Mortgages

S

Stan101

Guest
It seems that tracker mortgage rates are always less than variable rates. So why doesn't everyone change to tracker?. Am I missing something ?.
 
Because initially lenders wouldn't allow borrowers on standard variable rates to switch to the lower tracker rates (or would require them to go to the expense of a full remortgage in order to switch) and because the best tracker rates only apply to mortgages in excess of €250,000 and/or below 60% LTV.

Kind regards,

Sarah

www.rea.ie
 
Just to expand on the previous point - it is possible to get a tracker rate on a mortgage of less than €250,000 with LTV greater than 60% - i recently got a mortgage of 170,000 (92% LTV) from Ulster Bank on a tracker rate of ECB + 1.05% - it is necessary however to open a U first account to avail of this (monthly charge for this)
 
But can you start ona discounted variable rate and then switch to the tracker rate after the first year. I thought this was ok if you had agreed it with the bank before hand
 
I've just had an offer from REA to sort out a tracker mortgage for us. ECB plus 1%. Apparently Ulster BAnk will cover the costs of transferring from Irish Permanent as we owe about 20% of the market value of the house. Not sure but I think we'd have to switch to UFirst current account too. Bank of Scotland tracker rates are around 3% too if you owe less than 60% of MV. Not sure if they cover costs or not.
 
Hi Dublin Taxpayer

Beware the cheap and cheerful discount brokers.

Even a cursory glance at the Best buys will show that there are much better rates than 3% out there. In the circumstances you describe, I’m very sure that other mortgage providers would gladly match your fees. AAM is littered with stories about mortgage holders getting such value from financial institutions just by asking for it. Have you tried reverting to Permanent TSB to see if they can match the ECB +1% rate ? It may be the simplest thing to do.

From painful personal experience, mortgage brokers just add another layer of bureaucracy and stress into what is already a difficult transaction. You’d be far better off going direct to UB, or another institution.

One of the big plusses of using a broker, is the commission refund. What most of them are coy to admit is that any such refund (post the deduction of their fees, and other expenses) are subject to tax at the marginal rate. You are legally obliged to declare this income on your tax return.


Cut out the middle man, and go direct. You'll save yourself time, hassle, and money in the long run.

Hope this helps,

Noel
 
Gawd - I wish there was a "banging your head against a brick wall" smilie! OK, as calmly as I can; REA are the only mortgage brokers in Ireland who declare and refund commission to clients in full. We charge a fee for our service which includes the professional fee of a panel solicitor to handle the conveyancing (purchase or remortgage).

The Revenue have confirmed to us that they view the refund as a rebate of the fee so there is no tax issue. Lenders pay brokers commission to cover the marketing and administration costs of arranging a mortgage up to the stage of underwriting - there is no difference in cost between using a broker and going to the institution directly.

Obviously the choice of using a broker or dealing direct is down to personal preference but given that brokers account for 40% of the Irish mortgage market we can't be completely useless.

Rant over. Happy New Year!

Sarah

www.rea.ie
 
Thanks, to you both! Seems that IR Perm aren't interested as we owe less than 150ka nd have only 10 years to run on teh mortgage ( I think). Strangly enough we'd have to owe them more for them to bother..... nice way to treat existing customers. Considering our loan is less than our joint salaries never mind a multiple of them you'd think they'd be interested. Oh well maybe I sould become a higher credit risk to get their attention.
 
Sarah, to go through your points.

Gawd - I wish there was a "banging your head against a brick wall" smilie! OK, as calmly as I can;
There really is no need to be so snide. Can you please answer the points without being so dismissive ?

The Revenue have confirmed to us that they view the refund as a rebate of the fee so there is no tax issue.
This differs from previous posts that you have made here, where you stated that any commission rebate in excess of your fees are taxable. Which is correct?

…there is no difference in cost between using a broker and going to the institution directly.
Erm, no ! From personal experience, the threat of going through a broker for a financial product has usually resulted in either a discount or a refund of commission. No need to pay for a middle man.

…given that brokers account for 40% of the Irish mortgage market we can't be completely useless.
Brokers feed off the fear, uncertainty, and doubt that many consumers have when it comes to dealing with financial institutions. Financially literate consumers, such as AAM contributors, shouldn’t need the “help” of a mortgage broker.

Hi Dublin Taxpayer,

Before you sign up with UB, I’d strongly advise directly approaching the Best Buys providers to see if they can better the deal obtained through your intermediary.

Regards,

Noel
 
Hi Noel,

I wasn't answering any points - I was having a rant; a completely different thing! (Please look up 'irony' if you are still unsure ;) )

As the commission refund never exceeds the fee there is no tax payable. We have operated this system since 1996 and there have been no issues whatsoever with the Revenue.

Erm, no ! From personal experience, the threat of going through a broker for a financial product has usually resulted in either a discount or a refund of commission. No need to pay for a middle man.

Have you personally received a commission refund on a mortgage by going direct to the lender? If so you must register yourself as a mortgage intermediary with ISFRA, pay the appropriate membership fees, take out professional indemnity insurance and prepare to sit the required examinations. Also did you declare this income to the Revenue?

Brokers feed off the fear, uncertainty, and doubt that many consumers have when it comes to dealing with financial institutions. Financially literate consumers, such as AAM contributors, shouldn’t need the “help” of a mortgage broker.

Are you insinuating that borrowers who use brokers are financially illiterate who we browbeat into submission? So the lawyers, doctors, accountants, company directors, IT consultants et al in our client bank are not (as we assumed) busy professionals who appreciate that using a professional mortgage brokers can save them time and money and take the hassle out of the process but in fact are clueless saps who we gleefully rip off? What about the journalists who both write about REA and use our services personally? Gee, it's great to know that we've finally managed to fool all the people all the time!!!

Warmest regards,

Sarah

www.rea.ie
 
From REA's own frontpage:

"Last month the typical REA client received a commission refund of over €1,500. Don't make a costly mistake!"

How do you reconcile this with your remark:

As the commission refund never exceeds the fee there is no tax payable. We have operated this system since 1996 and there have been no issues whatsoever with the Revenue.


Did you advise all the recipients of this €1,500+ to "register as a mortgage intermediary with ISFRA, pay the appropriate membership fees, take out professional indemnity insurance and prepare to sit the required examinations."? I trust you did !

Also did you declare this income to the Revenue?
Yes

Are you insinuating that borrowers who use brokers are financially illiterate who we browbeat into submission?
No, but few of them have the time or interest to look into the matter, so they turn to a broker or a bank manager for advice. The result is that they often get sold inappropriate products.

Few financially literate people, such as the population of AAM contributors should need such a service, or do you regard contributors here as being as "financially illiterate" ?

What about the journalists who both write about REA and use our services personally?
As has been often cited here, Irish financial journalists ain't always as hot as they could be.

Gee, it's great to know that we've finally managed to fool all the people all the time!!!
Again, no need for the sarcasm.
 
"Last month the typical REA client received a commission refund of over €1,500. Don't make a costly mistake!"

How do you reconcile this with your remark:


Quote:
As the commission refund never exceeds the fee there is no tax payable. We have operated this system since 1996 and there have been no issues whatsoever with the Revenue.

It's very simple. We charge the client a fee, this fee depends on the size of the mortgage (for example mortgages between €250,000 and €300,000 are charged at €2995 + VAT or €3623.95). The fee includes the professional fee of a REA panel solicitor to handle the conveyancing (excluding outlays). It also includes a full refund of the commission paid to REA by the lender therefore ensuring our advice is unbiased. If someone is borrowing €250,000 their net cost is €1123.95 (€3623.95 - €2500) to include solicitor and VAT. If they borrow €300,000 the net cost falls to €623.95 (€3623.95 - €3000).

Did you advise all the recipients of this €1,500+ to "register as a mortgage intermediary with ISFRA, pay the appropriate membership fees, take out professional indemnity insurance and prepare to sit the required examinations."? I trust you did !

As I said before it is viewed as a fee rebate. You were claiming to have effectively represented yourself as the 'middle man' to get a commission refund which, from the 1st January 2005, means you must be authorised.

Few financially literate people, such as the population of AAM contributors should need such a service, or do you regard contributors here as being as "financially illiterate" ?

On the contrary - we have recieved some very good reviews from AAM contributors who have used us and it is a significant enough source of recommendations to have it's own computer code on our system!

The result is that they often get sold inappropriate products.

It might interest you to know that one institution (that I know of) targets it's own salespeople to sell additional insurances to 80% of new mortgage customers. We NEVER cross sell - unless otherwise requested we arrange the basic, mandatory mortgage protection and household insurance with the cheapest provider possible. Look at the banks windows and try to tell me they're not in the business of selling products, inappropriate or otherwise. The only thing REA sells (and rather effectively) is our service and the savings we can produce.

As has been often cited here, Irish financial journalists ain't always as hot as they could be.

Well that's that profession dismissed - nice one!

Sarah

www.rea.ie
 
...

So are we agreeing once and for all that the commission refund is not taxable?

IMHO Rea offer quite an attractive deal and I think it would be overly simplistic to suggest that all customers of such brokers are naive and ignorant. Just as Sarah describes there are many people out there for whom an added broker cost would be justified by the time, stress and hassle it eliminates.

However, from the anecdotal evidence on this site it appears that there isn't much if any additional costs involved. Of course one would have a better chance of getting a special discount rate below the standard advertised rates by going direct to the lender, but these cases are the exception rather than the rule.

I agree though that people should definitely shop around but if even some of the enlightened AAM contributors do their shopping around and still go with a broker they must be adding value somewhere. As for myself I haven't gone through REA to arrange my forthcoming mortgage as I doubt they will be able to better the 100% mortgage at 2.75% standard variable I got for the first 2 years with the option to go to the tracker after that, even though neither myself or my partner fall into the list of professionals that 100% mortgages are normally restricted to - so Sarah if you can beat this deal just let me know!
 
Re: ...

Hi OhPinchy.

That's what technically known as a "stonking deal"!! If you have it in writing and it's one of the lenders we use (i.e. not NIB or Irish Nationwide) you could still use the homebuyer package and get the commission refund and lower legal fees. If you want to contact me directly to discuss my email address is [email protected]

Kind regards,

Sarah
 
Re: ...

Hi OhPinchy

As for the tax issue, I now think its something of a red herring, as REA mortgage brokers now concede that any commission refund will never exceed their fixed fees. Quite why anyone would want to go with them then, I don’t know !!

Far better to approach the financial institution direct, and ask them for a discount coupled with free legal fees / valuation, etc. You'd be far better off.

As for REA's kind offer of "help" with your own particular situation, don’t forget that these will brokers charge you a princely sum for this service, which will:

(a)outweigh any putative commission refund received
(b)greatly slow up your remortgage

Stick with what you got. Savings by going through a broker, are illusory.

Morale of the story is: it pays to go direct.
 
Re: ...

Because, without wishing to be rude, you are either too stupid or pigheaded to realise the value of the Homebuyer Package. Thankfully you are in a minority.

Sarah

www.rea.ie
 
Re: ...

Ah yes, reverting to throwing abuse and accusing the other party of being simple minded. Always a winner !

Good to see your true colours are coming out.
 
Re: ...

I'm sorry but if I was to put on a moderator hat for a minute, I would have asked the two of you to take this one outside long before now.
 
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