Advice Regarding Cashback Offers

S

Shanbot

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Hi!

Thanks for taking the time to read this...

I have two offers from lenders for a mortgage of 210,000 euro over 30 years:

Lender 1 (KBC) - 2.80% Fixed rate for 5 years. No other incentives.
Lender 2 (PTSB) - 3.25% Fixed rate for 5 years with 2% Cashback (4200 euro) and also 2% Cashback on all repayments until 2027.

I am trying to figure out what is the best deal but the 2% cashback on repayments is throwing me... It seems to me that despite the lower rate of Lender 1, Lender 2 is the better deal over the course of the first 5 years (before the mortgage would switch to the SVR)? I realize that the higher interest rate Lender 2 would be 18000 euro more over the term of the mortgage but it doesn't seem right to calculate it this way since the SVR interest rate will be unknown after the initial 5 year fixed rate period is complete (or I could change lender?)... Or am I missing something obvious?

Any advice on what the better option would be would be much appreciated!

Cheers!
 
Interest paid on the KBC loan over the 5 years will be €27788, while interest paid on the PTSB loan would be €32380. You'll be getting €5296 cashback on the PTSB loan, so interest cost on it over the 5 years would be €27084, which is slightly cheaper than KBC.
 
Put simply the cost of your mortgage is the interest element. You want to minimize this expense. Cashback options are always tempting but generally doubt work out well in the long run.

With the KBC option with no inventives other than the 2.8% you will expect to pay Just under €28k in interest over the 5 years. With PTSB, assuming all the cashback goes to paying down the mortgage you can expext to have paid over €3,800 more in the first five years alone.

So KBC is cheaper. However, if I were you I'd get both.... Have both mortgages ready to go, drawdown PTSB get the cashback then use KBC money to pay it off. You will have cashback and lower rate. A number of people have tried something similar on here. It would be worth considering the cost of staying variable with PTSB in order to avoid a potential break fee but either way you are likely to have made a good start to your mortgage
 
skrooge said:
Put simply the cost of your mortgage is the interest element. You want to minimize this expense. Cashback options are always tempting but generally doubt work out well in the long run.

With the KBC option with no inventives other than the 2.8% you will expect to pay Just under €28k in interest over the 5 years. With PTSB, assuming all the cashback goes to paying down the mortgage you can expext to have paid over €3,800 more in the first five years alone.

So KBC is cheaper. However, if I were you I'd get both.... Have both mortgages ready to go, drawdown PTSB get the cashback then use KBC money to pay it off. You will have cashback and lower rate. A number of people have tried something similar on here. It would be worth considering the cost of staying variable with PTSB in order to avoid a potential break fee but either way you are likely to have made a good start to your mortgage
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Think one of our math must be off a bit here skrooge :). By my calcs the interest on the KBC loan is €27788, while it is €32380 on the PTSB one, so PTSB is €4592 more expensive but they are giving €5296 cashback so with the PTSB loan you'd be €704 better off. Right?
 
Zenith63 said:
with the PTSB loan you'd be €704 better off. Right?
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Almost to the penny!

If you factor in cash back, the effective PTSB rate is 2.72%

Other factors:
The real way to save money is to shorten term if possible.
KBC allow overpayment of 10% of fixed balance without checking if break fee is due.
The real question is what rate options will be available in 5 years (90% of balance will still be remaining). Nobody knows what the market will be like then.
 
Zenith63 said:
Think one of our math must be off a bit here skrooge :). By my calcs the interest on the KBC loan is €27788, while it is €32380 on the PTSB one, so PTSB is €4592 more expensive but they are giving €5296 cashback so with the PTSB loan you'd be €704 better off. Right?
Click to expand...

Haha glad someone spotted the minus because I didn't :p

I should avoid doing the Math at such an early hour.

The 2% cashback on drawdown does most of the work here . That doesn't need to tie you to PTSB for the full 5 years.
 
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I'll refer OP the same advice as I gave to another poster here about always going for the best long-term value, as you might be stuck with the first bank: https://www.askaboutmoney.com/threads/ebs-or-ulster-bank-for-2-year-fixed.209203/#post-1578504

One other thing to add: the lower the interest rate, the faster the capital is paid down. In your case, the mortgage balance after paying 3.25% for 5 years with PTSB would be approx. €187,500, whereas the balance with KBC at 2.8% would be approx. €186k. If you sold the house at that stage, you'd have an extra €1,500 in your pocket.

Best regards,
Dave Curry (broker)
https://www.linkedin.com/in/davecurryirl
 
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