Has anyone negotiated a discount to exit a cheap tracker?

[galleryman]

Hi,

I am on a 0.6% above ECB tracker mortgage with 17yrs left to run on it and a substantial amount still to pay off.

As circumstances would have it I plan to emigrate and so will either sell my house OR rent it out depending on what I can get for the house.
The offers on teh property so far are not as desirable as I would like but a decent hair cut on my mortgage by the bank would compensate and enable me to sell and pay off the mortgage.
This provides an opportunity to negotiate with my bank that they buy me out of my tracker.

I'm with AIB
Any advice on how to go about this and who to deal with etc?
What to tell them and what not to divulge at this point in time?
how much to look for as reasonable compensation for getting a .6% tracker off their books?.

An Article in today's Indo suggested a tracker holder in my situation should be looking for 20- 25% of an incentive. That would make up for the lousy offers on the house.

thanks for any suggestions or opinion.

 

[Brendan Burgess]

Hi GaleryMan

If you sell your house, you have to pay off your mortgage.

If you rent out your house, you will be changing the terms of your mortgage and they may be entitled to withdraw the tracker and put you on the RIP mortgage rate.

I suspect that the banks are factoring this into their decisions not to offer realistic break figures for mortgages. When mortgages were issues for 20 years, they used to last aroun 7 years on average. I suspect it's longer now, but it might not be that much longer.

I would suggest that you approach your bank and offer to switch to a standard variable rate and see what they say. you can then pay that off whenever you want.

Brendan

 

[Howitzer]

From the long running, Can banks wriggle out of trackers thread this is my calculation of the offer you'd be made.

I reckon if you've had the mortgage more than 7 years they may offer you 2% of the principle at most.

http://www.fxcentre.com/news.asp?2596092

While some of these offers appear very attractive in the current climate, we would urge caution and suggest seeking independent financial advice before considering any offer from your bank. A E300k variable customer may be tempted by a 3pc-5pc (9,000-15,000) discount, but we believe that trackers customers would need a break-deal offer north of 25pc to make it worth their while. This is often a difficulty when customers deal directly with the banks as significant pressure can be brought to bear to change their terms. Because of their experience in and knowledge of the area, brokers often negotiate much better deals that those originally offered

Just to note that the advice given in this link comes from the Irish Brokers Association. Whilst it's correct to say that the offer from Halifax/BOS is a terrible, self serving low ball offer the advice from the IBA isn't much better.

Some of the mortgage brokers on the site may correct me but it's my understanding that if a mortage brokered by a member of the IBA is paid off early / switched, then the commission paid out to that broker is redeemed. In many the commission is paid out in instalements after a number of years, and again switching nullifies these payments.

So what are the IBA doing here by saying you should be looking for 25% of your outstanding mortage as an incentive to switch? Well, in my opinion, they may be setting people's expectations way way too high so that they do not lose their commission.

A friend of mine came in to some money at the start of the year. She has a tracker of ECB +.65% on a mortgage of around 200K. She was going to pay off the mortgage (deposit held in different bank). I advised then to wait till the end of the year when I reckoned she'd get 10-15K off the principle. Advising someone they'd get 25% (50K) off that amount just isn't realistic and I'd question the motivation of anyone giving this advice.

the article mentions 25% "to make it worth their while".
that advice stands as good!

Well here's how I make my calculation.

The average life of a mortage is 7 years. After that you switch / move / release equity to build an extension, all of which would be used to end the tracker.

Most of these loss making trackers were given out in 05-07. Suggesting an average of 3.5 years remaining.

If you move to a variable you'll, on average, pay 2% extra in interest.

2 x 3.5 = 7% of your outstanding principle (15K from 200K).

Banks will make a similar calculation to this when deciding what to offer you to break your tracker. It'll be the exact same formula they used when calculating breakage fees for those who wanted to go from a Fixed to Variable.

25% is not realistic and no underwiter / actuary would agree to it. I'm calling shenanigans on the IBA advice.

 

[TheJackal]

An Article in today's Indo suggested a tracker holder in my situation should be looking for 20- 25% of an incentive. That would make up for the lousy offers on the house.

thanks for any suggestions or opinion.

This is the article I believe [broken link removed]

 

[galleryman]

Hi Brendan,

that's a splendid suggestion.

Thanks


As I will need my solicitor for this in any event, is it worth getting him involved in the negotiation of any possible discount?

I would suggest that you approach your bank and offer to switch to a standard variable rate and see what they say. you can then pay that off whenever you want.

Brendan

 

[kbie]

Do you not think the lender would insert a clause that if the mortgage is paid off early that they would require a return of some of their rebate.

I could pay off my reasonable size tracker sum immediately if they would reduce the amount but this would not be a profitable senario for the lender.

 

[SPC100]

Discount for paying off tracker mortgage early?

Hi There,

Banks are losing significant monies on tracker mortgages, and they need to increase capital reserves or reduce the total value of their lendings.

Has anybody tried to negotiate a discount on their mortgage with their bank in return for paying off the mortgage in full?

Sean.

 

[Brendan Burgess]

Bank of Scotland were offering people €1,500 to switch to another lender.

Has anyone tried to get a bigger discount from them?

 

[RMCF]

I currently have a tracker +0.95% with AIB and asked them about getting a discount to settle the mortgage.

Was basically told there is no way a bank would offer you a reduction, no matter how small, to end the mortgage early. Can of worms, how would it be calculated etc were a few things mentioned to me, so I too would be very interested to actually here of concrete examples where banks have offered reductions in capital amount to end/lose tracker.