Should we move back to Tracker with Ulster Bank?

C

Caragh Girl

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Hi Brendan,

I’m looking for advice please regarding our mortgage. We originally had a tracker mortgage with Ulster Bank and switched to AIB in 2009 when they took our tracker off us. Some years later, we got into financial difficulty and ended up on a split mortgage with AIB. (We have remained in the same property since then.)

However, we were part of the recent tracker redress scheme and Ulster Bank have just offered us back our tracker mortgage. Had this happened a few years ago, we would have been thrilled, but due to the recent ECB interest hikes we are nervous about switching.

Below are the details of our AIB split mortgage:

Total outstanding approx. €240k -
Warehoused loan: €108.5k
Base loan: €131k
Remaining term: 20 years
Rate: fixed for another 4 years at 2.45%
Repayments: €712 p/month

If we move back to Ulster Bank and redeem our mortgage with AIB we will benefit from a reduction of 20% on the split loan which will bring it down to €87 and our term would be less with UB as well (17 years).

Below are the details of the tracker UB have offered us back:

Total outstanding will be approx. €220k
Remaining term: 17 years
Rate: ECB + 1.05% (so currently 3.55%)
Repayments: approx. €1400 p/month

As we’d be returning to making repayments on the full amount outstanding, our monthly repayments will double to approx. €1400 and we are very nervous about the ECB rate going up again soon which could bring our rate to 4.05% (and possibly even higher down the line).

We don’t know if we should stick with the split mortgage we have with AIB (which is manageable but means continuing to have a poor credit rating), or move to Ulster to improve our credit rating and benefit from the €21k reduction but put ourselves under a lot of pressure each month because our repayments will double.

Can you offer us any advice about what the best option might be please?

Also, if we move back onto the tracker with Ulster Bank, would it make sense to fix our mortgage (they are currently offering a 4 year fixed rate of 3.1%)? If we do this, we would loose our tracker rate for good and not be entitled to get it back at the end of the 4 years (and we’d still have 13 years left to pay off our mortgage at that stage).

Any advice you can offer would be much appreciated.

Thank you.
 
Caragh Girl said:
Total outstanding approx. €240k -
Warehoused loan: €108.5k
Base loan: €131k
Remaining term: 20 years
Rate: fixed for another 4 years at 2.45%
Click to expand...

This is a very difficult question and I don't know the answer. But let's work through it. (It's late and I might come back to it tomorrow morning.)

In simple terms you have an interest free mortgage of €108k for 20 years. If you pay it off now, you will get a 20% reduction.

So would I prefer €108k now at 0% , repayable in 20 years
or
€87k @ say 4% for 20 years.

€87k @4% would amount to €190k after twenty years.

So at first sight, the interest-free loan is just too valuable.

What might change this?
Might you clear the AIB loan before the 20 years? For example to trade up? If you were sure that you were going to do that in the next 5 years or so, then the 20% discount now would be very valuable.

AIB is buying the Ulster Bank trackers, so you are going to end up in AIB anyway. So that is not a consideration.
 
Caragh Girl said:
or move to Ulster to improve our credit rating and benefit from the €21k reduction but put ourselves under a lot of pressure each month because our repayments will double.
Click to expand...

This also has to be a deciding factor. You won't improve your credit rating if you move back to Ulster and find yourself in arrears.

Brendan
 
Did you get a lump of cash from Ulster Bank?
How much was it?
What are your plans for it?

If it made a serious dent in your mortgage it might be worth switching to Ulster Bank and paying down the mortgage.

Or do you want to use it for something else e.g. paying off other loans or boosting your pension?

Brendan
 
I see from your other posts that you were in the AIB Prevailing Rate group as well.

What did you do with the interest refund on that?

Brendan
 
Hi Brendan,

Thanks for getting back to me. In answer to your queries:

Yes, we were part of the AIB Prevailing Rate group a few years ago as well. AIB reduced what we owed on our mortgage and we received a little under €8k from them which we put into the credit union and saved. We were honest with Ulster Bank about the redress from AIB and provided full disclosure on this.

Our redress from Ulster Bank will be somewhere in the region of €70k - we won’t have exact figures until we draw dawn the loan with them.

We don’t have any immediate plans to move house but we would like to have the option maybe in a few years time. We had hoped to save the €70k and use it towards possibly trading up in a few years time. Otherwise, if we stay in our current home, we will need this money for renovations. (We figure that there isn’t much point in paying down the mortgage and then having to go back to the bank and ask for another loan down the line. That’s why we thought we’d hold onto the €70k.)

Despite that our repayments would double, two of the main reasons we are considering switching back to UB on the tracker are:

  • If we need a loan for something such as a car, no bank will consider lending to us when we are in a Split arrangement.
  • If we did stick with AIB on the Split, could we end up in a worse situation if they decided to sell our mortgage to a vulture fund?

On the other hand, some other things that we also need to consider and which are making us think twice about leaving AIB are:

  • We have PPI insurance with AIB and if we move to Ulster Bank we will loose this (so if me or my husband were made redundant or were to become seriously ill, we wouldn't have any insurance to help us make our repayments each month.)
  • We could comfortably pay €420 extra per month on top of the €712 we are making in repayments to AIB, so would it make sense to stick on the Split with AIB and increase our monthly repayments to €1,132 so that we could pay off the base loan sooner?

Sorry Brendan, I know this is a complicated one with no easy answer!
 
Caragh Girl said:
Otherwise, if we stay in our current home, we will need this money for renovations. (We figure that there isn’t much point in paying down the mortgage and then having to go back to the bank and ask for another loan down the line. That’s why we thought we’d hold onto the €70k.)
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Caragh Girl said:
we received a little under €8k from them which we put into the credit union and saved.
Click to expand...

With respect, I don't think you can afford renovations.

You need to assess your full financial position.

If you hold onto your split for 20 years, it's good value.
But if you are talking about trading up, then you will lose all that value.
but you won't be able to trade up if you have a split.

You have a loan of €240k.
The early repayment of the warehouse knocks €20k off that
Then knock the €70k off it.

That will bring it down to €150k

Then work on getting that down.

And then start thinking about renovations or trading up

Brendan
 
I'll guess age mid-40's.

I'd do a variation of what Brendan is suggesting above.

Move back to UB, get rid of the split/warehouse. Put 50k of the estimated 70k redress into the mortgage bringing the total to about 170k with repayments of about €1100 and also see immediate reduction when the ECB pulls back (expected in 2024). Leaves you with a 20k buffer for car / upgrades.

But most importantly gives you a clean credit record in a few years.
 
Brendan Burgess said:
I don't get this. The redress should not be tied into the decision to go back to them or not.
Click to expand...
The redress is not tied to the decision to go back to UB. What I meant was that we don’t know the exact figure of our redress yet because it’s calculated on the interest rate we paid each month for the past 13 years with AIB versus what we should have paid if UB hadn’t taken away our tracker, so the final calculation won’t happen until we either decide to move back to UB or tell them we are sticking with AIB. Hope that makes sense now.
 
peemac said:
I'll guess age mid-40's.

I'd do a variation of what Brendan is suggesting above.

Move back to UB, get rid of the split/warehouse. Put 50k of the estimated 70k redress into the mortgage bringing the total to about 170k with repayments of about €1100 and also see immediate reduction when the ECB pulls back (expected in 2024). Leaves you with a 20k buffer for car / upgrades.

But most importantly gives you a clean credit record in a few years.
Click to expand...

Hi Peemac,

Thanks very much for your advice. I think your recommendation makes a lot of sense and my husband and I have discussed it and think that’s what we’ll do.

We didn’t know the expectation is that the ECB will pull back it’s rates in 2024 but it’s reassuring if that’s what the general consensus is. We were worried they might keep going up and then we might be back where we started having to go back cap-in-hand to the bank and ask for an arrangement all over again.

Yes, we are in our mid 40s - does our age have a bearing on the advice you have given?

Thanks again for your help.
 
Caragh Girl said:
Hi Peemac,

Thanks very much for your advice. I think your recommendation makes a lot of sense and my husband and I have discussed it and think that’s what we’ll do.

We didn’t know the expectation is that the ECB will pull back it’s rates in 2024 but it’s reassuring if that’s what the general consensus is. We were worried they might keep going up and then we might be back where we started having to go back cap-in-hand to the bank and ask for an arrangement all over again.

Yes, we are in our mid 40s - does our age have a bearing on the advice you have given?

Thanks again for your help.
Click to expand...
The age issue is that you may want to borrow for something in a few years and having a restored credit record will help.
 
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