# Advice on paying lumpsum off TSB Tracker?



## cork_south (13 May 2011)

Hi, I'm just after a bit of advice. I know there have been many threads on this but I'm looking for some advice from people who know more than me.

My wife and I have €135K let on our 2.5% (currently) TSB tracker mortgage. The remaing term is just under 12.5 years.
We have savings of around 90K and investment of 16K that we may or may not get a return on.
We  bought  a 3 bed semi  about 10 miles from Cork city in a commuter town, for 200K back in 2004. We had a child recently and the 3 bed semi is just 1000 sq feet so we eventually hope to move back to the city where we are both from.
We are thinking of paying 20K off the tracker (TSB will give us 22K)

One fear I have is that TSB will come back in 12 months time and offer a greater percentage to those taking up this offer.
On the up side, I dont enjoy having 90K on deposit in the current climate (20 of which is in Rabo)

Would anyone recommend or advise against this?
Thanks in advance.


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## paddyd (17 May 2011)

Hi Cork,
My own opinion to anyone who suggests paying down a tracker is this:

you will _never_ in your lifetime borrow money so cheaply again. Considering there is a recession going on, I'd suggest sand-bagging your savings just in case you ever need them for anything else.
If mortgage interest rates rise significantly and you still don't have a home for that money, thats the time to pay down the mortgage.

As you only have 135k left on your mortgage and 12.5 years, then you've already paid the bank the substantial majority of the mortgage interest, you're paying mainly the capital now - which makes the case that it may be too late to really get a decent advantage from a 20k one-off payment.

and finally, I agree that 22k in return for 20k from TSB is TERRIBLE. I've seen calculations in the Indo recently suggesting a bank would need to pay 45-50% of your contribution for it to be attractive - thats 28-30k in your case.

and finally finally, 22k of 135k outstanding is only about 15% which would cut maybe 1.5 years off the remaining term.

if you don't need to, I'd hold off. if interest rates rise by 2% or more, then perhaps even pay off 40 or 60k and make a real hole in your mortgage


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## cork_south (17 May 2011)

That's sound advice Paddy, many thanks.
A lot of people have said the same thing to me in that you'll never get cheaper money. I guess I just need to weigh up this against the fear of losing money on deposit over the next few weeks.
Thanks for your advice again!


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## Brendan Burgess (17 May 2011)

Hi cork south

You should read these two key posts on the issue before making any decision

PTSB mortgage holders to get 10% bonus

What is a fair price for paying off a tracker early?

You are almost a perfect case for taking advantage of this offer



> *It is more attractive if...
> *You haven't long to go on your mortgage.
> You expect to be paying off your mortgage anyway, because you expect to move.
> You are in negative equity and you want to eliminate it as quickly as possible
> You are worried about the safety of your deposit


You have only 12 years to go on your tracker 
You are thinking of moving 
You are worried about the safety of your deposit
And you don't have a particularly cheap tracker anyway.

You meet none of the criteria for it being less attractive. 

This is screamingly good value for you. The only reason you might not go for it is if you think that a better offer comes along.

You can pay almost €60k off this tracker and you should do so immediately. 

I think that almost every reason given by paddyd is wrong or irrelevant 



> you will _never_ in your lifetime borrow money so cheaply again.


This is just irrelevant. You will not be borrowing money again anyway except when you trade up. So you will have to cash in your tracker anyway when you trade up.




> Considering there is a recession going on, I'd suggest sand-bagging your  savings just in case you ever need them for anything else.


You have given no indication at all that your income is in jeopardy. You have saved a lot of money and paid a lot of money off your mortgage, so you are obviously good savers. 



> If mortgage interest rates rise significantly and you still don't have a  home for that money, thats the time to pay down the mortgage.


If the ECB rate rises, deposit rates will probably rise in line with mortgage rates.  



> As you only have 135k left on your mortgage and 12.5 years, then you've  already paid the bank the substantial majority of the mortgage interest,  you're paying mainly the capital now - which makes the case that it may  be too late to really get a decent advantage from a 20k one-off  payment.


 I don't understand this and I think it's irrelevant. You have to leave the repayment level fixed to qualify for the 10% credit, so you will be paying more capital afterwards. I have addressed this issue in this post. 



> and finally, I agree that 22k in return for 20k from TSB is TERRIBLE.  I've seen calculations in the Indo recently suggesting a bank would need  to pay 45-50% of your contribution for it to be attractive - thats  28-30k in your case.


I didn't see them but if that is what they said, they were nonsense. I set out my calculations in the posts above and it is worth around 4% for a borrower on an ECB + 1% tracker with 20 years to go.  Depending on the assumptions, it is worth around 25% to the bank. In your case, I would say that this deal would break even for PTSB and is a huge winner for you.

My guess is that PTSB will get most of their acceptances from people like you for which the deal is the steal of the century and it will not be much use to PTSB. They may issue a more targeted deal later which ties in the bonus to the rate and time left on the mortgage. I would guess that if the deal is changed, it would pay less than 10% to people like you.




> and finally finally, 22k off 135k outstanding is only about 15% which would cut maybe 1.5 years off the remaining term.


It actually cuts around 3 years off your mortgage, but that is irrelevant. 



> if you don't need to, I'd hold off. if interest rates rise by 2% or  more, then perhaps even pay off 40 or 60k and make a real hole in your  mortgage


It makes more sense to pay off 60k now and get 66k credit, than pay off 60k and get 60k off your mortgage in a few years.


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## cork_south (18 May 2011)

Hi Brendan,
Thanks for your detailed analysis of our situation, much appreciated!
We are pretty good savers, but I guess the amount of savings we have reflect the fact that I drive a 98 corolla 
After careful though and consideration of the advice we have received (more specifically the information you provided and the information on this site) we are going to pay either 25K or 30K off the mortgage next week. 
In relation to job security, we seem to be in pretty stable jobs but who knows whats around the corner. I think by spending 25 to 30 on the mortgage it still leaves us with enough savings to keep us afloat for a good while should either of us lose our jobs.
Also, by paying off 30K it would almost put us under the 100K owed mark which psychologically would be great.

Thanks again Brendan!


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## paddyd (18 May 2011)

Brendan Burgess, if you re-read the OP's post, they have asked for advise regarding paying down just 20k of their remaining 135 mortgage, when a lot of the term has already past, and much of the interest is already paid.

The OP never suggested paying 60k off the mortgage and you quote of "You can pay almost €60k off this tracker and you should do so immediately" is completely irelevant.

OP, losing your tracker in return for just two thousand euro (!) from PTSB and still have 113k outstanding at a much higher rate is not a great return in the short term, never mind long term. 

As Brendan Burgess correctly suggests, the more you pay off, the more you gain.

here are those articles with calculations on the worth of ones tracker to you and more crucially, to the bank.


http://www.independent.ie/business/...-tracker-deal-worth-to-your-bank-2634538.html

their advice is that the 10% PTSB offer "just doesn't add up"

and "a payoff of €48,000 would be needed for a borrower to give up a 25-year tracker mortgage of €100,000."


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## mammyof2 (18 May 2011)

paddyd said:


> OP, losing your tracker in return for just two thousand euro (!) from PTSB and still have 113k outstanding at a much higher rate is not a great return in the short term, never mind long term.


 
Paddyd, I think you have misread the OP.

He is not losing his tracker - he is being offered an incentive to pay down a percentage of his mortgage but _still remain on the same tracker rate_ for the rest of the outstanding balance.

The threads you cite are completely different conversations relating only to situations where the individual is being offered a deal only if they relinquish their tracker.


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## Brendan Burgess (18 May 2011)

> OP, losing your tracker in return for just two thousand euro (!) from  PTSB and still have 113k outstanding at a much higher rate is not a  great return in the short term, never mind long term.



Hi PaddyD

I was wondering how your advice could be so completely askew! 

Now, I see that you misunderstood the system - so all you conclusions are based on a wrong premise.

OP, this is a great deal. You should take maximum advantage of it.

Brendan


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## cork_south (23 Jun 2011)

Brendan, thanks again for your advice.
We paid 30K (33K) off the mortgage so its down to 102K now @ 2.5%.

8 years 10 months left on it now, happy days!


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## Brendan Burgess (23 Jun 2011)

Well done. 

The overall take up was much lower than expected.

Brendan


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