# " I don't know what a Tracker Mortgage Is"



## Black_Adder (10 Mar 2016)

As folk may recall this was an advertisement on behalf of the Financial Regulator (recently deceased). It seems a lot of us didn't know what a tracker mortgage was with the creature called a 'prevailing tracker' and another species 'appropriate balance' tracker - at end of fixed rate period.

So what does below mean?

"...Irish mortgages can be on a fixed or variable rate, with the vast majority (85 per cent) on the latter. There are two types of variable rate loans:
- those that track the ECB base rate at an agreed margin, typically called 'trackers';
- and those that do not.."

So who might have written this?

"Variable Mortgage Rate Pricing in Ireland - Jean Goggin, Sarah Holton, Jane Kelly, Reamonn Lydon and Kieran McQuinn- Economic Letter Series Central Bank of Ireland - Vol 2012, No. 2"

Do they know what a tracker is?

Then where does the 'prevailing tracker' - or 'appropriate balance' after the fixed rate expires come from? And are these 'tracker mortgages' as properly understood?


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## Brendan Burgess (10 Mar 2016)

I have read your post twice, and find it hard to follow. 

A person can have a mortgage which is fixed for two years, and moves to variable rate after that. Presumably you have no problem with that? And presumably you have no problem with the concept that the variable rate will not be determined until the fixed rate is up? 

If you follow that bit, we can move onto the next step. 

The variable rate might be an LTV rate where the rate is determined by the LTV when the fixed rate is up. 

If you follow that as well, we can now move onto the final step, which is presumably the one you are having most difficulty understanding. 

Someone can have a fixed rate for two years followed by a tracker rate, with the rate to be determined at the end of the fixed rate period. And the rate would be the prevailing rate for the LTV at that time. 

So, to summarise - there is nothing inconsistent with a mortgage being fixed for two years and then followed by a variable rate. And there is nothing wrong with  a mortgage which is fixed for two years which is followed by a tracker.


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## rodger (10 Mar 2016)

I agree with everything in the previous two posts and I don't see any inconsistency.

The original post was trying to point out to banks etc that a tracker is a form of variable rate. (Banks try to persuade customers that because the word variable is in the contract it must be a "standard variable rate")

And secondly the PTSB/Aib issue with the prevailing tracker rate. This affects people coming onto tracker for the first time after fixed rate. The banks seem to think they can pluck a margin out of thin air and call it the prevailing margin.
There never was a variable "margin". Only a variable ecb rate.

The banks are trying one on by increasing the rate to compensate for the fall in ecb rate.


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## todo (10 Mar 2016)

I know with bank of ireland the only difference between a tracker and svr mortgage contract is a special condition.

When the special condition is missing they fall back on the definition in the standard terms and conditions which are the same for both mortgage types.

So in my view trackers and svr mortgage types come under the definition of variable rate mortgages, the important part is where in the contract is its exact meaning defined.

If its not defined then I would see that as a problem for the banks.


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## Brendan Burgess (11 Mar 2016)

rodger said:


> I agree with everything in the previous two posts and I don't see any inconsistency.



There isn't an inconsistency.  Adder apparently doesn't understand what a tracker is, so I was trying to explain it to him in simple terms. 

Brendan


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## Pinesky (11 Mar 2016)

Brendan Burgess said:


> There isn't an inconsistency.  Adder apparently doesn't understand what a tracker is, so I was trying to explain it to him in simple terms.
> 
> Brendan


''Someone can have a fixed rate for two years followed by a tracker rate, with the rate to be determined at the end of the fixed rate period. And the rate would be the prevailing rate for the LTV at that time''

You can have any hybrid product that the bank will offer you but the one quoted is not a tracker product.
A tracker mortgage must have the margin over ECB  stated in the letter of offer otherwise it does not fit the criteria of having the margin over ECB fixed for the term agreed by the parties.


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## Brendan Burgess (11 Mar 2016)

Maybe the ad should  have been "Do you know what a mortgage which is fixed for two years and then followed by a tracker for the rest of the term is?" 

Brendan


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## Black_Adder (11 Mar 2016)

Firstly I am appalled at the personalised comments - not that they offend me - but that our leader did not delete his own post and chastise himself.
[Secondly - and we will come back to this - Mr Burgess in effect accepts that PTSB and AIB are legitimate in creating a prevailing rate tracker and appropriate rate product.]

1A. If you had a tracker variable mortgage at the start and the documents said 'for the life of the loan' what does that term mean in the context of tracker.

1B How does that obligation cease?

Just those two questions first.


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## Brendan Burgess (11 Mar 2016)

Where are the personalised comments? Apologies if they caused offence. 

Your post is very obscure.
The heading says you don't know what a tracker is. 
So I have explained it to you in very simple steps.

1A. If the document specifies a rate for the life of the loan, you get that until you and the lender vary it by agreement. 
(I am worried now that you might take offence at this answer?) 

1B. When the parties vary it by agreement or when the loan is paid off. 

I am getting the impression that you do understand what a tracker is but that you are just setting some trick questions.


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## Black_Adder (11 Mar 2016)

[Well the first thing students should note - is that it would have taken a very large rocket to get the Central Bank to move against PTSB on the matter of the current first redress scheme. The briefest details - customers had a rollover to tracker after a fixed rate. PTSB system - for amazingly unknown reasons - did not calculate a redemption penalty on early termination of fixed rate period for a period of time. This apparently became known and when customers terminated early - lo and behold PTSB said they had forfeited their tracker. I will describe the rocket later.]

[The post heading says "I don't know what a tracker mortgage is" was a feeble attempt by me at humour. It refers not to me but the gentleman on the upper deck of an omnibus in an advertisement for the Financial Regulator. Apparently the only ones that did know the intricacies of the alchemy of Tracker Mortgages  were: B Burgess; AIB and PTSB (all PTSB personnel that touched a tracker have mysteriously disappeared according to Lord Masding. ]

2A. If any other customer of any other bank paid a redemption penalty - for an early termination - did they deprive themselves of a tracker if they also had a right to a tracker at the end of the fixed rate period?
2B. If YES to 2A please explain your rationale.
[This question is obviously from the Higher Level paper and may challenge students hence they are slower to answer]


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## Black_Adder (14 Mar 2016)

2 and 2A If you paid a redemption penalty and the bank issued NO WARNING at all that you were also depriving yourself of a tracker rollover that would otherwise have applied - then they are inventing new parts of contract law. [This was not PTSB] The bringing forward of a termination of a fixed rate was totally compensated for in paying the redemption penalty. This is an additional hidden penalty that would properly be described as 'unjust enrichment'  and the Bank using this device are again using the tactic of a very long letter to customers selectively quoting parts of the letter of offer and basically telling you to stop annoying them and go off to the FSO if you like. [The question that arises about the FSO is whether new teeth have grown to replace the ones that fell out ..]

3: Where did 'Standard Variable Rate' come from?
3A is it a misleading term?
3B What should it be called?


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## 44brendan (14 Mar 2016)

I've tried to rationalize the posts above but after 3 readings I still don't get the points being made! Obviously I've failed the exam


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## Black_Adder (14 Mar 2016)

44Brendan - firstly some banks (did yours) use terms like 'life of the loan' + 'life of the mortgage' when customers took out a tracker mortgage.
Then after periods of (short) fixed rates basically refused to revert them to tracker mortgages.
And the documents were anything but clear.

Clearly the Central Bank has seen evidence - otherwise they would never have started their review.
Sit tight and keep watching.

Answer the first question: What does 'life of a loan" or "life of a mortgage" mean, in documentation. Is that clear as Burgess B has muddied the waters.


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## Brendan Burgess (14 Mar 2016)

44brendan said:


> Obviously I've failed the exam



You are in very good company.


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## 44brendan (14 Mar 2016)

Black_Adder said:


> What does 'life of a loan" or "life of a mortgage" mean, in documentation. Is that clear as Burgess B has muddied the waters.


there should be no ambiguity if this terminology is used in any agreement. It means exactly what it says on the tin!


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## Black_Adder (14 Mar 2016)

Well X Bank have just ignored this in cases that I have seen and declare that once you went on a fixed rate that was the end of that.

Burgess B and 44Brendan might be right if the language used was 'plain and intelligible'. It is anything but.
The 'warnings' about fixed rates were all about the penalty if exiting early.
Many of the cases I have seen there were no warning about when you went on tracker.
And as we shall see soon - it was commonly believed (with good reason) that reverting or rolling to pre-agreed trackers was the norm.

Burgess B simply cannot rationalise that a Tracker Variable always had a FIXED margin and the absurdity of a Tracker Variable with a Variable Margin was in fact the equivalent to non-tracker variable. In other words customers were seriously mislead and you guys need to start looking at real cases. Do you seriously think the CBI are on a jolly here? They are not willingly doing this so they must be concerned.


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## Sarenco (14 Mar 2016)

How can you have a tracker with a variable margin over a reference rate?  That makes no sense.


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## Black_Adder (14 Mar 2016)

The 'prevailing' tracker created by AIB is one such - in other words one part follows ECB and when you exit your fixed rate the margin is then set. That is what they did.
PTSB used 'appropriate balance and LTV'.
But Burgess B, AIB, PTSB think these are all fair products.


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## Sarenco (14 Mar 2016)

Black_Adder said:


> The 'prevailing' tracker created by AIB is one such - in other words one part follows ECB and when you exit your fixed rate the margin is then set. That is what they did.



But that's not a variable margin - it's a fixed margin over the reference rate to be determined at a future point in time.

There's no doubt that the banks have a difficulty where the prevailing rate is to be determined at a point in time when trackers were not generally offered in respect of new home loans.  Is that your point?


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## Black_Adder (14 Mar 2016)

How would that be fair and reasonable?


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## Sarenco (14 Mar 2016)

Black_Adder said:


> How would that be fair and reasonable?



That the margin would be the prevailing rate appropriate to the loan at the end of the fixed term?  It's simply a term of the contract.  I don't see anything remotely unfair or unreasonable about it.


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