# Is getting a discount for early repayment of a tracker morally wrong?



## Brendan Burgess (20 Mar 2014)

In this thread Should I make an offer to BOSI? TRS30 asked how to get the maximum discount from BoSI for repaying the tracker early. 

I gave my views on how much the discount should be and how to go about getting it.

Another user reported me as "it was inappropriate for me to be helping someone to welch on their debts". 

I have heard this argument made often before. I heard a government official referring to such discounts as "debt forgiveness". 

Let's look at another example first.  If Mr B takes out a fixed rate mortgage for 10 years at 6%, and the interest rate subsequently falls, is it immoral for the lender to charge Mr B an early repayment penalty?  Absolutely not. Mr B and his lender entered into a contract freely and the market moved against Mr B. 

Likewise if a tenant enters into a contract to rent a building for €10,000 a year for 20 years, and rents move up in the area.  If the landlord would like him to vacate the building, he would have to offer the tenant an inducement to do so.  Of course the tenant can refuse the offer.

BoSI and TRS30 entered freely into a contract where the lender gave the borrower a cheap tracker on interest only for the full term of the mortgage. This is hugely beneficial to TRS30.   BoSI has contacted him and other borrowers encouraging them to pay down these beneficial trackers early.  TRS30 would be crazy to repay this mortgage without a substantial discount.  He can ask for a discount. BoSI is free to grant this discount or not as they see fit. 

This is not immoral. Nor is it debt forgiveness. 

It would be wrong to advise someone with a SVR mortgage and plenty of savings, to hide those savings from the bank and go into arrears deliberately in order to avail of a debt write-down. 

Brendan


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## cremeegg (20 Mar 2014)

Not only  is it not debt forgiveness, if BOSI were to offer TRS30 a discount of say 10% on his mortgage for early redemption. That would be profitable for the Bank.

Because he is "well off" as perhaps a higher rate taxpayer TRS30 is paying for the debt forgiveness being offered to others by AIB as reported recently.

I would question your last point Brendan. Why would it be wrong for someone to hide their true position from the bank when engaged in a negotiation. It is normal in any negotiation to try to obscure your true position.


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## Brendan Burgess (20 Mar 2014)

cremeegg said:


> I would question your last point Brendan. Why would it be wrong for someone to hide their true position from the bank when engaged in a negotiation. It is normal in any negotiation to try to obscure your true position.



Because a condition of the MARP is that you fully disclose your income and your assets.


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## TRS30 (20 Mar 2014)

I entered a contract with BOSI; until now we have both kept our side of the contract. BOSI have now approached me and want to change this contract by asking to pay all or some of the capital before the agreed date. To my mind this means the initial contract is null and void and we are entering a new contract. 

As part of negotiating this new contact I need to make I get the best deal I can, just like I did when I entered the first contract. If the details of the new contract involve a less amount been repaid earlier then so be it.


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## 44brendan (20 Mar 2014)

Is this a "tongue in cheek" question Brendan? Why on earth could it be considered to be in way way morrally wrong to accept an offer for buying out of an unprofitable contract. The current cost of funds to any bank is difficult to establish. However, it is likely to be well above the standard ECB rate and therefore the bank is runnning a loss on it's tracker mortgage book. It will obviously pay the bank to offeran incentive to mortgage holders who are in a position to redeem their mortgages ahead of schedule. i.e. Both sides can benefit from this "commercial" agreement, with no moral issues being raised!


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## Brendan Burgess (20 Mar 2014)

44brendan said:


> Is this a "tongue in cheek" question Brendan? Why on earth could it be considered to be in way way morrally wrong to accept an offer for buying out of an unprofitable contract. !



Hi brendan 

It's not tongue in cheek at all. 

I have heard the point made by others but this thread was inspired by a Frequent Poster reporting my post on the topic as in breach of the guidelines.  

Maybe the thread title is misleading. Perhaps I should have stated "Why getting a discount...is not morally wrong"  

I started this thread to clarify the issue. 

Brendan


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## ontour (20 Mar 2014)

TRS30 said:


> BOSI have now approached me and want to change this contract by asking to pay all or some of the capital before the agreed date. To my mind this means the initial contract is null and void and we are entering a new contract.



BOSI may want you to hold their next AGM in your house but you are not going to do that.  They can ask you to pay capital early but what happens if you say No?

If both parties agree to change the initial contract then it is arenegotiation and new or amended contract.  One party requesting a change to the contract does not automatically make it null and void.


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## TRS30 (20 Mar 2014)

Hi ontour

Completely agree and I probably should have been clearer in my initial post. 

BOSI have made a suggestion, if I act on that and change the contract then so be it, if on the other hand I ignore it then we continue as is and I will repay the full amount owed.


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## cremeegg (21 Mar 2014)

Brendan Burgess said:


> Because a condition of the MARP is that you fully disclose your income and your assets.



This would not apply then for a buy to let property that is not covered by MARP. 

I would strongly suggest that anyone involved in renegotiating a BLT mortgage with a bank, whether negotiations were initiated by the bank or the borrower, should disclose as little about their overall financial position as possible to the bank.

For a principle private residence. If MARP as a legally established process requires a borrower to fully disclose their income and assets, then I suggest that this is a very unfair piece of law. I don't think it imposes any corresponding obligation on the bank to fully disclose its position or policies regarding its approach to borrowers in difficulty.

The borrower has to tell the bank everything, the bank has to tell the borrower nothing.


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## Brendan Burgess (21 Mar 2014)

I think that you are missing the point. Just to clarify what I said 



> It would be wrong to advise someone with a SVR mortgage and plenty of  savings, to hide those savings from the bank and go into arrears  deliberately in order to avail of a debt write-down.




In the case of TRS 30 , where there is no breach of contract involved, and both sides are trying to freely reach a revised deal by mutual consent, then TRS30 is under no obligation whatsoever to show his hand to BoSI. 

However, if I am in breach of my contract on my mortgage and, consequently and looking for a restructuring or debt writedown, I should not lie about it.  

The borrower is arguing that they are in breach of contract because they can't afford their repayments. They should be honest about this.


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## paddy19 (15 Apr 2014)

Brendan,
I'm frankly amazed that you would mix morality and business.

The capitalist system is based on buying and selling labour at maximum profit.
Hardly the basis for a moral system.

There is no morality to business. It's just business.

It's interesting that the moral argument is only raised for the little people never for the elite.


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## podgerodge (29 Apr 2014)

Brendan Burgess said:


> Another user reported me as "it was inappropriate for me to be helping someone to welch on their debts".
> 
> Brendan



Welching on a debt is failing to honour the terms of a loan.  It has nothing to do with negotiating new terms.  So the other user has misunderstood the term as you were simply "helping someone to negotiate better terms" - and in this case, possibly for both the benefit of both the lender and the borrower.


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