KBC encouraging those on trackers to up their payments to reduce their mortgage term

P

Paulk

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Hi,

I received a letter from KBC this week regarding the tracker rate decrease. One of the paragraphs states that:

"In light of the low interest rates currently applicable to your account, you may wish to consider paying an amount in excess of your contractual repayment. There is a benefit to you in that you reduce your mortgage term and reduce the total amount of interest you will pay over the life of your mortgage. If you wish to do so, please contact us."

Basically, they are trying to entice tracker mortgage clients to pay a lump sum/higher monthly repayments so that KBC can off-set some of the losses they are incurring with tracker mortgages. Nice try!!
 
We are overpaying a tracker mortgage with ICS..over the life time of the loan we will have saved in the region of €35,000. We also have substantial savings so are happy to do this. It also means our mortgage protection policy will be paid off more quickly too.
 
Yes there is no trick here. Unusually for a bank these days, they are actually providing sound financial advise. We have overpaid our mortgage since the very start and when finished, will have saved some €40,000 in interest over the life of the mortgage.
 
...the idea being that someone with a lower element of interest in their monthly payments has extra capacity to pay off more of the capital.
Obviously, the alternative viewpoint is that more could be earned by saving that extra cash (or spending it on yourself!).
 
Look at it this way:

Compare you current mortgage rate vs what interest you could earn on deposit after DIRT (and PRSI from 2014)

If there isn't much difference you might benefit from getting the mortgage down.

Alternatively, any money you have spare might be best held for a rainy day.

depends on your circumstances
 

Due to the current low tracker rates, I assumed that one would be much better off saving any spare money in a deposit account and earn interest that way.

There is also a big incentive for banks if customers make any over repayments on their tracker accounts.
 
Interest rates are low. Add to that DIRT and from next year PRSI being deducted from interest....
There is also the intangible benefit of being debt free a lot sooner than we anticipated!!
 
It's hard to know where to start with this one, but I will start with the most important.

Make sure you don't sign up to a higher repayment on your tracker mortgage
If you simply pay off random amounts or set up a standing order to pay in more money, there might be some sense in this.

But I would not put it past KBC to try to get you to change your mortgage agreement. If after a few years, you want to reduce your repayments, they won't allow you.

So under no circumstances should you weaken your tracker.

If you choose to up your repayments, ask KBC for a written agreement that any additional payments will be treated as payments in advance. If they allow this, it means that if circumstances change, you can take a break from your repayments or revert to the original level. If they agree to this, in writing, this may be worth considering.

"You will reduce the total amount of interest you will pay over the term of your mortgage"
Yes, and if I rent a car for 3 days, I will pay less than if I rent a car for 7 days.

No one should look at the "total amount of interest over the term". One should look only at the APR on the loan.

If you save the money in a deposit account, you should earn more than the interest paid on a cheap tracker
So you will be much better off after 20 years.

You might want to trade up at some later stage
Anyone who has overpaid their Ulster Bank or BoI tracker in recent years and who is now trading up, must be kicking themselves. These banks are allowing people to transfer their tracker but they must borrow the rest at the SVR. So they are effectively borrowing at 4.8% instead of the average cost of 1.5% cost of the tracker.

The lenders may introduce a deal for early repayment of trackers
I don't expect this, but it might happen

emeralds
We are overpaying a tracker mortgage with ICS..over the life time of the loan we will have saved in the region of €35,000. We also have substantial savings so are happy to do this.
Click to expand...
This is only true if you pay off the mortgage instead of throwing the money in the fire. If you put the overpayments into a deposit account, they will amount to at least €35,000.

As you have substantial savings, you may well be a candidate for trading up. You will end up paying 4.8% instead of 1.5%.

You should stop your overpayments immediately.


It also means our mortgage protection policy will be paid off more quickly too.
Click to expand...
I have no idea what this means?

A mortgage protection policy is a life-insurance policy. If you pay off your mortgage 10 years early, you may no longer need it. But most people who pay off their mortgages early keep their mortgage protection policy as a form of cheap life insurance anyway. The way life insurance works, you pay over the odds in the early years, and well below the odds in later years. Of course, some policy holders cancel in later years and the life companies are delighted.

tallpaul
Yes there is no trick here. Unusually for a bank these days, they are actually providing sound financial advise.
Click to expand...
If you think a bank is operating in your interest, put on your sceptical hat. They are not giving good advice. There is a trick. They want you to commit to paying off your tracker early. You might be comfortable with the overpayments now, but if your circumstances change, they won't allow you revert.


emeralds
There is also the intangible benefit of being debt free a lot sooner than we anticipated!!
Click to expand...
It is lovely to be debt free. But it's actually much better to have a mortgage of €100k at 1.1% while having a lump sum in the bank earning 1.5% after all the deductions. Not only do you get the intangible benefit, you get the tangible benefit of being richer as well.


All in all, this reminds me of the celebratory posts on askaboutmoney some years ago, when lenders allowed people to break out of their fixed rates with no early repayment penalties. I suspected that there was a catch, but I just didn't know what it was. Now those people bitterly regret their decision as they have lost their cheap trackers. I am sure that there are examples of banks giving you advice in your interest, but it would be so rare, that you should be hyper-suspicious of any deals.
 
I agree with Emeralds approach. Particularly if one is on a 35 year mortgage.
 
I think there are merits both in keeping to the agreed repayments or upping the capital payments. It depends on the individuals own circumstaces. If paying off additional capital, this should be adhoc payments into the mortgage account-rather than a formal agreement to pay a fixed amount each month. This way the payments are non-contractual/non-binding.

Having cash at ones disposal for unforessen events is a tremendous asset-and in my opinion outweighs the benefit of having knocked that same amount off the mortgage (assuming repayments are being met with ease)
 
If the government guarantee wasn't in place or if one were to think that the guarantee in place isn't worth the paper it's written on, I can see why someone would pay off their low-rate tracker. There's no point earning 0.3% extra on deposit if you're concerned that the deposit account would go belly-up and you'd still have your mortgage outstanding.

That being said, the above scenario is very unlikely - but stranger things have happened!
 
Hi All For comment i have to agree with Brendan here and would also take into account the effect of inflation, especially on a 35 year mortgage, (1,000 per month now will not be 1,000 per month in 15 years) accumulate the money sure but not by repaying the mortgage at least not yet, if rates go up they will on both fronts deposit and mortgage. Choice is priceless and on the issue of the interest saved it is only saved if you had not invested it elsewhere. However ones makeup and views need to be accounted for here also and many are happier and feel more secure when the mortgage is finished and that is not to be dismissed either. However once a bank decided to lend money on a margin that they (the Bank) could not increase it changed the whole way a mortage should be viewed. By not being able to increase the margin the profit level is at a miniumn and this is what the banks dont like about trackers but they should have thought of this before bringing the product to the market. Just my thoughts P
 
I agree with Brendan - if one thinks that a bank is thinking about their customers interest as their main priority think again.

The paragraph from KBC quoted above is sugar coated and spelt out in such a way that the customer will greatly benefit by making over repayments on their tracker mortgage.

They fail to mention the €€€€€€ which KBC will be saving from any over repayments customers make! There may possibly be some potential benefits for customers but KBC do not mention the disadvantages such as reduced mortgage interest relief, earning higher interest in a deposit account, the possibility that there may well be a catch in this over repayment!
 
I am with ulster bank and on a tracker mortgage. I recently set up an overpayment and have confirmation that it will not affect my tracker rate and I can cancel the overpayment at any stage once I give 10 working days notice
 
Ulster Bank now have (nice) people ringing up to date Tracker customers and asking them would they be prepared to give up their Tracker ,go to another lender and that Ulster would give them a rebate.

Any comments ?
 
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