Key Post: First Active mortgage/current account

First Active Mortgage account

Right, so that would be contrary to what rainyday suggested? Or am I losing my direction in this?

So now what I'm wondering is, does this leave the product open to being used almost like a cheque book mortgage (without the cheque book :\ ).

Suppose I could afford to pay a 20 year mortgage, but took out a 35 year mortgage instead. Assuming I didn't spend the extra money it woud build up in the facility account (?) leaving it available to be withdrawn as I wished, almost like getting a loan at mortgage rates without any form filling or checks being done?

thanks again,
saver

Re: First Active Mortgage account

Right, so that would be contrary to what rainyday suggested? Or am I losing my direction in this?

From what I've read all payments over and above the normal repayment schedule are always available for withdrawal by the customer. I think the confusion may be that some people have the idea that there comes a point when such overpayments are "locked into" the mortgage and thereafter not available for withdrawal. I'm not sure why First Active didn't simplify the product further and get rid of technical terms like "facility account" and "mortgage account"?

Re: First Active mortgage/current account

Here's what the Irish Indo has to say about this product.

Re: First Active mortgage/current account

Would it be wise to use this new account for storing that "rainy day money"?, you know the money that would help you maintain your lifestyle for a period or 3-6 months incase of accidents/emergencies?

S.

RainyDay money

"Would it be wise to use this new account for storing that "rainy day money"?"

I'm glad you clarified that you didn't mean money you owed our own for services rendered. :lol

Yes I think this product would be a good home for your short-term savings, as you will be getting an effective return of 4.24% (or the prevailing interest rate) on the savings (by reducing your mortgage balance) while maintaining access to the funds.

Liam D Ferguson
www.ferga.com

Re: First Active mortgage/current account

Here's what the Irish Indo has to say about this product.

Is this snippet really accurate!?

Some lenders do facilitate occasional lump sum reductions off the outstanding mortgage, but in general these have to be quite sizeable to be permitted.

I thought that accelerated regular or lump sum (of any size!) repayments could be made against any variable rate mortgage without penalty?

First Active Mortgage account

That would be part of the idea I think. Assuming that your reserves sit in the facility (current) account part. It'd be like having paid money off your mortgage unless you suddenly need it.

As they pointed out in the independant, it would suit people that pay a lot of attention to managing their money and those that are a bit lazy, since, keeping pretty much any available money in the account saves mortgage interest and any "borrowings" withdrawn from the account would, equally, "cost you" at mortgage interest rates.

saver

First Active Mortgage account

Sorry, previous post in response to Suzie...

Liam D and Clubman sneaked past me...

saver

Re: First Active Mortgage account

Hi Clubman,

Lenders cannot charge a penalty for accepting overpayments on a variable rate home-loan, but they are free to impose their own criteria for what overpayments they will accept. Example - Bank of Scotland will only accept a minimum lump sum of €1,000.

Liam D Ferguson
www.ferga.com

Re: First Active Mortgage account

Thanks Liam - I wasn't aware of that.

FA mortgage account

The way I read this is as follows. If you owe a 100000 mortgage in your loan account and you have 1000 in yourfacility account the interest due on the mortgage will only be calculated on 99,000. If the next month you happen to have 4000 in your facility account then the interest due on the mortgage will be calculated based on 96,000. I think these calculations of interest are carried out on a daily basis so it does'nt matter if you deposit or withdraw cash from your facility account as per your normal routine. The net effectof this seems to be that you will gain interest of (4.2%) on what ever amount you have deposited in the facility account.

However, it seems that this interest gain must be deducted from your mortgage either in terms of the monthly repayment or the duration of the mortgage. The other point seems to be that if FA have high interest rates which is very bad then the interest gain from the facility account would also be high which is a little bit good.

I'm not sure of this but it might also mean that you get an overdraft facility at 4.2 % which would be good.

I think its a good development and maybe other lenders may follow suit or indeed improve on it.

DM

FA mortgage account

Right!

I gave in and rang First Active!

There is no limit to the balance that can be built up in the facility account. First Active do not at any point decide that you have too much in your facility account and either filter it to the loan account or cap it in any other way.

When I asked that question I was simply told (after a quick check) that "No, that won't happen"

So...!

Why doesn't anybody who could afford a 20 year mortgage take out a 35 year mortgage instead but (essentially) make "20 year mortage contributions" in the form of a combination of a "35 yr mortgage" monthly repayment (to the loan account) and leaving the excess in the facility account. This would essentially be a 20 year mortgage except that you would be building up a fund in the facility account to be used at your (cautious) whim should you ever need it!

I asked her (Girl from FA) if that could be done and I was told that she didn't see any problem with it, that it would just be one of the benefits of the product.

Sounds good to me (apart from ECB +1.5% interest rate)

saver

Re: FA mortgage account

Why doesn't anybody who could afford a 20 year mortgage take out a 35 year mortgage instead but (essentially) make "20 year mortage contributions" in the form of a combination of a "35 yr mortgage" monthly repayment (to the loan account) and leaving the excess in the facility account.

I don't understand the rationale of this. In general the shorter you can keep your mortgage term (either initially or through "acclerated" repayment of the loan) the more economical it will be in the long run.

FA mortgage account

Hi,

The idea is that you're still keeping it short because you're still putting the same amount in through "overpayment".

The monthly repayment (the bit that ends up locked in to the loan account) is smaller than for a 20 year mortgage though, so you're offsetting this by building up a balance in the facility account with the difference.

The balance in the facility account isn't "locked in" as such, you can even withdraw it with an ATM card. this provides you with something almost like PTSBs cheque book mortgage... "I had another 10K paid off the mortgage, but I decided I needed a new car"...

Other advantage is, that if you are a bit tight one month, there's nobody forcing you to build that excess in the facility account so you can just make your (smaller) fixed repayment.

I'm probably not explaining myself very well...

Does anybody see where I'm coming from? Does it make sense?

saver

Re: FA mortgage account

But what's the difference between that and taking out a 20 year or shorter variable rate mortgage (at a lower rate than First Active currently offer) making normal and/or accelerated repayments while also saving spare cash in a high yielding deposit account?

Also - surely First Active have some procedure for what happens when your normal repayments and deposited savings result in a nil balance on the mortgage loan? Do they terminate the mortgage & close your account?

Don't get me wrong - the FA product is a welcome innovation in the Irish mortgage market but don't forget that a lot of what it facilitates is already possible with existing products.

FA mortgage account

Hi Clubman,

I was hoping, that'd be followed by "Oh I see what you're saying..." because I know I'm not managing to explain my point too clearly...

Right, here goes a (very) simplified case study...

Bob earns net €2000 per month...

Bob spends €500 per month so has €1500 per month to sort out his mortgage.

On checking, €1500 per month would allow him to pay a 20 year mortgage.
but, €1000 per month would allow him a 35 year mortgage...

Bob wants to pay off his mortgage in 20 years but is nervous about tying up his money and fluctuations in his monthly income...

So, Bob get a 35 year current account mortgage from FA.

Each month, his €2000 gets lodged to the facility account halping to save him interest...
all going well...
Each month he spends €500 and each month €1000 gets locked in to the loan account... But there's still €500 extra in his facility account.

If he keeps this up, he will have essentially paid the interest equivalent of a 20 year mortgage and after 20 years his facility account balance will match his outstanding loan... Mechanics of what happens then I'm not sure of but he can somehow close the mortgage.


The advantages to Bob though...

If Bob only gets paid €1500 in a particular month, €1000 gets repayed to the loan account and he has the option of spending the remaining €500 anyway. He's not in any way tied to the €1500 a month that was going towards his mortgage, only to €1000.

Also, if Bob's car gets destroyed by an act of God and he needs a new one he has a balance sitting in his facility account that he can call upon without checking with FA and without having to go through the complexities of officially extending his mortgage, they're expecting him to take 35 years anyway. It also has the advantage that he can call on it for little expenses, say, €2000 for car insurance and so on...

Case study ends here...

If Bob had taken out a 20 year mortgage elsewhere he would be tied (well, more so anyway) to his repayments of €1500 per month.

Also, if he needed, say, €10k for a car, he has to jump through the usual hoops...

Assuming none of these problems arise though he's not losing any of the benefits of a 20 year mortgage. He's also getting the normal expected benefits of reduced interest from having his salary paid in and spending from the facility. But, yep, he's paying (ECB + 1.5)%


I know this is long winded, I just can't seem to explain myself (or maybe I'm just not understanding Clubman's explanation?)
And I'm supposed to be an instructor... Does anybody see what I'm saying?

saver

Re: FA mortgage account

Sorry - yes - I think I understand what you're saying. I was just trying to tease out some caveats to bear in mind when making a decision between a current account mortgage and something more "traditional".

If Bob had taken out a 20 year mortgage elsewhere he would be tied (well, more so anyway) to his repayments of €1500 per month.

I thought that most lenders allow the term of a variable rate mortgage to be varied without much hassle (e.g. reduced through accelerated repayments or extended through rescheduling of repayments) so a normal variable rate mortgage may not be as inflexible as one thinks?

Also - don't forget that the First Active mortgage interest rate is relatively high compared to others.

FA mortgage account

Whew!

Yep, the flexibility in repayments was actually an after-thought, where I see the benefit is in having built a fund that would essentially be a (relatively) unchecked borrowing reserve, effectively at (even if a bit high) mortgage rates.

To be honest I don't know how I got into this, I don't have a mortgage and amn't quite in the market for one yet... anyway...

Well, at least I can stop paying so much attention to the "change of career" thread going on elsewhere...

Thanks yet again
saver

Re: FA mortgage account

Hi Saver,

A couple of small points with your theory. Firstly the max. term is 30 years rather than 35 and secondly the max. mortgage is determined by your income so a longer mortgage will not increase your borrowing capacity (it will with lenders who work solely on net disposable income but First Active work on the lower of the two criteria).

Hi Clubman,

Reducing a mortgage term is OK but if you increase the term you have to lenghten your mortgage protection - which normally means having to reapply - and there may be some legal costs as the mortgage deed may have to be restamped.

Although the rate is not competitive it's on a par with PSTB, ICS and IIB Homeloans (well, within 0.04%) the interest savings with the daily calculation make this product very attractive.

Regards,

Sarah

www.rea.ie

Re: FA mortgage account

Hi saver,

Everything you said is correct. To appease ClubMan, I will concede that you are paying an extra 0.39% or so compared with the best variable rate in the market (AIB, assuming loan higher than 80% of value) but in return you are getting the flexibility you have described above.

If you have a standard repayment mortgage and make overpayments, it's cumbersome to get them back. An overpayment sitting in the Facility Account can come back out immediately.

By the way - one small point (an extension of Sarah's point really) about your idea, saver, is that if you apply for a 30 year current account mortgage when all you really need is a 30 year one, you'll need a 30 year life assurance policy, which will be dearer than a 20 year one.

Regards,

Liam D Ferguson
www.ferga.com