Paying off mortgage before applying for new mortgage

I have a situation where my family and I would like to move to a new house, but like so many people we haven't a really a hope of selling.

I'm fortunate enough to have a site near family and I also can afford to just about pay off my existing mortgage.

The mortgage I have is a really good one, 2.15% tracker mortgage with Ulster bank and there is around €125k left. Currently overpaying €400 more than I need to, around €950 per month.

I'd like to build a house with a budget of roughly €250k.

I think it would make financial sense to get a new mortgage of €125k at whatever standard variable rate is going these days and use savings to build.

However I was told at one stage by an Ulster bank person that if I got a new mortgage (with anyone) then the terms of the mortgage I have with them will need to be redone meaning I'd lose my low rate tracker mortgage.

Just wondering if anyone has any opinions on what they would do in this situation.

That's rubbish unless they mean by moving out of your principal residence on which you have the tracker that you then invalidate that contract, in other words if the house is then rented and becomes an investment property. However I would go back and read your original loan offer as there may be no mention of this in your loan offer, obviously if there is a stipulation that it remain your main residence then they have a point, if there is no mention of that then I would be inclined to let them get lost. Anyway if you go and get another mortgage elsewhere how will they even know?

Yeah, from what I recall of the conversation it was along the lines that the mortgage was on main residence. If I were to move to a new home, the old house would be classed as an investment property and subject to different mortgage rate.

Part of me wonders if I were to just get another mortgage from another bank (if possible), would they even know? Would I be obliged to tell them?

Check your original loan offer, at one stage banks were offering same rates to home loans and investment properties so there was no issue with whether or not the status of a house changed as all rates were the same so it depends when you got your mortgage. There may be no mention of that stipulation in your loan offer, if there is not then I would asking them on what basis they were changing your rate.

If you get a mortgage elsewhere you are under no obligation to tell them. However, if you rent your original house you will have to change your house insurance and if you have to send them a copy of your new policy that may alert them as obviously it will be for a rented property. Although some times a letter of indemnity is issued by the insurance company and the bank accepts this, usually states just address and amount of insurance. Is your buildings insurance through the bank at the moment?

Home insurance is with Allianz at the moment.

Thanks wbbs for your replies, I'll have a root around for original loan offer and go from there I guess.