Key Post Should I overpay my tracker mortgage?

In 99% of cases, you should not overpay a cheap tracker!

1)If you are thinking of trading up, or even if you might trade up, you should not pay off your mortgage

All of the main banks allow you to transfer your tracker if you want to trade up, usually at an extra 1%.



In addition, it is much easier to trade up if you have €100k cash, especially if you are in negative equity

2) The lenders might do a deal at some stage to encourage early repayment of your mortgage
While all the banks deny that they will do this, their policy may change in the future.

In particular, Danske Bank and Bank of Scotland want out of the market as quickly as possible. They may sell on your mortgage to a vulture fund, who may give you such a discount. Ulster Bank and ptsb may sell off their cheap trackers.

While the correct financial decision is not to overpay your mortgage, it is better to overpay it than to squander it

If you are good with money, it's better to have a €300k tracker mortgage and €100k in a deposit account, than to have a €200k mortgage.

However, if the presence of €100k tempts you to squander the money, then you should pay down the mortgage.

Other reasons you might pay a lump-sum off your tracker

1) You are concerned that the deposit in the bank might not be safe.
2) Ireland might pull out of the euro. There is a risk that if Ireland pulls out of the euro, your deposit might be converted to punts while your mortgage stays in euro.
3) Having a lump sum might reduce your means tested social welfare payments


If you decide not to pay off your tracker, are there alternatives to deposits worth considering?

Whatever alternative you consider, you must have quick access to your money, in case a deal becomes available.

Investing directly in a balanced portfolio of shares is worth considering. However, you have to realise that there is a risk that the value may fall.

You could consider a unit linked fund or ETF, as long as there are no initial charges or exit charges.

It would generally not be a good idea to invest in property as you will not be able to access your cash if you need it.

Re: Should I use a lump sum to reduce my mortgage?

Wrong arguments sometimes put forward to justify paying off your tracker early

"If you have a lot of years to go, you will save thousands of euros in interest over the term of your mortgage"

This is nonsense. You will save thousands of euros in interest if you pay off your mortgage instead of squandering your money. But if you put your money on deposit, you will earn thousands of euros in interest. If the deposit rate is higher, you will earn more in deposit interest than you will save in mortgage interest.

Owners told: pay more off your tracker after rate cut



Amazing, HML who owns Bank of Scotland think it's a good idea for those with tracker mortgages to overpay their mortgages.


And when KBC wrote to borrowers last year, actively encouraging them to pay down their trackers, they were widely supported on Askaboutmoney

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

We are currently on a tracker mortgage with BOI over 25 years' balance left on account is 61k approx interest rate is 1.35% - we have a lump sum of 50k that we could use to pay off the mortgage. With interest rates being what they are at the moment would it be better for us to put the 50K against the mortgage or should we just keep the mortgage, we have no plans to move at the moment.

Deposit rates have now fallen to a point where it actually makes a lot of financial sense to pay down a cheap tracker on a PPR ahead of schedule (allowing for any available MIR), when you take account of the punitive taxes on deposit interest, provided you have no need or desire:-

(a) to keep the sum involved as a liquid cash reserve; or
(b) to invest in higher risk assets, such as real estate or equities.

Here's a more recent thread on the topic:

http://www.askaboutmoney.com/threads/is-it-mad-to-pay-off-a-cheap-tracker.193088/