Possible loophole for Permanent TSB offer

veryangryman

Hi - I have a Tracker Mortgage but am not lucky enough to be with Permanent TSBs getting 10% free when you pay lump sum offer. Nor do i have 5 grand to spare ATM.

Still, a thought occurred to me..... theoretical and all that

If i took out a big loan of maybe...15K with another bank (say got APR or 7-8% as a ballpark figure) and dump that into the Mortgage, wouldnt this be a good idea? Or is there a hole in my logic?

tommy21

And the small matter of the €15,000 plus interest?!

veryangryman

tommy21 wrote: »

And the small matter of the €15,000 plus interest?!

Of course you have to pay this back. But what im saying is that you save a good few hundred (maybe thousand) on the Mortgage repayment

Short-Medium term its an extra burden, but long term saves ya cash.

homer911

In theory, you are correct, but you would need to (a) find a bank willing to lend you the money and (b) do all the sums to see if a saving would actually be generated

3DataModem

Depends how quickly you pay off the loan, the interest rate of the loan, and the interest rate on your mortgage.

chris85

Jaysus lads is everyone mad the interest rate on the loan is higher than the mortgage rate so would cost more to do this. End off.

veryangryman

chris85 wrote: »

Jaysus lads is everyone mad the interest rate on the loan is higher than the mortgage rate so would cost more to do this. End off.

Get your calculators out..

Lets say 200K owed with interest rate of ~3% and im paying €1K monthly

So in a year this would accrue €6000 in interest. Balance now €206,000 DR. minus what ive paid monthly €194,000 DR__________________________________________


I could of course take a loan out of (say) 10K at 8% interest and pay this off at start of year.

So we knock this off the 200K - we are now on 190K. Interest rate of ~3%Paying the 1K monthly again

So in a year this would accrue 5700. Balance now €195700 DR minus what ive paid monthly 182700 DR

We pay the 10K back in a year - costs us €800 net. €183500 is the sum total that is owed to the bank at this stage
__________________________________________________________


€10,500 saved in this example alone. If the Fonz is around, can you call him over. I need an "AAAAAAY" right now :cool:

chris85

Bad example.

Look if you get credit of €10k at 8% you would be better to keep it in a mortgage at 3% and use the money you were going to use to pay off the loan and just overpay the mortgage which is more beneficial.

say I have a 200k mortgage. If i borrow 10k straight away i immediately have 200k still owing (190k mortgage and 10k personal loan) with a higher total interest rate. Why would i do this?

Use the extra money and pay it off the mortgage.

Formal shorts

veryangryman wrote: »

Get your calculators out..

Lets say 200K owed with interest rate of ~3% and im paying €1K monthly

So in a year this would accrue €6000 in interest. Balance now €206,000 DR. minus what ive paid monthly €194,000 DR__________________________________________


I could of course take a loan out of (say) 10K at 8% interest and pay this off at start of year.

So we knock this off the 200K - we are now on 190K. Interest rate of ~3%Paying the 1K monthly again

So in a year this would accrue 5700. Balance now €195700 DR minus what ive paid monthly 182700 DR

We pay the 10K back in a year - costs us €800 net. €183500 is the sum total that is owed to the bank at this stage
__________________________________________________________


€10,500 saved in this example alone. If the Fonz is around, can you call him over. I need an "AAAAAAY" right now :cool:

It's not quite that simple.

I'll try and demonstrate with figures that are as accurate as they can realistically be at 1 in the morning (within a couple of euro).

Say you have a €200k mortgage at 3% with 20 years left. Your repayments are €1109. Your total repayments at the end of the mortgage total €266207.

Take the TSB offer. Take out a 10k loan and repay it over one year. They give you your 10% bonus, so your mortgage balance drops to €189k. Keeping your repayments the same at €1109, your repayments at the end of the mortgage total €246504.

Now, factor in the personal loan. Best rates out there currently are 10%. That means a monthly repayment on the loan of €879 for 12 months. Total repayments to the loan will come to €10550.

This means that taking the loan and lumping off the mortgage means your total repayments for both will be €257054. Your savings from doing this are €9153.

Now, it would be lovely if it were that simple, but it's not. In this example, we are assuming that someone can afford and extra €879 a month for the year. So, assuming that, what happens if they simply overpay their mortgage by that amount for the year?

That means, mortgage of €200k, repayments of €1988 for twelve months. Using an amortisation calculator, after 12 months your mortgage balance would be €181892. Then, we revert to our original repayments of €1109. Our total repayments and the end of the mortgage in this case are (€234286 + 1988x12) €258142.

So what you are actually saving by using this "loophole" in the example you gave is roughly €1088. About €5 a month over 17 years 8 months. You'd be better off putting a tenner a month into a savings account.

Alternatively, lump an extra 200 quid a month off the above mortgage (assuming someone who can afford the extra 879 a month can afford 200) and you end up saving over 14k over the term of the mortgage. Much easier, much better savings.



Edit: Apologies if there are any errors in the calculations but I'm pretty sure they're spot on.