Paying off mortgage in lump sum.

denismac

I have a smallish (70,000) tracker mortgage with Ulster bank. Its costing me about €1500 a year in interest and charges to service. I am in a position to pay off this mortgage and was wondering if there is any chance the bank might do a deal to clear it early or would they try to penalise me for doing so?

Arbiter of Good Taste

I don't work in a bank so I can't say definitively, but as the bank is probably losing money on the tracker, they might be happy for you to repay.

The_Morrigan

OP best bet is to contact the mortgage dept of the bank and organise a meeting with them, a lot of banks are now allowing overpayments at least, if not full repayment of the mortgage early.

Senecio

Would you not be better off keeping the tracker going and putting the money you have into some other interest bearing investment. I'm sure you could earn more than the 1,500 that the mortgage is costing you.

A 3.5% term deposit would earn you 2,500 on 70,000 capital. You could probably do better by looking around.

Michael D Not Higgins

Senecio wrote: »

Would you not be better off keeping the tracker going and putting the money you have into some other interest bearing investment. I'm sure you could earn more than the 1,500 that the mortgage is costing you.

A 3.5% term deposit would earn you 2,500 on 70,000 capital. You could probably do better by looking around.

Minus DIRT is less than €1500.

Edit: I'd also like to see the account that offers that interest rate, the best one on bonkers.ie is 2.66%.

seb65

Given that banks are desperate to rid themselves of trackers and that they are desperate for quality capital, they should be more than happy to take your lump sum payment. I would offer it without acceptance of any amount of overcharge. If they didn't accept those terms, I would look to another investment option for the money.

Eldarion

You're insane to even consider over paying a tracker at the moment. You will never ever ever see a cheaper form of credit. You could honestly beat that interest rate with a ZERO risk long term savings account.

There's a reason banks are PAYING people huge lump sums off their principle to come off their trackers at the moment. If you really do want to clear it though go in with this in mind, see what they offer you to pay it off early. You might end up paying less than you owe.

Michael D Not Higgins

Eldarion wrote: »

You're insane to even consider over paying a tracker at the moment. You will never ever ever see a cheaper form of credit. You could honestly beat that interest rate with a ZERO risk long term savings account.

There's a reason banks are PAYING people huge lump sums off their principle to come off their trackers at the moment. If you really do want to clear it though go in with this in mind, see what they offer you to pay it off early. You might end up paying less than you owe.

Where are all these great interest rate savings accounts?

Arbiter of Good Taste

Eldarion wrote: »

You're insane to even consider over paying a tracker at the moment. You will never ever ever see a cheaper form of credit. You could honestly beat that interest rate with a ZERO risk long term savings account.

There's a reason banks are PAYING people huge lump sums off their principle to come off their trackers at the moment. If you really do want to clear it though go in with this in mind, see what they offer you to pay it off early. You might end up paying less than you owe.

But the OP does not want or need any credit. So any interest, no matter how how, is a cost to him.

Indeed, it would be worthwhile, though, to see if the bank would give a reduction to get a loss making tracker off their books. Somehow, though, I doubt it.

marathonic

Arbiter of Good Taste wrote: »

But the OP does not want or need any credit. So any interest, no matter how how, is a cost to him.

Not if the net interest received by putting the overpayment in a savings account exceeds the interest paid on the tracker mortgage.

NIMAN

My previous mortgage was a small tracker too. I asked the AIB about getting a reduction in the amount to clear it and was basically told no chance. The mortgage specialist at my branch said that because I had never missed a payment and was a good steady payer I would not be offered any reduction to clear it.

Now that was 2yrs ago and i'm not sure if they have changed their rules.

MarkR

Here is an interesting article discussing what you mention.

http://www.independent.ie/business/personal-finance/mortgage-or-investment-use-your-lump-sum-wisely-29907780.html

phormium

I seriously doubt UB will give you any reduction for clearing early, in fact not a hope I would say.

No harm asking though, let us know what they say.

Michael D Not Higgins

marathonic wrote: »

Not if the net interest received by putting the overpayment in a savings account exceeds the interest paid on the tracker mortgage.

Third time this has been posted.

Where is this magic savings account that will make more than the interest on the mortgage?

Eldarion

NIMAN wrote: »

My previous mortgage was a small tracker too. I asked the AIB about getting a reduction in the amount to clear it and was basically told no chance. The mortgage specialist at my branch said that because I had never missed a payment and was a good steady payer I would not be offered any reduction to clear it.

Now that was 2yrs ago and i'm not sure if they have changed their rules.

Anecdotal but I have a friend get offered a tidy enough sum off the principle to switch from tracker to variable. He crunched the numbers and took the deal. This was last year and he's been overpaying each month too now to bring the principle down even quicker. He's opened himself up to risk of the variable going up but unless that happens in the next year or so he'll be well ahead due to the deal.

Lots of 2.2~2.6% AER long term savings accounts out there. Rabo, KBC and PTSB all offer them. And that's going 100% completely risk free route for investing, if he goes for something very low risk he could beat 3-4% easy, even if it's only an 75/25 split between that and the term account. If he has 70k available and is contemplating this decision I'd say he can bear a small amount of risk.

marathonic

Michael D Not Higgins wrote: »

Third time this has been posted.

Where is this magic savings account that will make more than the interest on the mortgage?

Sorry, didn't realise the OP's tracker rate was so high.

The only thing that beats it is a 10 Year National Solidarity Bond at 2.66% tax free. Of course, this would be a bad choice considering the fact that average interest rates over the next 10 years will be much higher than they are today.

Michael D Not Higgins

Would it not be better to pay off the mortgage and then invest what you would spend on it into a savings account / investment portfolio?

If you have the tracker racking up interest and charges at 1500/year, you need your lump sum to outperform this (including DIRT), while still servicing the mortgage with your income.

Let's say the mortgage is costing 10k a year, which could be invested at x%. Whatever this value is has to also be taken into account in determining how much the lump sum should perform.

Eldarion

Michael D Not Higgins wrote: »

Would it not be better to pay off the mortgage and then invest what you would spend on it into a savings account / investment portfolio?

If you have the tracker racking up interest and charges at 1500/year, you need your lump sum to outperform this (including DIRT), while still servicing the mortgage with your income.

Let's say the mortgage is costing 10k a year, which could be invested at x%. Whatever this value is has to also be taken into account in determining how much the lump sum should perform.

It's all completely relative. By paying off the mortgage you are effectively choosing an investment option, the return of which is somewhere between 1.25% and 2%. It is completely risk free true, but <2% is widely considered as a low ROI and can easily be beaten with a little risk involved.

Michael D Not Higgins

Eldarion wrote: »

It's all completely relative. By paying off the mortgage you are effectively choosing an investment option, the return of which is somewhere between 1.25% and 2%. It is completely risk free true, but <2% is widely considered as a low ROI and can easily be beaten with a little risk involved.

Well I take your point but it's higher than that if you took DIRT into account. The best advice would be to do the sums and what risk you're willing to take, invest the lump sum and if it's not performing or the interest rates drastically change in a year or two, you can still pay off the mortgage in one go.

denismac

marathonic wrote: »

Sorry, didn't realise the OP's tracker rate was so high.

It may not be that high as I was just taking ball park figures from memory. Real question was if the banks are willing to deal or not. Thanks for replies so far. I am meeting with the bank on Fri to discuss options.

Dr_Kolossus

Can you get your mortgage changed to a variable rate. Then just pay it off with no penalty?