Is it worth paying off a tracker mortgage sooner?

Sniipe

Is it worth holding onto the tracker mortgage for as long as possible? We have the notion to sell the house in about 10 years time (House is negative equity of course). Currently the mortgage is at 260k which is down from the original 320k in Dec 2008.

If I have money now am I better off saving it or using it to reduce the mortgage? Like the other post in this forum about a new mortgage (here) am I better off saving money for that because it will be at a higher interest rate?

kavanada

Hi sniipe,

Yes, place any savings you have in a deposit account if the interest there is greater than your mortgage rate. You seem to understand why from your post.

Keep reviewing your rates every year. More often, if financial matters interest you.

Have a look at the State Savings products from the Post Office. There are 5 & 10 year products there. You don't pay DIRT on any interest accrued unlike the normal deposit accounts from Main Street banks.

Also, check out nca.ie for an independent run down of deposit accounts/monthly saver accounts, etc. Again, you sound like you'd be aware that the longer you put money away, the more (in general) you'll earn in interest.

Whatever you do, just spread your money around as best you can. Keep a couple of thousand in an On Demand account going up to a couple of thousand in say the 10 year Post Office State Savings account.

Good luck. I'm sure you'll be in positive equity in 10 years.

Sniipe

Thanks kavanada. Its probably better again to contribute that money to a pension? (with the payoff being much further down the line)

daheff

i wouldnt go paying off the mortgage you have until you need to sell or interest rates start increasing.

Why? If you do, you wont get (all) the money back off the bank if something comes up that you need it for.

Also if you do need to borrow off them again, the rate will be a hell of a lot more than you are paying now.

Access to funds (liquidity) is key here. supposing you lost your job unexpectedly, with those funds sitting on deposit you can afford to live a reasonable lifestyle/pay bills etc for a few years until you got another job.

try invest your money into something that provides a return as close as possible (if not better) than that offered by the bank.

I'd imagine you are paying something in the region of 1-1.9% in interest. There are plenty of banks offering 1-1.5% interest if you look around. Its usually capped at around 50-100k, so you might need to spread it around a bit.

ardmacha

However the 10 year State Savings product is only a really good deal if you keep the loot in for the decade. The tracker interest rate in 5 years time might be quite a bit higher than now and you might then prefer to pay off the mortgage.

You can get 1.25% or so nowadays in banks, but remember the 42% DIRT.

kavanada

Hi Sniipe,

Your question about putting it into a pension is one of those 'how long is a piece of string' ones.

Things like your age now, whether you have a pension pot accruing already, what charges will the pension company (Irish Life, Friends First, for example) charge all play a part in your decision.
There have been numerous studies done over the years showing that after initial set up fees, charges and poor management/returns, some people would have been better off not paying into their fund. This is absolutely not me saying you should discount paying into a pension. I'm lucky enough to have one in the background but it's all about what is right for you (your age, do you have kids, does your partner work, do you forsee inheritance in 10 or 20 years)

If you are an employee, does your company provide a pension scheme? Company schemes often receive lower charges due to the number of employees compared to one person going into a pension provider on his own.

The comment above from daheff about retaining some pot of cash in a deposit account is important to bear in mind. But then, having €50,000 or €100,000 to hand is probably too much.

Personally, I think ECB rates will stay as low as they are for a number of years to come so I don't think your mortgage repayments will rise for a while. Are you on 0.5% above the ECB rate?
I still remember economists saying in 2012 ECB rates will start to rise in the second half of 2013 and so on and so on. They never did.

So much of what you're asking is infinitely variable, Sniipe. You're entering Economist territory! One argument is just as good as the other. But it's good you're thinking about it and asking questions. Do you look at your bank charges? PTSB offer free day-to-day banking if you lodge at least €1500 per month into a current account there. They then have an online regular saver account offering 1.75% before 41% DIRT.
(I don't work for PTSB!)

KBC also offer good rates. Again, check out nca.ie if you haven't already.

For the moment though, keep hold of the house and with it the tracker mortgage.

If you want to write up more details about yourself (nothing too personal obviously) then you may get more specific answers. Things like your age, your current and/or projected salary, kids, other assets/approximate money in the bank, what do you want to do when you retire, will help in coming to some sort of happy medium solution. No answer will be perfect.

Cheers.