Flexible Tracker Mortgages - Pros and Cons [mortgageloan-processor.blogspot.com]
We were interviewed by John Finnerty on RTE News at One about potential changes to the way banks (in particular PTsb) would deal with their tracker mortgage loan books. Permanent TSB in the past has given bonuses of c. 10% to people who paid off lump sums in units of €5000 meaning that if you paid off (for instance) €10000 on your tracker mortgage that they would give an additional €1000 capital reduction. This is possibly being expanded and may be revised upwards to 20-30% but will come with re-pricing of the loan as well. In order to determine if this is good value on your mortgage it will be necessary to see the final plan, as yet nothing has been formally announced. What is certain however, is that tracker mortgages are a drag on banks and eventually they will either slowly realise the loss (which most banks prefer to do) or they will address it with capital reserves (such as PTsb is likely to do). Our under standing is that he bonus will only apply to the overpayment portion as opposed to it being calculated on the gross debt, so only those with particularly high savings are likely to go for it - especially as it will likely involve a repricing. We are grateful that RTE chose Irish Mortgage Brokers for their financial commentary, and we hope you like the piece! You can find our website at www.mortgagebrokers.ie our blog is at http and our financial advice and accountancy/audit site is at www.advisors.ie
mortgageloan-processor.blogspot.com RTE News at One, PTsb mortgage bonus scheme, 14th November 2011
First let me define what a flexible tracker mortgage is. A flexible tracker mortgage is one where, after initial arrangement charges and fees, you secure a loan on a property at agreed margin above the base-lending rate, for usually 85% - 90% maximum value of the property that will track the Bank of England's base rate for an agreed duration, most likely 1-10 years before reverting to the standard variable rate of interest [SVR]. Your repayments could change monthly, up or down, depending on the base rate applicable at the time. Nobody who has a loan really minds how low their payments drop but they may be perplexed if interest rates continue to climb and their payments get larger each month with each announced rise in the Bank of England base rate. There is no ceiling, no upper limit to protect the holder of a flexible tracker mortgage. So the tracker part follows the Bank of England base-lending rate; the flexible part allows the loan holder to make overpayments to their loan, underpayments or even a payment holiday.
In favour of flexible tracker mortgages are the following points: the facility to make overpayments at regular intervals or quite randomly in small amounts or lump sums that eventually mean you will either be paying out less on your mortgage if you need to take a mortgage holiday or you can pay off your mortgage significantly earlier and save yourself possibly thousands of pounds in interest.
The flexibility offers greater control of where you direct your finances if you have an unpredictable income, paying less when things are tight and more when things are going better as you can afford it. If you have accumulated enough overpayments you may be entitled to a mortgage holiday, which could be helpful if you face unforeseen expenses your income needs to be directed to. The tracker part of the mortgage also prepares you for impending rises or cuts if you follow the financial news and are up to date with the latest Bank of England figures.Against flexible tracker mortgages are the limitations on how much may be borrowed and the restrictions on loan-to-value [LTV: the ratio of borrowing capacity and property's value]. Not all flexible tracker mortgages offer 100% of the value of the house and if they do they might incur a higher lending charge making your overall repayments more expensive than the initial attractive low interest rate that caught your attention. Early repayment charges in some flexible tracker mortgages could be something that might cause concern if you needed to bail out early, perhaps due to increasing rate rises or a change in personal circumstances; 3% on a large loan could be thousands of pounds to be repaid in penalty.
Flexible tracker mortgages have lots of details that are best discussed with an independent financial adviser so that you get the product that suits your circumstances and your finances. There is more to them than just the attraction of following a low base rate; things can change.
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