Despite what the banks say — don’t give up your tracker mortgage

A MAN I know who is well versed in financial matters, being a very senior and successful figure in Irish business, received a phone call recently from his bank, inquiring as to his financial well-being.

The man was somewhat surprised as he has a secure income and has not missed any repayments on his loans, either on his home or on a couple of investment properties that he bought during the boom years. His bank manager seemed reasonably reassured but then made a suggestion: would he like to accept a lump sum as an inducement to give up his tracker mortgages? The businessman said no. He reckons that if you have a 20-year €300,000 mortgage the benefit of being on a tracker mortgage — one that guarantees the lender will charge only an agreed premium over the prevailing European Central Bank base rate — could be worth €100,000 in lesser interest rate payments over the life of the mortgage than would be available on a standard and more expensive variable rate mortgage. He was being offered €15,000 to switch, which is quite clearly a bum deal, for the borrower at any rate if not for the bank.

This man was astute enough to realise this but you have to wonder how many less experienced borrowers would succumb to pressure from the banks to make such a switch on their mortgage. At face value such an offer might actually be attractive to many people who are short of cash at present, particularly if they weren’t aware of the net long-term cost of the deal on offer. The money now might allow them to clear their credit card bills, for example, or give them the money for a new car if a separate loan was not forthcoming from the bank. It might even provide the cash that would allow the borrower to continue the monthly mortgage repayments over the next couple of years, particularly if the loan was on an investment property that is not producing the expected rent.