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Wednesday 22 November 2017

Why it pays to keep hold of rare tracker mortgage

May's son needs to tread very carefully. Tracker mortgages are now as rare as hen's teeth so whatever he does he must ensure that he hangs on to his tracker mortgage, where the interest rate is capped at a certain margin over official ECB rates.

Over the past year the Irish Permanent has raised its standard variable mortgage interest rate by 1.5pc to 4.19pc. So if May's son were to lose his tracker mortgage he would see his interest rate jump by at least 1.5pc.

My guess is that May's son is on a 25-year loan. This means that, after seven years, he has already repaid over €58,000 and his outstanding balance is now about €211,600.

The good news for May's son is that, like the other Irish-owned banks, Permanent TSB has agreed to a code of practice to help borrowers who are experiencing difficulties meeting their mortgage repayments. The Permo has set up a helpline at 1800 611 166 which is manned from 9am to 9pm Monday to Thursday and from 9am to 5.15pm on Friday.

The Permo says that it can suspend normal mortgage repayments for an agreed period of time, reduce the repayments for an agreed period of time, lengthen the repayment period of the mortgage or add any arrears to the outstanding balance and repay them over the life of the mortgage.

Unfortunately for May's son the Permo doesn't offer its customers in trouble the option of interest-only mortgage repayments.

If he does reach arrangement with his lender he should ensure that it doesn't come at the cost of losing his tracker mortgage. If he were to revert to a standard variable rate mortgage his monthly repayments would shoot up to €1,450 per month.

My advice to May's son is to keep up with his monthly repayments if at all possible and hang on to his tracker mortgage.

Now that NAMA is up and running, the banks are increasing the interest rates which they charge borrowers and cutting the interest rates they pay to savers. While this will help the banks to rebuild their balance sheets, it is bad news for both borrowers and savers.

Last week the National Treasury Management Agency, which manages the national debt on behalf of the Government, announced plans for a "national solidarity bond". The bond, which will be available from all post offices from tomorrow, pays a 1pc annual interest rate and a 40pc tax-free bonus when the bond is repaid in 10 years time.

That translates into an annual interest rate of 4.21pc before tax and 3.96pc when DIRT is deducted from the annual interest payment. That's the good news. The bad news is that the full 40pc won't be paid unless you hold the bond for 10 years. This bond is purely for very long-term savers.

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