Your finance questions answered.

Change in policy will not exempt medical card holders from review process

Q I am a retired public servant over the age of 70 and am a widow. I am the holder of a full medical card which is now under review.Could you advise if the “Saver Clause” in the 2007 HSE Medical Card / GP Visit Card National Assessment Guidelines is still valid and may be invoked by someone in my position?

Mr T.B., Kildare

A

The Saver Clause to which you refer allowed for people previously eligible for a medical card or GP card to avail of a once-off renewal for a period of three years if they find they no longer qualify for the card as a result, among other things, of a change of policy.

That would certainly seem to be the case here. But, it appears that a change of policy is not always a change of policy – especially when it is triggered by a change in law.

A spokeswoman for the Health Service Executive says the clause “doesn’t provide for an entitlement in relation to changes that result from the introduction of new legislation”.

The medical card scheme for over-70s was introduced under new legislation and therefore the saver policy apparently will not apply.

To the man in the street, a change of policy enacted through a change in legislation would appear to be the most dramatic form of a change of policy but it appears that, in the small print, this is not the case on this occasion.

Reducing mortgage term proves costly

Q. I have a tracker mortgage with AIB with a balance of €67,000 due to expire in April 2015. My current repayments are €578.54 per month based on the tracker rate of 2.1 per cent (margin of 0.6 per cent over the ECB rate).

I wanted to reduce the term of mortgage by exactly five years without reducing my monthly repayments. When I rang the bank less than 12 months ago when the interest rate on my mortgage was higher than now, I was told the cost would be €21,000.

I rang them again last week and was told it would currently cost €25,000. Not believing this was an accurate figure, I rang them back the same day and was told it would cost €27,000! I subsequently received a letter confirming the this.

In 2006, I reduced the term of this mortgage by eight years and it cost me €32,000!

I’m afraid the figures don’t add up for me. Can I assume that the further you are into the term of a mortgage, the more expensive it is to reduce the term?

Mr P.B., Mayo

AThe figures don't add up for me either. I have to say I am totally confused by the scenario you present. There are two fundamental types of mortgages – fixed-rate and variable rate. A tracker mortgage is a form of variable rate mortgage.

Fixed-rate mortgages protect the borrower from adverse movements in interest rates and can be useful for people whose payment capacity is already stretched.

However, they also restrict your flexibility – breaking a fixed-rate contract generally carries a financial penalty.

A variable rate mortgage leaves the mortgage holder open to the vagaries of movements in interest rates. Depending on the direction of rates, their monthly mortgage bill can rise and fall. The flip side is that variable rate mortgages allow you to alter upwards the amount you pay each month or make lump sum payments to reduce the term of the mortgage. On occasion, especially if you are ahead of the original payment schedule, such moves allow you the scope to take a payments holiday. Otherwise, they have the effect of shortening the term of your mortgage or lowering subsequent payments.

You say you have a tracker mortgage. Being a form of variable mortgage, that means you have the flexibility to increase your payments and so reduce your term. Just in case, the mortgage world has turned upside down since I last wrote on the subject, I confirmed this with a couple of groups representing mortgage brokers.

Now, of course, if you tell the bank you want to reduce the term by, say, five years, they will recalibrate what your monthly contributions will be. Clearly, shortening the term of the loan will mean you have to increase your monthly payments, but there should be no talk of a charge or cost levied by the bank for the exercise.

In fact, shortening the term of the mortgage will actually save you money as there will be less time for interest to accrue on your mortgage loan.

For what it is worth, if you are on a tracker loan, I would make sure you stay on it.

The banks no longer offer these loans for the very good reason that they cannot make any money on them – the credit squeeze means they are having to pay far more than the European Central Bank rate for their funds, more than likely more than the 0.6 percentage point margin on your loan.

Please send your queries to Dominic Coyle, QA, The Irish Times, 24-28 Tara Street, Dublin 2 or by e-mail to dcoyle@irishtimes.com. This column is a reader service and is not intended to replace professional advice