We all remember the famous quote from Irish TV in the noughties, ‘I don’t know what a tracker mortgage is’. Fifteen years on, and some of us are still unsure! But one thing’s for sure, those who took out tracker mortgages reaped the rewards in the years that followed.
For much of the past decade, tracker mortgages have been the best value on the market, with some mortgages having a margin of just three-quarters of a percent over the European Central Bank rate. Those who managed to secure a tracker before they left the Irish market in 2008 enjoyed huge savings on their monthly mortgage payments compared to those on a fixed rate.
With interest rate increase announcements becoming a regular occurrence in the news this year (4 increases in the last six months), trackers may no longer be considered the Rolls Royce of mortgages. Times are changing, bringing uncertainty for the first time for tracker mortgage customers. So if you are a current tracker mortgage holder, do you switch to a fixed rate or ride out the storm?
The truth is there is no definitive right or wrong answer. There are different trains of thought on this, and the reality is that none of us can see into the future. One way to look at it is to ask yourself; are you open to fluctuation in your future mortgage repayments, or would you rather have the reassurance of level payments for a set period of time?
One option available is to look at switching to a fixed-rate mortgage. This can give you the peace of mind that your mortgage repayments will remain the same for the fixed term.
Moving lenders might also help you secure a lower interest rate than the current tracker rate, thereby potentially saving a significant sum of money in the long term.
Example:
Helen and Padraig took out their tracker mortgage in 2007. They currently have 250k and 25 years remaining on their mortgage. Following the recent ECB interest rate increases, they have seen their mortgage repayments increase by almost €500 to a massive €1,483 p/m. Switching to a 3.6% fixed rate option with Avant Money, they can fix their repayments at €1,119p/m, saving them €13,104 over a 3-year period.
Savings like the sample above may seem like a no-brainer, but there are some things to consider. According to the rates currently being offered by lenders, the longer you fix for, the higher the rate you are likely to pay. For example, Avant Money currently offers a 3.6% fixed rate for three years. However, if you want to fix that for ten years, the rate goes up to 3.95%. The comfort of knowing that your mortgage will not be changing for the next decade may well be worth the sacrifice.
The reality is that no one can predict the future, and it is still unclear how many more rate hikes are likely. Every individual’s circumstances will be different; having full knowledge of your options is paramount. If you are a current tracker mortgage holder, a consultation with a mortgage broker will at least give you a clear picture of where you stand and allow you to make the best decision for you and your pocket.
Rates quoted are valid as per www.avantmoney.ie on 20/07/2023. Mortgage interest rates are subject to change. The information provided is general, standard lending rules will apply. It is always advisable to speak with an Advisor before making any financial decisions.
Written by,
Ross Gaynor,
Mortgage Manager.