Keep your tracker mortgage

It has come as no surprise that banks are now trying to switch customers from their tracker rate mortgage to a fixed rate/variable rate mortgage as they are losing heavily on the low tracker rate. The benefit to the customer of a tracker is that the rate is tied to the ECB rate and is not subject to increases at the discretion of your own bank. Currently, the ECB rate of 1% means that many customers have tracker rates of between 1.75% and 2.5%. Compare this with the variable rate being charged by PTSB of 5.1% (following their recent fourth increase in this rate since August 2009). On a standard mortgage of €300,000 over 30 years, the person on a tracker (at 2%) is paying €1,108.86 per month while the person on the variable rate of 5.1% is paying €1,628.85 a month – a difference of a whopping €520. Banks are offering fixed rate mortgages as an alternative to trackers, but customers need to beware of a number of points. While a fixed rate mortgage will give certainty around the monthly repayments for the duration of the fixed rate period, at the end of the fixed rate, the customer will be put back onto the variable rate being offered by their lender at that time. Trackers have been withdrawn from the market and some institutions have withdrawn or are considering withdrawing fixed rate options, so the variable rate may be the only choice available. There also may not be an option to switch lender if, for example, you are in negative equity. Tracker saving There is also some consolation for those on tracker rates who bought at the top of the market and intend to keep the property for the full mortgage term. They will save substantial interest over the term of the loan, highlighted by the following example: Tracker rate 2% on €300,000 over 30 years – total interest payable €99,200. Variable rate 5.1% on €300,000 over 30 years – total interest payable €286,385. Total saving of €187,200 Deposits The upside of recent mortgage interest rate increases is that for those with money to deposit, there are some very good deposit rates on offer at the moment - if you have not been offered 3.5% (AER 3.5%) one year fixed, it is time to start shopping around for better offers. Contact me for more advice on these issues or to enquire about other financial products suitable for your personal circumstances. Michael Cassidy is a qualified financial advisor and regulated by the Central Bank of Ireland. He can be contacted at his offices at Michael Cassidy Mortgages & Investments, Church Hill, Navan, or by phone on (046) 907 7758.