Mortgage Rates-What to do?

andreac

Hi, my 2 yr fixed rate is up in Jan and i was wondering what to go with this time. I heard on news this morn that interest rates might be coming down soon then another drop in a few months. Do you think i should go for a tracker mortgage or is it even worthwhile shopping around for other lender rates?
I dont know how that works either as i got 100% mortgage at the time so not sure if other lenders would take us on.
Thanks.

jdivision

Expectation is that rates will drop in December but you're still facing a massive increase in your mortgage repayments if you got rates two years ago.

The_Conductor

If you purchased 2 years ago- your options to move to another lender will probably be determined by your Loan to Value ratio. If you had a very high (over 80%) LTV you probably are stuck with your current lender. Do ring the main lending institutions and ask though- it cannot hurt to ask......

andreac

Oh god, dont know if ill be able to manage a big increase in my mortgage. Ill have to ring around. Im already stretched as it is and i have a lodger.:(

The_Conductor

andreac wrote: »

Oh god, dont know if ill be able to manage a big increase in my mortgage. Ill have to ring around. Im already stretched as it is and i have a lodger.:(

Prevailing rates are typically ~6% for switcher products (though from annecdotal evidence switcher products have pretty much dried up altogether). A switcher would normally have only been offered if the repayments came to less than 35-40% of your primary after tax income (additional income from rent-a-room schemes, bonuses etc would not count towards this). A typical variable rate switcher from Bank of Ireland of a mortgage of €100,000 over 20 years at the moment would work out at €708 (if this helps for doing your sums?)

You really need to organise to meet the mortgage advisor in a few different institutions to work out what your options are. A lot of the "independent" mortgage advisors are tied agents to particular banks, and in any case, with the drops in commission income, many have closed. It will involve a bit of leg work on your part- but is well worth while......

andreac

Thanks for that, i really find it hard to get my head around all this stuff. I have a 100% mortgage and the house is not valued much more than what we paid for at the time, around 290,000, so dont think switching sounds like an option.

Ill have to go in and talk to them and get all the options, if rates are coming down might be best to go with a tracker. Does that mean that your payments will change whenever the ECB change their rates? is that quarterly?
Thanks.

The_Conductor

The ECB holds regular monthly meetings, along with certain meetings outside of the regular monthly schedule, if events warrant it.

Some economists have been speculating that the ECB would reduce interest rates (think Austin Hughes from IIB etc). They have been saying this for almost a year now though. The ECB's mandate is to control inflation- not to stimulate the economy with lower interest rates. Eurozone inflation is still well above 3% (with a 2% ceiling target)- but is trending lower (on the back of lower oil prices). If and when Eurozone inflation rates gets into its target area- then, and only then will rates fall.

If you got a 100% mortgage 2 years ago- unfortunately you purchased right at the very peak of the property market, but there is no point in my commenting on this.

Given circumstances- it would probably shortcircuit matters if you went straight to your lender and organised a review meeting immediately. Don't wait until the 2 year fixed period is up- do it now. By all means organise meetings with other lenders- but given the circumstances (a 100% mortgage taken out 2 years ago) I would not be hopeful than another institution would be willing to take on the mortgage.

Sorry!

Supercell

New trackers these days wont be linked directly to the ecb rate, far more likely the libor rate which, in the current credit crisis, is far higher.

andreac

oh great, im in big trouble so:(

kmick

Yes they are tied to the ECB rate plus some fixed percentage say 0.75%. So if ECB is 5% then tracker is 5.75%. Not sure if it is quarterly it is assessed.

The_Conductor

Overnight Euribor for BOI and AIB was 5.6% for reference purposes (about .2% below most other F3 graded Eurozone banks).

S.

Mitzy

Supercell wrote: »

New trackers these days wont be linked directly to the ecb rate, far more likely the libor rate which, in the current credit crisis, is far higher.

Completely innacurate. Tracker rates are linked to the ECB rate. Libor rates are quoted for Sterling Commercial mortgage rates. Euribor rates are quoted for EU commercial mortgage rates.
If you go for a standard variable then the lender can charge whatever margin they want on the rate.

Unfortunately OP if your loan to value is still 100% then you will have to stay with your current lender. Fixed rates may drop with some of the lenders next week in anticipation of a rate cut in December. You may be better off taking a variable rate for a time to see what rate cuts come and then decide if you want to fix again.

delly

Andrea, don't panic yet, try to put the numbers down to see what a likely increase may be. As in, what rate are you currently on and what's the outstanding amount of your mortgage?

I was on a fixed 3 year rate of 4.2% iirc that ended in Dec 2007 and I banked on the interest rates reducing so I went on the variable rate. The result is now that I'm on a rate just shy of 5.5% and am paying nearly €200 extra per month then when I was on the fixed rate.

Supercell

Mitzy wrote: »

Completely innacurate. Tracker rates are linked to the ECB rate. Libor rates are quoted for Sterling Commercial mortgage rates. Euribor rates are quoted for EU commercial mortgage rates.
If you go for a standard variable then the lender can charge whatever margin they want on the rate.

Unfortunately OP if your loan to value is still 100% then you will have to stay with your current lender. Fixed rates may drop with some of the lenders next week in anticipation of a rate cut in December. You may be better off taking a variable rate for a time to see what rate cuts come and then decide if you want to fix again.

I think you missed the word directly in my post.
Ecb can move up and down, but new trackers won't necessarily follow in step like ones in the past that were directly linked to it.

Mitzy

Supercell wrote: »

I think you missed the word directly in my post.
Ecb can move up and down, but new trackers won't necessarily follow in step like ones in the past that were directly linked to it.

Homeloan tracker rates in Irish banks will track the ECB rate as the ECB determines our interest rates. If they don't track the ECB what will they track? Otherwise a standard or discount variable rate margin can be determined at the bank's discretion. If you have a standard variable rate, yes your rate may not go up & down depending on the bank but any tracker rate HAS to increase or decrease depending on ECB rate changes.
Libor rates are set by the Bank of England which has no jurisdiction over our rates.

mrgaa1

you have to look at another scenario - will another bank lend you money? Banks appear to have stopped lending - full stop. Heard of a guy who earns 80k a year and was turned down as his work was associated with construction - seen as a liability. So banks appear to be judging you on can you repay as they need the money as opposed to re-possessing a house.

I would hope that the government will stick by what they have said and tell banks to start lending. Anyone who needs to buy a house, a business loan to expand to create jobs cant do so as banks will not lend. To re-arrange a phrase " 'lend' us the money". If there is liquidity in the market then nothing can happen.

Ste.phen

Mitzy wrote: »

Homeloan tracker rates in Irish banks will track the ECB rate as the ECB determines our interest rates. If they don't track the ECB what will they track? Otherwise a standard or discount variable rate margin can be determined at the bank's discretion. If you have a standard variable rate, yes your rate may not go up & down depending on the bank but any tracker rate HAS to increase or decrease depending on ECB rate changes.
Libor rates are set by the Bank of England which has no jurisdiction over our rates.

In what way does that stop a bank from having a tracker mortgage that tracks the libor rate?

veritable

Not a helpful answer in this case but advice to everyone:
don't take out a mortgage in the first place: rent and invest the other money you would spend on the loan.

do the sums:

30yr 6.625% loan on 750k house means you have to pay almost euro1.5m in interest alone to the bank over the cost of your repayment and the 750k on top of that... i'm going to rent and avoid being slave to those bankers for my life

gurramok

Mitzy, Supercell was quoting new trackers. IIB are one crowd who have it in their conditions that they track the Euribor rate. Others do track still the ECB rate so its a hit and miss.

So OP should shop around but i do not think many lenders would offer OP much due to 100% mortgage plus being stretched.
MABS might be an option to get advice on your financial situation as you sound to be in dire straits even with a lodger helping the bills.

Mitzy

gurramok wrote: »

Mitzy, Supercell was quoting new trackers. IIB are one crowd who have it in their conditions that they track the Euribor rate. Others do track still the ECB rate so its a hit and miss.

Supercell stated that they would track the Libor rate, not the Euribor rate. Basically if any bank offers a homeloan rate that tracks the Euribor they shouldn't be touched with a barge pole. Euribor is about 5.15% so with a 1% margin would mean a rate of 6.15% which is 1.9% over the ECB.
IIB are no longer offering tracker rates, they do have a ltv rate but it's not a tracker. Most lenders are trying to pull out of the tracker market as it is costing them so much.
As I previously mentioned Commercial loans will always be quoted at the Euribor rate.

** Also IIB customers be aware, they are ringing customers who are on good tracker rate margins & offering them excellent fixed rate options. While the fixed rates are good, you will do much better to stay on your tracker in the long term.

andreac

Thanks for all the advice, ill wait to get my figures first before i start really panicking. I suppose im just afraid that the hike will be too big for me to manage so need to explore some options if it is is a big hike.
thanks.

The_Conductor

andreac wrote: »

Thanks for all the advice, ill wait to get my figures first before i start really panicking. I suppose im just afraid that the hike will be too big for me to manage so need to explore some options if it is is a big hike.
thanks.

Contact your lender immediately- do not wait until the fixed term is actually fully up. Explore what your options are- and do not feel pressurised into making a decision that you cannot logically deal with. If what they are offering you is unreasonable- tell them- and if they are not willing to discuss alternate more reasonable options with you- organise a meeting with MABS.

S.

Senna

just going to pigyback my question onto this post,

If you were offered a tracker of ecb + 1.7 or the standard variable that was the same, would you go for the tracker or just variable?
Is it always better to take the tracker or is there some point when its not worth it? i.e ecb + 1 is good but ecb plus 1.25 is bad?

The_Conductor

Senna wrote: »

just going to pigyback my question onto this post,

If you were offered a tracker of ecb + 1.7 or the standard variable that was the same, would you go for the tracker or just variable?
Is it always better to take the tracker or is there some point when its not worth it? i.e ecb + 1 is good but ecb plus 1.25 is bad?

Its not always better to take the ECB tracker.
A standard variable can have a better interest rate, depending on how much it costs to source the money for the lending institution.
ECB +1.7% sounds like an enormously high spread (I pay ECB + .75%). With the government guarantees in place- its entirely probable that variable rates will tumble in the coming weeks- while obviously the ECB tracker will only track the ECB baserate which is not predicted to fall until inflation falls further towards the 2% target. Will it fall below ECB +1.7%- you'd need a crystal ball to definitively say yes or no, but its quite probable that it will. If I were in your situation- I'd go fully variable for the period of the government guarantee, and then switch back to the ECB tracker.

The next 2-3 weeks should show serious movement on the variable rate products.

SimpleSam06

Mitzy wrote: »

Completely innacurate. Tracker rates are linked to the ECB rate. Libor rates are quoted for Sterling Commercial mortgage rates. Euribor rates are quoted for EU commercial mortgage rates.
If you go for a standard variable then the lender can charge whatever margin they want on the rate.

Actually there was a man on here recently (can't find the thread at the moment) who was reading the fine print in his mortgage agreement, and fair play to him for doing it, and it stated specifically that it would track whichever of the two was highest, Euribor or the ECB rate. I'd imagine a lot of or most of all new agreements will come with this little addendum, given the financial climate.

Supercell

Indeed, my point was not so much a bout libor, eurobar is applicable also, the point being that banks have to borrow to lend too - be it libor , eurobar or other means . The direct link to tracking the ecb as in older mortgage products is becoming a thing of the past.
If you get a loan form Halifax for example the libor rate might be more pertinent than for example BOI where the eurobar is more important, banks operate across national boundaries, just because they are lending to you in euros doesnt mean the capital was originally sourced in euros.
My original point was that a straightforward (directly linked) ecb tracker is becoming a rarity with newer tracker products thats all.

ZYX

smccarrick wrote: »

Its not always better to take the ECB tracker.
A standard variable can have a better interest rate, depending on how much it costs to source the money for the lending institution.
ECB +1.7% sounds like an enormously high spread (I pay ECB + .75%). With the government guarantees in place- its entirely probable that variable rates will tumble in the coming weeks- while obviously the ECB tracker will only track the ECB baserate which is not predicted to fall until inflation falls further towards the 2% target. Will it fall below ECB +1.7%- you'd need a crystal ball to definitively say yes or no, but its quite probable that it will. If I were in your situation- I'd go fully variable for the period of the government guarantee, and then switch back to the ECB tracker.

The next 2-3 weeks should show serious movement on the variable rate products.

The next move for ECB is almost certainly down. The idea that ECB wants inflation below 2% no longer holds water. The ECB mnay have to reduce rates to prevent economic meltdown. There is a very good chance ECB rate will be cut next month.
http://www.irishtimes.com/newspaper/finance/2008/1003/1222959304834.html

BORROWING COSTS: EURO ZONE interest rates could soon be cut for the first time in five years, the European Central Bank (ECB) signalled yesterday, after acknowledging that global financial turmoil had changed substantially the economic outlook for the 15-country region.

Jean-Claude Trichet, ECB president, opened the door for a possible cut in official borrowing costs from 4.25 per cent in November - or earlier if the financial market crisis escalates - by saying that although euro zone inflation risks had not disappeared, they had fallen.

His comments amounted to a significant change of tone at the Frankfurt-based institution, which raised interest rates only in July to head off inflation dangers.

The ECB has held off cutting rates because of its concern that the jump in inflation will become entrenched through a wage-price spiral as workers seek compensation for the higher cost of living.

While inflation in Europe slowed to 3.6 per cent in September after crude oil prices retreated from a July record of $147.27 a barrel, it is still above the ECB's 2 per cent limit.

Mr Trichet hinted at European policymakers' alarm at developments in the US, saying that allowing Lehman Brothers to collapse had had "enormous . . . very unfortunate consequences".

Mr Trichet said ECB policy-makers recognised "the extraordinary high level of uncertainty stemming from latest developments" on turbulent financial markets and the credit crunch. "Economic activity in the euro area is weakening with contracting domestic demand and tighter financing conditions," he said.

"The ECB is adopting a substantially softer tone, which opens the door for a future interest rate cut," said Howard Archer, chief European economist at Global Insight.

The ECB governing council had discussed cutting interest rates yesterday before deciding "unanimously" to hold them steady at 4.25 per cent, he revealed.

gurramok

If they do, just don't bank on banks passing it on as they need the cash

ZYX

gurramok wrote: »

If they do, just don't bank on banks passing it on as they need the cash

But if you have a tracker they will.

kmick

At the moment I would go tracker. Its about 0.05% more expensive than the variable. But rates are going down as soon as Germany/France decide they are gong down and variable may not fall as fast as tracker.

gurramok

ZYX wrote: »

But if you have a tracker they will.

Yes, that's if you have one already!

Newbies will find i hard to get trackers as they cost banks and will get screwed as well as those on Var's so just don't expect a honeymoon to arrive