Moving from Tracker to Fixed

el Fenomeno

Not my mortgage (I wish mine had that low of a balance left!) but asking in behalf of a family member. Single earner.

Currently on an ECB Tracker + 1.25%. Currently ~ EUR 471 monthly payment, but don't think the most recent ECB hike is reflected in that yet.

Approx. 30 years remaining.

Balance of 115k left.

Has asked his bank (BOI) what fixed options are available and been given the following.

1 or 2 years @ 2.9% (EUR 496 p/m)

3 or 5 years @ 3.0% (EUR 502 p/m)

10 years @ 3.3% (EUR 520 p/m)

Has asked me for advice as I work in finance. Have neglected to tell them family I hate my career, hate finance, don't know what I'm doing half the time and am no good at giving advice…! So seeing what people think of the above.

I know giving up a tracker was not advisable in the past, but interest rates are no longer zero. My instinct is that as a single earner who will be more impacted by inflation and cost of living, to just fix for 10 years and safeguard against further ECB rises this year and next.

But then part of me is thinking, how high could ECB rates go, and maybe he's better off swallowing a short to medium term increase and benefit from (hopefully) lower rates long term.

I know there's no definitive answer, but keen to hear what other considerations there are. TIA.

touts

With 30 years left I wouldn't fix. Once he gives up the tracker it is gone for good. The bank won't give it back. Interest rates are going up now but will come back down. How long that will be is hard to tell but they will come down. Over the course of the 30 years he should be ahead.

We have a tracker of 0.75 above ECB and 10 years left and we have opted not to fix. Our feeling is inflation will start to decrease early next year once we got Feb and pass 12 months since the invasion of Ukraine prompted a big part of the current spike. It won't address all the root cause but at the same time we'll be deep into a recession at that point. There is a feeling of 2008 about this. Central banks then increased interest rates to combat inflation within 2 years they were slashing them to 0. I don't think we will hit 0 but it will come down. We are gambling that within 2 years we'll be ahead again.

But that is just guesswork. It could save us a lot of money or it could cost us a lot of money.

Trigger Happy

30 years left on a tracker seems like a long time!

But I agree with the post above...hang on to the tracker as at that rate, balance and term it will most likely be considerably cheaper.

kippy

That doesn't sound correct. I haven't heard of any new trackers since 2012 or even before which would suggest the initial term was 40 years plus. Again which I didn't think plausible for a mortgage unless the applicant were in their early 20s at the time.

daheff

How long was the mortgage in the first place? 40 years?

Mortgage holder would (imo) be better off holding the difference between 10yr fixed repayment and current repayment in a separate bank account (as if already paying that rate). Then when rates rise again, use that fund to help offset rising rates so it doesn't hit all at once.

If I had a tracker at that rate I would be very reluctant to swap it for a variable or fixed rate (unless the bank were to give a similar good 30 year fixed rate).

Also Op- in relation to finance, it's a very broad industry.....just tell relations mortgages & interest rates are not your field of expertise.

the_amazing_raisin

As others have said, the term sounds wrong so might want to check that

Personally I would recommend they try to overpay the mortgage if possible. The lower the principal then the lower the amount of interest being charged, so the 0.6% difference between the tracker and fixed rate is just noise

At the moment the balance remaining is fairly low, so I don't think the interest rate hikes are going to have a huge effect. So it's probably not worth losing the flexibility of a tracker at the moment IMO

Having said that, more interest rate increases could happen. I think the ECB won't change rates faster than every 3 months, and they seem to max out at 0.75% each time, although none of that is set in stone

So it's probably worth them hopping on a mortgage calculator and seeing what an extra 2% interest will do to their repayments, it'll help to prepare for the year ahead of rates keep climbing

el Fenomeno

https://www.boards.ie/discussion/comment/119860217#Comment_119860217

It's correct - mortgage was initially got maybe 15 years ago, there were some issues when he lost his job around 10 years ago, it was then restructured to a 2051 maturity. He managed to keep the tracker during that restructure which was good going.

Edit: thanks all for the advice. I forgot to mention (and actually forgot to consider it myself completely) that he's not living in the house. He's living at home, and renting the house out. So I guess that makes it even more of a no-brainer to stick to the tracker.

Galwayguy35

I'm on a tracker with less than that to pay back and the interest rate is 2.35%,

I don't understand how he is still on 1.25%

Been wondering myself about changing to a fixed rate but TBH I think I'll stick it out and hope the rates might go down again in a few years.

the_amazing_raisin

ECB+1.25%, so that'd be 3.5% now right?

el Fenomeno

In the letter where the bank gave him his options for fixing it says:

"Your current rate is TRACKER VARIABLE ECB + 1.25%, 2.500% and your current repayment is....."

Im not sure where the 2.5% is coming from...?

Letter is dated 8 November.

dotsman

https://www.boards.ie/discussion/comment/119863615#Comment_119863615

THE ECB rate was 1.25% until Nov 2. It usually takes the banks a week or two before passing it on. With a margin of 1.25% on top of that, the total is 2.5% (as at Nov 8th)

https://www.boards.ie/discussion/comment/119863523#Comment_119863523

As above, it will move to 3.25% in the coming days (if it hasn't already since the letter was issued).

While a tracker is considered "good", a margin of 1.25% is not. Back when trackers were popular, you were typically seeing margins of 0.5% to 1.00%. It's not so much about the ECB rate, but the cost of funding and the associated margins with SVR and Fixed rates etc. These were particularly high during and in the aftermath of the credit crunch (and, thus, a huge difference between trackers and SVR/Fixed). But are much lower now so are comparable.

Tenger

My letter arrived 2 days ago announcing the latest 0.75% has been applied to our tracker.

Could be that your mates rate has similarly just gone up.

That brings us up to 3.10% (with another 0.5% expected in December)

We have 20 years to go so I'm hoping to suck up the extra 400 p/M for the next year.

walterking

Do not do anything.

as its rented, the minute you change rates you will be flagged as a buy to let. then after the fixed rate period the rate will be about 2% higher than standard rates and stay there til the end.

The balance is not huge, so rate changes will not be gigantic extra payment - the 0.75% will add about 50e

Inflation looks to be about to start cooling. The UK and US expect inflation to fall very quickly next year and markets are reckoning rates will not go too much higher and then fall back It is generally accepted by the market that the long term ecb target is 1.5%

tamara25

Can I but I’m here also? We are on a tracker mortgage also. 3rd interest rate being applied next month. We will be paying an extra 180 per month in total. Very worrying as we don’t know if we can afford the monthly payments from here on.. we were with permanent tsb & then pepper took over our mortgage. I was considering getting it re-structured but that is only kicking the can further down the road so to speak. Advice?

walterking

https://www.boards.ie/discussion/comment/119926345#Comment_119926345

DO NOT UNDER ANY CIRCUMSTANCES GIVE UP A TRACKER IF YOU ARE WITH PEPPER.

Pepper charge WHOPPING interest rates to those not on tracker. I believe it has gone to 5.5%.

ECB is probably going to hike by 0.5% in December (the expectation of 0.75% is gone)

They are then expected to take break.

Inflation is now starting to cool and with potential energy price drops in Spring, inflation could drop considerably and that will ease pressure on ecb to hike any further. Once inflation is under control, ECB will probably move back towards 1.5%

the_amazing_raisin

https://www.boards.ie/discussion/comment/119926345#Comment_119926345

I don't mean to sound harsh, but surely over the last 15 years or so a big chunk of the mortgage should have been paid off, so the increase in monthly payments shouldn't be too bad?

You should still be in positive LTV, so if you decide to move off the tracker then I believe you'd be doing a normal mortgage switch and could move to any bank you want

I'm not sure you'll gain anything by switching, rates are getting higher at the moment for fixed rates and will probably be higher than the tracker you're on. As others pointed out, the frequency of interest rate hikes is going to drop.

They've just about got interest rates where they want them to be and pushing them higher will stagnate the economy

I think I mentioned before that it's best to plan out some future increases, maybe look at what a 0.5% and 1% increase will do and see what needs to be cut from your expenditure to meet that repayment. At least you'll have a plan for the worst case scenario

the_amazing_raisin

Also, if you do decide to restructure the mortgage, be advised it could take a while for the bank to engage on this. Don't leave it up to the point that you're about to miss a payment otherwise you'll be hit with a bunch of penalties

walterking

https://www.boards.ie/discussion/comment/119940018#Comment_119940018

you'd be surprised at how much a balance can be after 15 years especially as some banks were doing 35 & 40 year mortgages (should never be allowed)

On a 30 year mortgage, if all payments are up to date a 100,000 capital will have a balance of 68,000 after 15 years

On a 35 year mortgage, if all payments are up to date, a 100,000 capital will have a balance of 75,000 after 15 years

so if original mortgage was 400k, the balance on a 35 year mortgage would be €300,000 today if it was 15 years from the day it started.

Scary!

the_amazing_raisin

https://www.boards.ie/discussion/comment/119940969#Comment_119940969

Jeez, talk about debt for life. I'd forgotten how front loaded the interest was, even on a small rate

And people call me a fool for making overpayments and trying to be mortgage free by age 40...

touts

https://www.boards.ie/discussion/comment/119939880#Comment_119939880

I fully agree with this. If you have a tracker hold onto it for dear life. The ECB are going to do one more small rise because they said they would. And then inflation will be trending down. Come February we will reach the anniversary of the original oil and gas spike and inflation will officially plummet because oil and gas are now below the figure from last February. The ECB will take credit, even though they did nothing helpful, as the Economy of Europe goes into a deep recession they will be signalling rate cuts by summer and probably implementing them this time next year as the Reichstag will force them to in order to save the German economy.

walterking

https://www.boards.ie/discussion/comment/119947094#Comment_119947094

In many cases it is the correct decision to move from tracker to fixed as some banks had excellent fixed rate deals that brought you close to the end of your mortgage.

But pepper charge very premium rates, so if with pepper, it's not worth even looking into.

ECB might go as high as 3%, but will probably fall back towards 1.5% in 2024 assuming no catastrophe

tamara25

Pepper Finance cannot offer us a fixed rate of interest. They will offer us reduced payments for a year if we are really struggling to pay our mortgage. But then we are going to be in arrears which is not good either. The general concensus here seems to be that After December that hopefully will be the last interest hike for trackers?

Padraig Mor

https://www.boards.ie/discussion/comment/120032765#Comment_120032765

ECB have already said there will be further 0.5% rises for a "significant" time.

tamara25

Thanks Padraig, that is what they are saying on the news alright. It’s very depressing, where is it all going to end?

Jim2007

https://www.boards.ie/discussion/comment/120032765#Comment_120032765

I don't know where you are getting your "general consensus" from but I suggest you forget it. Nobody can tell you with any degree of authority what the rates will be like in 3, 6 or 12 months. There is an estimated $150b of corporate debt that will need to be refinanced in the next 18 months nobody has a clue how that will impact the markets and that is just one factor.

All you can say about a fixed rate is that you know exactly how much you will be paying over a certain period and that is all.

Galwayguy35

These interest rate hikes are coming thick and fast and it looks like there are more to come but I still won't move.

Hopefully after a year or two they will start to go down again.

walterking

https://www.boards.ie/discussion/comment/120032905#Comment_120032905

My own belief is that there won't be much more - probably 1% more. ECB gives their "in their moment" outlook. They are not going to guess what will happen, whereas I and others will

Business electricity and gas have started to come down slightly, but will drop more aggressively from Feb. Domestic energy prices will start dropping from April.

Fertiliser dropped considerably in the last few months, animal foodstuffs are down considerably recently too. Butter and timber have also dropped in the last couple of months (Kerrygold will be back under €4 soon and head towards €3.50) and an area that I buy, containerboard, (I buy a lot of boxes) has dropped dramatically since October and cardboard box prices from smurfits have dropped almost 30% from their highs.

I think a lot of this will feed into consumer prices in March / April and combined with the high inflation months of last year (March + April) no longer in the calculation, inflation will have a fairly substantial drop.

When the ECB sees this actually happen, they will change their "in the moment" forecast.

If Russia / Ukraine start talking peace, that will be a bonus.

the_amazing_raisin

https://www.boards.ie/discussion/comment/120032765#Comment_120032765

Surely you can talk to other lenders? My understanding is that a tracker is like a variable rate, there's no penalty for early settlement

positron

I have a ECB + 0.7% tracker mortgage that Pepper bought from NIB, with about 160k balance. My monthly payments have gone up from approximately 850 to 1050 in last few months with the ECB rate hikes. I am going to stick with tracker though, but considering paying off 30-40k in the new year from savings.

Is it better to pay into mortgage, or to hold onto savings? I always thought cash is king going into a recession - especially looking back to 2008 and how house prices crashed and rebounded since - there were bargains to be had if someone had some spare cash to spend, especially buying properties. However this time around house prices are not exactly threatening to crash - and inflation is in high gear - so is cash more of a liability in the upcoming recession?

Geuze

The ECB rate will definitely rise from 2.5% now to 3.5%, within the next three months.

It may go to 4% by June 2023.

This has been signalled repeatedly by the ECB during the last week.

Geuze

https://www.boards.ie/discussion/comment/120032933#Comment_120032933

There will be a minimum of two more 0.5% increases, maybe three.

This has been signalled over and over by the ECB.

"Christine Lagarde to state at the ECB press conference that market interest rates are underestimating how far the ECB will increase interest rates, and for how long, to help bring inflation back to the 2% target. Combine that with statements from two other senior ECB staff, and I feel we will see 4% by June 2023."

https://www.rte.ie/news/business/2022/1216/1342220-markets-may-underestimate-how-high-ecb-rates-will-go/

https://www.rte.ie/news/business/2022/1219/1342692-ecbs-future-rate-rises/

tamara25

I rang 3 brokers before Xmas & hopefully will hear back from them next week when most people are back to work. One of them mentioned logging onto essential credit register to get our credit history to forward onto them. We are not in arrears but we’re paying interest only on our mortgage for a period of time. I hope this doesn’t go against us when switching to another lender? Was it mentioned on another thread that if you give up your tracker you cannot get it back at a later stage?

walterking

https://www.boards.ie/discussion/comment/120045555#Comment_120045555

6 months is a long time in finance terms these days.

Even after Russia invaded Ukraine, no-one expected the ECB to be at 2.5% today.

Even in June it was not expected.

Then it swung dramatically the other way and some thought 3% by Christmas.

The next ECB rate meeting seems to be 2nd Feb and then 16th March followed by 4th May.

February commentary will be eagerly listened to.

Q&A

https://www.boards.ie/discussion/comment/120046818#Comment_120046818

I know some performing mortgages were transferred from PTSB to Pepper but if there was arrears in the past all is not lost if you can show a good track record in the recent past. Interest only/reduced payments will raise concerns for other lenders. If you're not meeting your contractual repayments at one lender others are unlikely to offer you a mortgage.

Some lenders may offer the ability to revert to a tracker if you fix but from what I've seen those fixed rates are uncompetitive and in your case Pepper don't offer fixed rates so it doesn't matter. You definitely won't be able to retain the tracker If you switch providers.

To see where you stand get a copy of your credit history from the CCR and take it from there. If you can switch it might be beneficial. There is no point holding on to the tracker if it endangers your ability to keep your home at the same time if you have to stay with Pepper the tracker has value.

the_amazing_raisin

https://www.boards.ie/discussion/comment/120045081#Comment_120045081

It's up to you really, personally I don't see any disadvantages to paying off your mortgage balance assuming there isn't a better use for the money (like paying off other debts)

It's worth saying we're not in a recession, yet. Inflation is positive which means the economy is going up, the problem is wage growth isn't keeping pace so your money doesn't go as far as it did

You don't have to put all your savings towards paying off the mortgage, in fact it would probably be a bad idea to do that

walterking

https://www.boards.ie/discussion/comment/120046818#Comment_120046818

Yes, that is true. If you give up a tracker, you cannot go back.

What is your tracker margin - eg what % over ecb?

+ what is the balance + how many years left.

ECB has stated that interest rates will be neutral to inflation and target inflation is 1.5-2% and they expect to be there in 2024. So interest rates will likely come back to 1.5%-2%

If your tracker is 1.25% or less I would not contemplate moving.

tamara25

our interest rate will rise to 5.75% this month. Our balance is 180,000 & we have roughly 20 years left on it. Our heads are wrecked trying to decide what is the best option for us…

dotsman

https://www.boards.ie/discussion/comment/120054095#Comment_120054095

Who is your loan with? Interest rates are typically in the 3-4% with some still below 3%

tamara25

Were with Pepper

walterking

https://www.boards.ie/discussion/comment/120054095#Comment_120054095

Your tracker is utterly worthless then and I can see why you would be concerned.

Your have a tracker of 3.25% which is an utter rip-off - most trackers were 0.75%-1.25%

PTSB did have a tracker after you ended a fixed rate of 3.25% and you seem to be on this. It was the subject of an ombudmans complaint, but they sided with PTSB. If I remember it was a discounted tracker and it was circa late 2007/early 2008 - the problem is they never stated what the pre-discount tracker was and when the discount ended the crap had hit the fan and tracker rates were pulled. PTSB came up with 3.25 as the prevailing rate at that time (which was correct) - but the argument is that the prevailing tracker margin at the time of drawdown should have been used and that argument was lost.

As the media and others harped on about "never give up your tracker" - they forgot to say "if its under 1.5%" and people thought they had a good deal - in reality your deal was utter crap.

If your combined income is over €50,000 (ideally closer to 60k) and the house has a value of 250k+ and you have been in good financial standing for the last 3 years, you should be able to move to a better bank. A broker will be able to check most institutions, but AIB don't deal with brokers, so talk to them directly. Bank of Ireland is probably the one that will say yes if you can show that any past financial issues are well behind you.

But your tracker at 3.25% over ECB has and always has had zero value to it.

walterking

https://www.boards.ie/discussion/comment/120054095#Comment_120054095

If bank of Ireland offered you a mortgage, then their 3.55% 10 year fixed is a great option for you.

180k over 20 years would give you a payment of 1043 per month and guaranteed to stay at that level for 10 years.

the_amazing_raisin

https://www.boards.ie/discussion/comment/120054095#Comment_120054095

Jesus, yeah I kinda agree with others that you're on the worst end of trackers and it's probably not worth keeping

I would say the question at this point is, why would you keep the tracker? ECB probably doesn't want to get back to the days of negative interest rates, so they're going to do their best to keep it around 2%, which keeps you around 5% interest

You should easily be able to beat that switching to another mortgage provider

Yeah maybe you'll miss out on a lower rate with a tracker, but that could be anywhere between 6 months to a few years away, at some point you have to ask if it's worth keeping it

It's also worth bearing in mind that mortgage rates respond to interest rates anyway. Variable rates go up and down with interest rates, they're just not tied together like a tracker

Fixing the rate now does mean that if rates go down then you might lose out, but equally you're insured against any further increases

Thekeencyclist

https://www.boards.ie/discussion/comment/120054095#Comment_120054095

Get in touch with your bank requesting what fixed rates are available to you (If not already done). They should send you a letter with all mortgage rates available that you can choose from. The letter should also contain a deadline with which if you wish to change, the letter must be back with the bank by this date etc (as the rates may change after that date). Again this is only an expression of interest letter with available options that you can review. You dont have to accept any of the options on the letter.

At least this will give you a better picture of what your payments are now V's what they could be on other mortgage rates offered to you on the letter etc.

I was on a tracker until recently and with the the ECB hikes, i did the above just to see what was out there (as I am also a Ulster Bank customer and changing to god knows who is anyone's guess!!) so I wanted to see what my options were. As a result i changed to a 7 year Fixed rate. I am now paying approx 25 euro a month more than what I was paying before any of the ECB hikes. However if i hadnt changed, I would now be paying approx an additional 80 euro a month on top of that 25 euro.

Am I glad I switched - Yes, as I have some peace of mind, and I honestly cant ever see the ECB reducing back to a rate of what they were giving us before the hikes started last year.

I also hope to make an additional/optional top up payment monthly based on my above saving.

tamara25

Thanks for everyone’s replies, I really appreciate it!

walterking

https://www.boards.ie/discussion/comment/120059052#Comment_120059052

The poster is with Pepper finance - they don't have a fixed rate list. It was a mortgage transferred by ptsb. This may be part of a central bank enquiry as the CB pushed for ptsb to sell any mortgage with an issue. People were assured that terms would not change. They should be able to access any deal ptsb has for their customers and up to recently this included a 3% 7 year fixed rate.