Confused about mortgage rates

[mainie]

Hi All,

My boyfriend and I are buying a house for 360k with a 100% mortgage. We've been advised by our broker to go for a BOI tracker which will work out at 3.3% which I think is ECB+1.05%. I think this is a pretty good rate but BOI have quite a high APR and I was told that thats the figure to look at but I'm not sure why? Is there any reason why we shouldn't go for this? Do the APR and other rates that they offer matter or will they matter in the future?
I'm confused...

 

[CCOVICH]

APR reflects the total cost of borrowing, and is arguably the best way to work out which mortgage is best for you.

See this for more details. There are plenty of threads dealing with this issue-browse the forum.

A tracker of ECB +1.05% seems like good value to me, but what is the BoI APR? The 3.3% is probably the nominal rate plus the margin of 1.05%. Looking at the [broken link removed], I see that the rate quoted corresponds to the Homeloan 105 option, although the qualifying criteria appears to be to borrow over €500,000, which you don't meet, so maybe the broker has done you a deal. If it is this rate, the APR and nominal rate are the same.

If you want to compare-grab a copy of today's Irish Times. The Property supplement will give all rates currently available.

Note that the broker most likely has a vested interest in promoting BoI-did they discuss any other options with you?

 

[mainie]

Thanks for the advice. I checked again and the rate is actually 3.35 so I think it corresponds to the Home Loan Tracker 110 which has an APR of 3.4.

The standard variable rate for BOI is 3.75 and the APR for that is 3.8. Should that high rate affect our decision at all with going with the tracker rate they are offering or is it completely unrelated?

 

[redstar]

What is the repayment cost per 1000 borrowed ? That is the best indicator of how much your mortgage repayments will cost. Compare the cost per 1000 for each lender. It will soon be obvious which is cheaper per month.

 

[CCOVICH]

The variable and tracker rates are not related. Variable rates are generally higher than tracker rates as the margin is not fixed at a certain number of basis points, i.e. lenders are free to charge what they like whereas with a tracker, they have to stick to the margin over ECB unles they tell you otherwise.

My advice-go for the tracker.

 

[ClubMan]

The variable and tracker rates are not related.

Actually - I disagree. Tracker rate mortgages are a subset of all variable rate mortgages. The difference is that trackers have a fixed margin (usually added to the ECB rate) written into the contract (i.e. ECB + x%) while standard variable rates offer no guarantees about what margin will be charged. While it's technically possible I have never noticed (for the same set of lending criteria - e.g. loan amount, term, LTV ratio etc.) the most competitive standard variable rate ever being lower than the most competitive tracker rate. In general to minimise overall interest costs go for the most competitive tracker (margin) available for your needs, keep the mortgage term as short as possible (assuming that you would not be better off availing of mortgage rate credit for longer!), review your mortgage from time to time in case another lender is significantly cheaper and worth switching to, shop around for mortgage protection life assurance/house insurance etc.

 

[CCOVICH]

Actually - I disagree.

Fair enough, but it's worth pointing out that a tracker will track the base rate (ECB) in our case, whereas variable rates may not, as it is at the discretion of the lender whether to increase or decrease rates.

I'm not sure what drove the introduction of tracker rates, but I wouldn't be surprised if it was the advent of lower interest rates and subsequent crticism of lenders for not passing on rate decreases.

I think that when the recent rate rise took place, some lenders increased the variable rate by less than the 25 bps rise in base rates, a fairly unusual occurence, and could be due to increased competition in the Irish mortgage market.

The OPs query relates to the 'high' variable cost charged by ICS and whether or not this had any relationship with the tracker rate. As far as I am concerned it doesn't. There is no reason why a lender can't have a competitive tracker rate (say ECB plus 1.1%), and a fairly high variable rate (e.g. 3.8%). And there is a chance that when rates increase by say 25 bps, the all-in tracker rate will go to 3.6%, and the variable rate will increase to say 3.95%, i.e. the tracker will increase by the full by 25 bps, while the variable rate will increase by 'only' 15 bps.

Obviousy a tracker mortgage is variable in nature, but I don't necessarily see any basis for saying that the two are related, other than they have some relationship to a given base rate, but so do fixed rates.

I don't see why variable rates are still around. Obviously banks have no incentive to get rid of them as I'd say that there is still a fair chunk of their borrowers who are on the variable rate. Trackers are more transparent and, as you have said, while it's possible for a variable rate of any given institution to be lower than there tracker, it's an unlikley scenario.

 

[mainie]

Thanks again guys. It seems that tracker is the way to go then. From looking around it seems that we would be getting the same rate from all banks that could offer us a tracker so I don't think there's much difference there.

But to throw a spanner in the works, I just saw that we could get a fixed rate mortgage for 5 years at 3.8% with NIB. Seems pretty good considering ECB rates are expected to go up by about .75 in the next year or so..

 

[CCOVICH]

But to throw a spanner in the works, I just saw that we could get a fixed rate mortgage for 5 years at 3.8% with NIB. Seems pretty good considering ECB rates are expected to go up by about .75 in the next year or so..

That's a matter of opinion, so it's for you to decide. There are plenty of threads on 'to fix vs. not to fix' and also a Key Post. Have a read.