Should I fix a tracker for 10 years?

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firewire

Registered User
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Great Post and thank you Brendan for all the information you are providing to us.

Existing tracker margin - 1.05% + ECB
Amount outstanding on your mortgage - Approx €113200
Remaining term - 10 Years 10 Months
Lender - UB moving to AIB possibly
Value of your home - Unsure but on a good day possibly €350K
Might you trade up or overpay your mortgage - Probably not but if circumstances allow would overpay
Do you face any barriers to switching - e.g. an impaired credit record, a mortgage with a warehoused portion due to a restructuring, reduced income since you took out your mortgage. - No
What rates are you considering fixing at - As low as possible over 10 Y 2.4%
Does your house have a high BER rating which might qualify it for a lower rate - It might squeak in

I've done some very rough calculations myself, but not being familiar with financial calculations, I am unsure if I have them right. None of what I have posted here should be considered financial advice

Currently making monthly repayments of €928 with an increase of 50 base points I think this will jump to €952 in September. I have assumed that interest rates will continue to rise by 25 base points each quarter until it reaches a max of 4.8% i.e. 1.05% + ECB rate of 3.75%.

If this is the case my monthly repayments will jump to €1086 and I'd pay a cumulative interest of €23,444 over the next 10 Y 10 M

If I fixed today at that best available rate of 2.4% with Avant my monthly repayment would be €998 and I'd pay a cumulative interest of €28,106 correction €15540

Can you confirm if I am in the correct ballpark here?

If so, anyone on a Tracker with 1/1.5% + ECB rate and ten years remaining would possibly be best keeping it if they can absorb the monthly repayments.

If the interest rate only reaches 3.05% (1.05+ ECB rate) over the next 2 years, monthly repayments would be approximately €1020. Similarly, at an interest rate of 3.55%, monthly repayments would be approximately €1040. Note this assumes a 25 base point increase each quarter.
 
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Sorry firewire

I have written extensively why you should not look at repayments, but look at the interest rate. The repayments are misleading

Key Post - How to evaluate if it's worth fixing, switching or breaking out of a fixed rate

Almost every post on this topic is wrong. No matter how often it is pointed out, people look at the wrong figures. They use mortgage calculators when they don't need them. Most of the time, you can do the figures in your head. Do not look at the monthly repayments – they are misleading. Do not...
www.askaboutmoney.com

So I won't begin to unpick your calculations.

If you want to discuss that do so in the thread above but not in this thread.

Brendan
 
Brendan Burgess said:
Sorry firewire

I have written extensively why you should not look at repayments, but look at the interest rate. The repayments are misleading

Key Post - How to evaluate if it's worth fixing, switching or breaking out of a fixed rate

Almost every post on this topic is wrong. No matter how often it is pointed out, people look at the wrong figures. They use mortgage calculators when they don't need them. Most of the time, you can do the figures in your head. Do not look at the monthly repayments – they are misleading. Do not...
www.askaboutmoney.com

So I won't begin to unpick your calculations.

If you want to discuss that do so in the thread above but not in this thread.

Brendan
Click to expand...
Certainly will have a look at this post. I'm not looking at the repayment figure, more so the total interest that I could have to repay over the remaining term. I've done the figures out myself and no matter what, it seems that sticking with the Tracker is more than likely the right call given the term remaining and reducing capital each year even if the interest rate potentially rises to 4.8%. It may very well only rise to mid 3's and could potentially fall again over the next decade.
 
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On the thread should borrowers with trackers consider fixing I posted this (post #105):

Should I fix a tracker for 10 years?

Great Post and thank you Brendan for all the information you are providing to us. Existing tracker margin - 1.05% + ECB Amount outstanding on your mortgage - Approx €113200 Remaining term - 10 Years 10 Months Lender - UB moving to AIB possibly Value of your home - Unsure but on a good day...
www.askaboutmoney.com

My crude calculations seem to suggest staying on a tracker given the remaining term, and loan amount and even if the tracker interest rate rises to 4.8% over the next 2.5 years, then the total interest paid would be approximately €4660 over fixing at the best rate available in the market at the time of writing.

@Brendan Burgess is there something that I am missing? I am ignoring the monthly repayments but am looking at the cumulative interest paid over the remaining term for the tracker as it potentially rises to 4.8% vs fixed at the best rate for a 10Y mortgage switch (ignoring switching fees). It only seems to make sense to consider dropping a tracker mortgage if the interest rate was to rise above 6+% for the remaining ten-year term -such a rise could happen, but if a recession does occur, the rate could also drop.
 
firewire said:
If I fixed today at that best available rate of 2.4% with Avant my monthly repayment would be €998 and I'd pay a cumulative interest of €28,106
Click to expand...

I am getting €113,000 @ 2.4% fixed for 11 years = €15,683 interest.

Where are you getting €28,106?

Brendan
 
This is how I would approach the issue.

1) You can fix for 10 years at 2.4%
2) Your margin is 1.05%
3) While the ECB rate is below 1.35% , you are better off on a tracker.
4) When the rate exceeds 1.35% you will be glad you have fixed.
5) The rate today is .5% and they are talking about increasing it over the next few months.
6) The expectation is that it will settle around 2% at which stage you will be paying 3.05%

For simplicity, assume the following ECB rates
.5% for the first year
2% for the remaining 10 years.

If you fix, in year 1 you will pay €960 more interest than you would on a tracker. [€113k @ (2.4% -1.55%)]
In year 2, you will pay €600 less [€94k @ (3.05% -2.4%]
In year 3, you will pay €500 less [€85k @ (3.05% -2.4%]

This will be followed by 7 years of profit by fixing.

But... if you factor in the costs of switching, I think you are better off remaining on your tracker.

Brendan
 
firewire said:
Might you trade up or overpay your mortgage - Probably not but if circumstances allow would overpay
Click to expand...

A lot of people do end up overpaying their mortgage, or clearing it when the balance gets low.

Given your relatively small balance outstanding and your short term remaining, there is a reasonable chance that you are going to clear your mortgage early. Again, another argument for remaining on your tracker, which you can overpay or clear without penalty. There could be a penalty for clearing a fixed rate early.
 
Brendan Burgess said:
I have to say that this is really confusing.

You talk about repayments, and then say that they are not relevant.
You talk about switching to AIB but you mean Avant.

But you are raising an interesting point, I think. So I will study it in more detail later.
Click to expand...
I see why you think that...

Currently with UB but as UB leave the market my tracker will go to AIB. If I was switching, I'd make the move to Avant as they seem to have the best 10 rate ATM.
 
I am getting €113,000 @ 2.4% fixed for 11 years = €15,683 interest.

Where are you getting €28,106?
Click to expand...

All I say is that there must be an error in my formulation (what I was afraid of all along). I thought I was using an IPMT formula, but I must have it wrong. Best jump back to the spreadsheet and see if I can locate it.

P.S. I think you have the patience of a Saint.
 
I am getting €113,000 @ 2.4% fixed for 11 years = €15,683 interest.
Click to expand...
Found my error. Now getting €15,540 for 10Y 10M - close enough for my cals LOL...

Sticking with the Tracker certainly looks like the best option when switching costs and the possibility of the interest rate not climbing much above 3.5%.
 
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