Should I give up tracker to switch to a lower fixed rate?

A

Airstrip1

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I have a mortgage with KBC, soon to be sold to BOI.

Current mortage: 120,000 fixed for 3 years at 2.65% (originally a 5 year fixed period) and 178,000 on a Tracker ECB +2.1%.

14 years remaining on the tracker
17 years remaining on the remaining portion.

Loan to value: approx 55%

I have been looking into Avant mortgages as they are offering a fixed rate for up to 7 years of 1.95%. This would mean about 200 euro less a month in mortgage repayments.

I have contacted KBC and they have advised there would be no break fee for the fixed part of the mortgage.
Solicitor cost is 1000 euro

My question is would I be mad to give up the tracker even though there are significant savings to be had?

Any advice would be gratefully received. Thanks!
 
The right approach is to look at the interest charged as the repayments include capital and may not be a like for like comparison

Your current annual interest is
120k @2.65% = €3,180
€178,000 @2.1% = €3,738
total cost: €6,918

If you switch to Avant, your annual interest will be
€298,000 @ 1.95% = €5,800

So you will recover the costs of switching in one year.
 
Other factors to consider

The ECB rate is unlikely to fall below 0% , so it is unlikely that the 2.1% rate will fall. It could well rise over the 7 year period.

The BoI rate for 5 years fixed is 3% and that is probably what you are going to end up on when BoI acquires KBC.
 
Is the tracker rate guarantee worth anything?

I don't think it's worth much with a margin of 2.1%. If the margin were 1%, then it would be worth something.

After 7 years at 1.95%, the balance on your mortgage will be down to about €95,000

So even if mortgage rates at that stage are higher than ECB +2.1% , you won't be paying that much extra and you will have only 7 years to go on a decreasing balance.

And you may pay off capital in the meantime which would further reduce the impact of a rate rise after 7 years.

So switch to Avant.

Brendan
 
Last edited:
Thanks Brendan,

I thought that was the best thing to do but wanted it confirmed by someone who knows what they are talking about! I really appreciate your quick response and will get the ball rolling on switching.
 
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