Variable or Capped Mortgage

C

ciars

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Hi Folks,
Fairly new to the site, but looking for advice.

Just bought our New home and ready for completion in April/May. sale is agreed on our current property. At present we are with PTSB on a standard Tracker.

Our new mortgage (€420,000) is going to be significantly higher so we are looking at different options - as we fear (like everyone else) the forthcoming rate increases.

Our current broker is adsvising we accept a Loan offer from IIB for their capped mortgage offer, as opposed a standard tracker.

Our LTV is only 82% so some of the lower rates dont apply, and months back we got approval from the majority of vendors for well above our mortgage requirement.

Im just wondering what people think of the IIB capped tracker? Is it a good option as apposed to a standard tracker. The capped traker is .1% higher than variable. Any info would be great.

Cheers & thanks
 
What exactly is a capped tracker? A tracker with some maximum limit on the rate that will be charged (not just the margin)? Sounds a bit contradictory if so. Anyway - what restrictions (e.g. on early redemption or acclelerated lump sum or regular capital repayments) are there? Have you read other thread on fixed versus tracker/variable if relevant? Does your cashflow situation merit worrying about fixing/capping your rate?
 
A capped tracker is basically a tracker with a fixed ceiling.

It's an ECB + 1.25% tracker with a ceiling of 5.24% for 3 years.

It has all the characteristics of a tracker - no penalty for early redemption/lump sum payments/overpayment plus etc so although the initial rate is quite high it gives you the safety of the ceiling plus the benefit of rate reduction if the ECB lowers rates on the next three years.
 
Ciars,
To be honest it's too early to think about your rates.
Wait until 3 weeks before you are due to close and check rate then.
There will be new offering after the March increase.
 
Thanks for the explanation. If there are no fixed rate style penalties/restrictions then, if the rate is not too much higher than standard variable/tracker rates, it sounds like a useful option for those who think that they might need to limit their exposure to rate increases due to cashflow issues. Are these new or something?
 
How does it compare to three year fixed rate if you are afarid of rising rates as I would have thought that a cap by its very nature is an expensive option to buy. Surprised there isn't penalties for prepayments as well. Thought there would be with this type of product. That part is attractive.
 
Sunny said:
How does it compare to three year fixed rate if you are afarid of rising rates
Click to expand...
You should only fear rising rates if they might impact your ability to service the mortgage. If you can afford rises of a few percent without putting you under severe financial pressure then you should probably stick with some form or variable/tracker rate (possibly including a capped tracker). Certainly don't fix/cap mainly or solely in an attempt to time the market and save money as you most likely will not and will pay a premium compared to a competitive tracker rate.
 
ClubMan said:
You should only fear rising rates if they might impact your ability to service the mortgage. If you can afford rises of a few percent without putting you under severe financial pressure then you should probably stick with some form or variable/tracker rate (possibly including a capped tracker). Certainly don't fix/cap mainly or solely in an attempt to time the market and save money as you most likely will not and will pay a premium compared to a competitive tracker rate.
Click to expand...

I agree but if you get a capped tracker, you have to be paying a premium for the cap compared to a competitive tarcker rate as the bank is not giving you a free option. The OP was saying they feared more rate rises so fixed rate mortgage might be more economical. I am in no way suggesting people try to beat the market. Mugs game. A competitive tracker is usually the best option.
 
Yes - fair enough and my comments were meant generally and not specifically in response to yours (even though I quoted you!). Sorry.
 
3 year capped at 5.24%
Best 3 year fixed in market is 4.75%.

Is it worth giving up the .49% to avail of the ability to overpay/lump sum/redeem early without penalty and avail of any rate reductions?
You immediately pay 4.75% from the start on both.
 
With regards to the rate...
Economists suggest that the rate will rise in march by 0.25% and possibly once more this year. After that it looks likely that rates may level out and maybe even fall again.
However, anything could realistically happen next year.

interesting opinion here:
http://www.finfacts.com/irelandbusinessnews/publish/article_10009015.shtml

Firstly, you should push your broker to get you the 0.95% rate with IIB.
Even though you're outside of criteria, any broker worth their salt will be able to get this for you.

Besides that, I do not think the current capped tracker is great at the moment considering the rates may come down.
Why take a 1.25% tracker instead of at least a 1.1% ?

Finally, If you're overly worried about rate increases, you should consider fixing rather than the capped rate unless you want repayment flexibilty.
Bank Of Scotland have the best 3 year fixed at the moment of 4.69%.
 
Apols 4.69% is the best 3 year fixed.
Ciar, can you check why your broker is pushing the capped tracker?
Is it on affordability as IIB will give more on the capped tracker than on other repayment methods?
If so then rate discussion could be a moot point as you could be stuck with IIB.
If affordability is not a problem then you should push for Ulster Bank which is offering an ECB + 0.75% tracker for loan to value of less than 80%.
Or NIB for LTV <80%.
 
Thanks for all your help and responses (and sorry for the late reply). Think Im gonna go back to our broker. At the moment I could sustain another few rate increses - thats why I was starting to feel the capped tracker may not have been in my best interest as even after the 3 years the capped rate is still .1% over standard trackers - so in the long run possibly is not best suited.

Thanks again.
Cheers
 
I went with the IIB Capped mortgage last year. Really depends on your circumstances but for me it seemed to make sense.

I still need to sell previous property, so a lump sum will be paid off mortgage at some stage in the future. So I needed the flexibility of a variable mortgage.

Also interest rates were rising so wanted the peace of mind of a fixed. So with capped tracker, its a little like an insurance policy, you are paying a premium over the market rates, but you know that if interest rates go crazy. There is a maximum rate that you will have to pay. Think mine caps out at about 4.99. So takes some of the sting and worry out of hearing about interest rates hikes.
 
Ciars - you might consider splitting the mortgage between fixed and tracker - which gives you certainty in relation to the fixed rate, and allows you flexibility on the tracker for lump sum repayments, overpayments, benefit if rates reduce a year or two down the road.
 
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