Why a tracker and variable mortgage for my one and only home ?

[Hanlys]

Hi Brendan I heard you on the radio a few weeks ago talking about the tracker mortgages and AIB and I thought you would be good to talk to you about our situation which seems quite strange . I will try and explain as brief as possible.
Like all couples we were married and wanted to have our own home. We saw an opportunity to buy a derilict house on a site obviously with intention to demolish and build site. In early March 08 we went to PTSB to source funds / mortgage. We wanted to get enough to obviously buy site and rebuild. Bank gave us tracker for site and said when we are ready to build and planning comes through they would give us funds and add to tracker. We even paid off money from our savings to reduce tracker borrowing. When all the planning and legal stuff was organized we went back to bank March / April 2009 they said that they could no longer combine the one mortgage and give us the tracker. they said the only way the could do it was give us a variable at one of the highest rates at the time to build our home. We have now been paying a tracker mortgage since April 2008 for €125000 and a variable mortgage since July 2009.
Last year or so I fixed the variable mortgage @3.25 %. We really feel we have been conned by the bank by having 2 mortgages for our one and only home. Also we cannot move banks for a better deal as we have 2 mortgages and we would have to combine and even loose the tracker which we really should have had for the full amount of buying site and building. We feel that we have been disregarded buy the banks ? Who else is in the same sinking boat ?...
Hope you could give us some advice on this matter.
Regards
Sean & Paula


Sent from my iPad

 

[Monbretia]

What they did was the only option for you to keep the tracker portion.

It was the norm to give site mortgage and then when ready to build a new mortgage for the total would be applied for and part of it used to pay off site mortgage, new mortgage would always be at the prevailing rate at time of issue. Now had trackers still been available that is what would have happened.

In your case the original site mortgage was a tracker but by the time you were ready to do the build mortgage trackers were no longer available (I'm presuming as not 100% on the dates they finished in each bank) therefore the bank couldn't issue the new mortgage for build and site amalgamated at the tracker rate. They had to do a new mortgage for the build and if they did one for the total to clear the site mortgage as well you would have lost the tracker rate you already had so what they did was your best option.

You were never going to be able to just increase the existing site mortgage at the same rate it was on regardless of what type of mortgage/rate it was. Forget about trackers for the moment and let's pretend the site mortgage was a 5 yr fixed at 2% and by year 2 of it you were ready to build and wanted an extra 100k but rates were now up at 5%, in that situation you would also be unable to increase your 2% loan to cover the new borrowing and the alternatives would be the same, do a new loan at 5% to cover the lot or leave the 2% one alone and take new loan at 5% for just the additional amount.

Yes it causes a problem for switching but the same problem as if you had any tracker, do you lose it to go to another rate, have to do the sums to see whether it's worth it or not.

Having two mortgages on the one property is not that uncommon and doesn't cost any more generally than having one, in your case if you had only one it would be at the rate applicable when you started building as at that stage to get one mortgage only you would have had to do the new mortgage at that day's rates and clear the existing site one so your case it has allowed you to keep some bit of a tracker rate all this time.