Should I Fix My Tracker Mortgage – Tracker Mortgage Ultimate Guide Ireland 2022

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With interest rates on the rise, should you dump your tracker mortgage and move to a fixed rate? The answer used to be a flat out no, but now the answer depends on two things.

  1. What type of tracker mortgage are you on?
  2. How much can you afford your repayments to rise by?
tracker mortgage

Tracker mortgages come in different flavours based on how much extra interest they charge over the European Central Banks (ECB) base interest rate. 

If you are on a tracker mortgage that charges over 1.5% above the ECB rate you should probably think about moving now as you are already paying more than you could on a fixed rate at 2%.

If you are on a tracker mortgage that charges less than 1.5% above the ECB rate so are paying less than 2%, it still might make sense for you to move. 

Why? With markets predicting ECB rates to rise to 2% by 2023, this would push up even the cheapest trackers to 2.5%. That’s €200 more a month on the average mortgage.

Unfortunately waiting to see which way things pans out isn’t really an option as lenders could withdraw the ultra low 1.95% fixed rate deals currently available at any moment.

Don’t panic though, with our ultimate guide, we will walk you through what this means for you and what you can do to keep your mortgage repayments under control.    

  1. What’s a tracker mortgage? Tracker Mortgage Ultimate Guide Ireland 2022
  2. What’s the cost of the ECB rate hike on my tracker mortgage repayments? Tracker Mortgage Ultimate Guide Ireland 2022
  3. Should I fix my tracker mortgage? Tracker Mortgage Ultimate Guide Ireland 2022
  4. How do I fix my tracker mortgage? Tracker Mortgage Ultimate Guide Ireland 2022

What’s a tracker mortgage? Tracker Mortgage Ultimate Guide Ireland 2022

A tracker mortgage is a mortgage that follows or ‘tracks’ the ECB base rate. These mortgages were introduced by banks in the Celtic Tiger years in an attempt to cash in on the Irish housing boom. 

Depending on the lender and when you signed up, rates ranged from 2.5% above the ECB base rate down to as low as 0.5% above the rate.

After the financial crash of 2008 ECB interest rates plummeted to 0%, this made tracker mortgages very attractive for consumers and loss making for the banks.

As a result Irish banks withdrew all tracker mortgages from the market and attempt to move a number of customers off tracker mortgages to try to reduce their losses. This is known as the ‘tracker mortgage scandal’ [1] resulting in customers losing homes and millions of euros in costs and fines levied on the Irish banks.  

What’s the cost of the ECB rate hike on my tracker mortgage repayments? Tracker Mortgage Ultimate Guide Ireland 2022

The European Central Bank raised the ECB base rate that tracker mortgage rates follow from 0% to 0.5% in July.

They are doing this to try to reduce inflation by making credit more expensive to consumers. 

But, markets expect this is only the start of it.

Most expect to see a 2% hike in total in the next 18 months or so.

Tracker mortgage rates now are around 1%-3% with the Central Bank now lending to the banks at 0.5%.

So if the Central Bank goes to 2% in the next 18 months, the lenders will pass that on, meaning variable mortgage rates will rise to around 2.5%-4.5%.

The average outstanding mortgage in Ireland is €200,000 and the average term people have left is 15 years.

That makes the average mortgage repayment about €1,400 a month.

So for the average customer a 2% increase is about €200 extra on their monthly repayment.

But, there is no reason that rates won’t go higher.

In the early 2000’s for example Central Bank interest rates were around 4.5%, that’s 4% higher than now, so would add €400 to the average monthly repayment.

If increases of that order may potentially cause issues with making your mortgage repayments, then you should think about fixing.

Should I Fix My Tracker Mortgage? Tracker Ultimate Guide Ireland 2022

The good news is that fixed rates are still available from as low as 1.9%, for most tracker mortgage customers this would keep their mortgage repayments at similar levels to today while capping any potential rises in future.

The catch is that these low fixed rates are only available for 5 years or less and so when you come off them you still could be vulnerable to higher ECB base rates.

If you really want certainty then you can fix for up to 30 years right now with some lenders.

This would cap your repayments for the rest of your mortgage.

If you go to a broker 15-30 year fixed mortgages are still available for around 2.65%.

So if you are on a tracker mortgage rate right now that will probably increase your payments, but cap your repayments so there is no risk of going above 2.65% for the rest of your mortgage term.

Obviously if tracker mortgage rates go down below 2.65% you will miss out on any savings, but you have to trade this off against the certainty you will get by fixing.

For most people we think these long term fixed rates offer great value as you are paying a low premium for the certainty they provide by capping future repayments.

How do I fix my tracker mortgage? Tracker Mortgage Ultimate Guide Ireland 2022

The best long term rates are currently only available from Avant Money and Finance Ireland who operate exclusively through brokers.

We would recommend you get in touch with a mortgage broker to discuss if fixing your tracker makes sense for you. 

Make sure the broker has access to all the lenders, will switch you for free and has experience of switching tracker mortgages.

We wouldn’t hang around having that first conversation with your broker for two reasons. 

  1. It’s not certain how long these low long term fixed rates will be available.
  2. There is a rush to fix nationwide which is causing backlogs right now. 

Finally, you need to bear in mind you will have to pay a solicitor and get your home valued which will set you back around €1,400 all in.

Next Steps – Tracker Mortgage Ultimate Guide Ireland 2022

You can find out more about switching your mortgage here or with our mortgage switcher guide here.

You can get the full run down on mortgage switching solicitor and estate agent valuation costs here.

More great insider tips from the sherpa Switching Mortgage, Mortgage

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