20 Year Fixed Term/Replacing Tracker

R

Rossies

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Could I ask for some advice also. On a boi tracker at 1.25%. 178k outstanding on mortgage with 20 years left. LTV 60%. Thinking of switching to final 20 year fixed rate. 2.5%. Will cost €100 extra per month. Both of us are public servants. We like the idea of fixing having enjoyed the tracker. Thanks for reading this.
 
If your tracker stayed at 1.25% for the next 20 years (which it won't), you would pay €23k in interest.

If you went with Avant's 7-year fixed rate at 1.95%, and and they offered that rate for the following 13 years (which they won't), you'd pay €37k in interest over the 20 years.

If Avant's 10-year fixed rate of 2.1% lasted for 20 years, you'd pay €40k in interest.

If you went with Finance Ireland's 20-year fixed rate at 2.5%, you would pay €48k in interest (and your monthly repayment would increase by €105). They are apparently offering €1,500 cashback to people who switch to them before the end of March but I can't find much info about this.

The 20-year fixed rate at 2.5% seems like expensive insurance to me, but ultimately it comes down to your risk appetite – how much extra interest are you willing to pay for the security of a longer fixed rate?

If you think you'll be in a position to make fairly large overpayments in the next few years, then fixing for 20 years kind of seems like a waste, because if you make overpayments while keeping your monthly payment the same, you'll clear your mortgage in less than 20 years.
 
@Rossies - could you post a bit more detail about your overall financial and personal circumstances in case there are other factors that are relevant to this decision? On the face of it, and - I think - in common with @Paul F, fixing for 20 years seems misguidedly overly conservative to me based on the basic info posted so far. But I could be wrong if there are other factors pushing you towards fixing long term.
 
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Another way of looking at this is that 2.5% is an excellent rate by historic standards, so it depends how much you like to gamble.

Having said that, your point about 2.1% 10 year fix is well made. If the posters are able to overpay (and Avant has a generous overpayment facility for fixed rates) then the mortgage amount outstanding after 10 years may be reduced to the extent where the effect of higher interest rates in 10 years time may be reduced to an acceptable level.
 
Thanks for all the helpful comments. Our personal circumstances are ok. Two civil servants in permanent pensionable jobs. When we started on the tracker in 2007 repayments were 1300 per month. Now they are 837 which is manageable. We fear the repayments going up again with interest rate increases. Rather than that happening we were thinking about refixing and at least we know even at an extra €100 per month over 20 years we could manage that. I wouldn't consider myself overly Conservative but we pay everything together 50 50 and have a good system in place that allows for a decent life style. We will only have one child for college in 10 years.
 
@Rossies Be cautious of switching away from the tracker too soon. The ECB seems to be reluctant to put up rates too quickly or by too much in case it kills off the economic recovery. Of course, this stuff is all crystal ball gazing, so be cautious of taking advice from forums too
 
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Always a trade off between certainty and security.

However, to put things into perspective your tracker rate would have to increase to 6.25% for your repayments to hit €1,300 again. So you're a lot more insulated against interest-rate movements than you realise.
 
It's a bit of a game of chicken though, isn't it? How long are you prepared to hang on to you tracker to save €100 per month, in the hope that when you do move, it's before the mortgage lenders raise their fixed rates?
 
Fixed rates in Ireland are much higher than they are in other eurozone countries.

The ECB rate could rise while long term fixed rates fall.

There are lots of questions on Askaboutmoney "How much would it cost to break out of a fixed rate". Many people fixed because they thought that variable rates or fixed rates could not go any lower.

Brendan
 
Anything could happen. A couple of points:

1. It's reasonable to assume that whatever factors are driving the larger gap between Irish fixed rates vs ECB rates than is seen in other Eurozone countries are likely to remain. Long-term fixed rates falling while ECB rates rise seems an unlikely scenario to me, but yes it is possible.
2. The amount by which mortgage payments could rise is a reasonable bad case scenario is significantly more than they could fall in a reasonable good case scenario. Furthermore, for some people these increase could put the family budget under serious pressure.
3. 2.1% for 10 years or 1.95% for 7 years looks like a great deal within the context of the historic figures below, and there is certainly more 'noise about central bank rate increases now than there was a year ago.

Irish Mortgage Interest Rates since 1975​

The highest rate reached in each year is shown below – based on the average rates of “representative building societies” from the Central Bank and the CSO

YearHighest Mortgage Interest Rate
197512.5%
197613.95%
197713.96%
197814.15%
197914.15%
198014.15%
198116.25%
198216.25%
198313%
198411.75%
198513%
198612.5%
198712.5%
19889.25%
198911.4%
199012.37%
199111.95%
199213.99%
199313.99%
19947.49%
19957.00%
19966.75%
19976.9%
19985.85%
19995.6%
20006.09%
20016.9%
20024.7%
20034.2%
20043.49%
20053.65%
20064.86%
20075.46%
20085.86%
20094.16%
20104.02%
20114.42%
20124.33%
21034.38%
20144.2%
20154.05%
20163.61%
20173.44%
20183.21%
20193.02%
20202.92%
20212.8%
 
time to plan said:
1. It's reasonable to assume that whatever factors are driving the larger gap between Irish fixed rates vs ECB rates than is seen in other Eurozone countries are likely to remain.
Click to expand...
One of the main ones being the ridiculously lax repossession system which encourages strategic default/moral hazard and freeloaders gaming the system.
 
Am beginning to think about the 20 year fixed with Avant at 2.45%. €938 instead of €837. Between two people it's not much per month. That's the price of stability. Thanks all for the comments. I've spoken to two brokers and family members also.
 
Rossies said:
On a boi tracker at 1.25%. 178k outstanding on mortgage with 20 years left. LTV 60%. Thinking of switching to final 20 year fixed rate. 2.5%. Will cost €100 extra per month.
Click to expand...

You must look at the interest cost and not the repayments.

This year, the additional interest will be €178k @1.25% or €2,200 - assuming tracker rates don't move.
You will also incur the upfront cost of switching - unless Finance Ireland pays your switching costs.

With a variable rate mortgage, you can overpay whenever you want without penalty.

So, you could knock the €3,500 "saved" by not switching off your mortgage.

The markets have an expectation of how interest rates will move and they reflect these in the fixed rates they charge.

Fixed rates could come down further.
 
There is a risk that the ECB rate may rise to 12% - seems a bit unlikely. No one is expecting it, but economic forecasters are terrible.

But with a 1.25% tracker, you are paying loads of capital off your mortgage every year.

Today, by not switching you are saving 1.25% of €178k

Let's say the ECB rate rises to 2.5 % and you end up paying 4.25% instead of 2.5% you could have fixed at.

You will be paying 1.25% more than you would have. But it will be on a smaller balance.

On the negative side
The ECB rate may rise much further and much faster than anyone is predicting.

On the positive side
  • You are saving €2,200 a year up front.
  • You have a totally flexible mortgage which you can overpay without penalty e.g. if you want to trade up or move after 10 years.
  • Fixed rates may fall
  • You have two good secure salaries so if you make the wrong decision, you can handle the extra cost.
No one knows the right answer, but the weight of evidence is in support of holding onto your tracker.

Brendan
 
Its an interesting question. I don't think anyone will be able to tell you what 'the right' thing to do is. Financially, it probably makes sense to hang on to tracker as said above but I think this is more than a financial decision. If there is no chance that you will be looking to move, I can see the attraction of fixing in a rate of less than 2.5% for the remaining term.

I am not sure that there isn't a sense of complacency out there with regard to interest rates. I think there is a sizable % of the population who have only ever known low interest rates (less than 5%)
 
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