Danske tracker, but need loan for home improvements

J

JanusGold

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I am trying to make up my mind on two possible scenarios.

I have a tracker 0.55% over ECB rate, which is currently an excellent rate. 19 years left. (250k remaining) Is/was with Danske so equity release/remortgage and keeping tracker is not an option.

I wish to borrow 75-100k for home improvements.

I have two possible options:

1. Continue with tracker (currently 0.55%) and borrow using a personal loan (~8-10% APR)
2. Remortgage to release equity but the mortgage will be at a higher rate (currently 3-4%)

At current ECB interest rates, option 1 makes sense even with the higher personal loan rate. However, KBC are offering a fixed mortgage rate of 3-3.5% over ten years for example. So if the ECB rate rises to 3/4% over the next 5 years then the KBC fixed rate actually starts looking like a good deal. And those rate rises don't sound too outrageous, particularly looking at the head start trend of the Fed and The Bank of England.

This brings up a more general question really. Given the 10 year fixed rates out there of 3-3.5% over ten years, does this start to shine a light on tracker mortgages and how good a deal they really are. Of course at 0% ECB rate they are a great deal, but once that ship sails and the ECB rate starts to climb, even modestly, those fixed rates are starting to look rather good. Now I know you could also say that after ten years you'll be thrown out onto the market variable rate, which could be even higher again. But all these possibilities make this decision quite difficult to make.

Any opinions or advice on this please...?

Thanks.

JG
 
The thing I liked about trackers in the first place is that the rate is set by the ECB, not your bank. And the ECB is not setting rates with a view to your mortgage. That logic is even more compelling now than it was in 2006, because back then the idea of banks charging new customers less than existing customers did not really exist. Nowadays banks can reduce rates to new customers to attract new business without passing on the reduced rate to existing customers. This was unheard of in 2006.

With a tracker the worst situation you can find yourself in is paying the relevant margin over what is in effective the banks cost. That can never be bad.

With a 10 year fix, and a situation of rising rates you may find, in say 5 years time, that a rate fixed today is less than the tracker rate then. Also you may not. I think that it is monumentally foolish to think that you have a better idea of future interest rates than the banks do. Of course you might, after all some of us have tracker mortgages, so the banks don't always know best.

The tracker is a definitely a good deal, the 10 year fix may turn out even better, or it may not. A gut feeling that interest rates will rise by the circa 2.45% needed to catch up with the fixed rate, and do so soon enough to give the fix a better average over the 10 years seems unwise to me. Not because I think rates will not go there, but because I cannot foretell the future.
 
Agree with much of what Creemeegg has just said.

My own crystal ball tells me that I'm better off on my Tracker (very similar to yours) than moving to a 10-year fixed rate. However, this is a judgement call and everyone needs to make their own decision when it comes to what future interest rates will be.

Almost the entire Danske Tracker loan book has recently been sold, as you are most likely aware. Pepper continue to "manage" it. While it has not been made clear what the intentions of the new owner of the loan book actually are, it's worth giving Pepper a call and asking them if you can now borrow additional funds secured on your home, or failing that, if it's possible to obtain a discount for early repayment of the existing Tracker (through refinancing the debt with another institution). If you make the call, you might please let us know how you get on.

Assuming no success with Pepper, then I would also explore other possible ways of borrowing the funds required. Don't use up your emergency cash savings, but if you have surplus savings above your "rainy day" needs, then they might go towards the overall spend. Is there any chance of borrowing some or all of the money from a family member or friend (subject to agreeing and documenting the conditions of the loan) ? Have you explored the possibility of borrowing some or all of the money through the credit union (rates and lending limits vary significantly from one credit union to another, but some offer very competitive rates) ? Obviously, you also need to consider your ability to repay the proposed debt, to ensure you don't over extend yourself but also, that you don't borrow for longer than necessary and pay too much interest.
 
Thanks for the responses.

Yes I rang Pepper and there are no possibilities of keeping the tracker and borrowing more as Pepper is a separate company to the one now holding the old Dankse mortgages and also there are no offers of a discount (probably as they paid 95 cent in the Euro to buy the loan book)
I'm all out of luck with rich relatives etc. so a personal loan or remortgage is the only show in town.

Thanks again.
 
Hi,

Have you checked around too see if you can get a personal loan for the amount you need? I thought generally 50 - 60k was the limit for unsecured lending in most places.

Say if you could get a personal loan for 75k at 6.1% fixed with KBC which appears to be the cheapest available, you effective interest rate would be 1.85%. with 250k on a 0.55% tracker.

Personally I'd find it difficult to give that up for a 10 year fixed rate.

If you look at market rates, the benchmark 10 year German bond is heading for 1%. So a 3% fixed rate is roughly the equivalent of 2% over the market. Anything else and you're trying to predict rate rises better than the market.

It's not an easy decision, so best of luck with it.
 
Let's look at the numbers:

€250k @.55%= €1,375 a year in interest
€100k @8% = €8,000
Total : €11,500

€350k @ 3% = €10,500

So not a huge amount of difference.

Delay the home improvements if you can.
If you can't, do them in stages.
Whatever you do, work hard on paying down the home improvement loan.

Did a fund really pay 95 cents in the euro for a tracker mortgage at ECB + .55%? I doubt it.

They should either be prepared to lend you more money at a market rate or else offer you a discount to pay it off early.

They might be saying no now, but in time, they may well say yes.


Under the circumstances, I think it's clear to keep your tracker.
It's unlikely to be far wrong.
Switching lender could be hugely wrong.
 
Good post Mr. Burgess.

There is no way that I would give up my Tracker to do these home improvements (assuming no discount to refinance). The potential long term additional costs could be huge, particularly if the home improvements loan can be repaid relatively quickly.

What Pepper say over the telephone is one thing, but what happens when they receive a detailed "concrete" written proposal and have to take it for formal consideration, may prove to be something different. Each proposal will no doubt be considered on it's own merits, even if there is currently no policy to offer discounts.

Deferring or staggering the timing of the home improvements is definitely worthwhile, if a discount cannot be obtained to facilitate a refinance with a "top up" for the home improvements. Expenditure of €75k - €100k is a lot for home improvements and sounds like there may be an extension to the home included. If so, perhaps a shomera (or similar alternative) offers a cheaper solution to some of what needs to be done, to improve the Janus Gold's home ?
 
Yes by “home improvements” I do mean an extension, new kitchen etc.

I think I’ll take your advice and try again to engage with my lender and see if there are any discounts on the table.
The last time I rang was when the change over had just occurred and I spoke to customer services. At that point they said there were no offers or deals. But maybe putting something in writing might go to the right people.

Thanks again.
 
JanusGold said:
Yes by “home improvements” I do mean an extension, new kitchen etc.

I think I’ll take your advice and try again to engage with my lender and see if there are any discounts on the table.
The last time I rang was when the change over had just occurred and I spoke to customer services. At that point they said there were no offers or deals. But maybe putting something in writing might go to the right people.

Thanks again.
Click to expand...

I fear that you are wasting your time.

Your best bet is to find the best alternative source of finance you can, and then focus on paying that down as quickly as you can.

Otherwise, you’re looking to have your cake and eat it.
 
JanusGold said:
Yes by “home improvements” I do mean an extension, new kitchen etc.

I think I’ll take your advice and try again to engage with my lender and see if there are any discounts on the table.
The last time I rang was when the change over had just occurred and I spoke to customer services. At that point they said there were no offers or deals. But maybe putting something in writing might go to the right people.

Thanks again.
Click to expand...
Why would they do a deal - currently banks (even PTSB!) can borrow at negative interest rates via bond issues, so even a 0.55% tracker is profitable, so very unlikely to be a deal.

Best bet is a a KBC 10 Home Improvement loan which you may get for under 6% and hold on to that tracker

From KBC website
^^Personal loans for home improvement and certain other purposes will be considered for terms up to 10 years, subject to borrowing amount. For more information about our longer term options please contact us
 
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