Do not ever consider fixing a tracker rate. Ever.

(I have moved these posts from another thread as it raises an important viewpoint which is widely held - Brendan)

Do not ever consider fixing a tracker rate. Ever
Might be some pain in the short term but it’s a long game

Ryan said:

Do not ever consider fixing a tracker rate. Ever
Might be some pain in the short term but it’s a long game

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That is a very "one size fits all" assertion and completely overlooks the fact that some trackers and very good value and some are poor value.

Brendan has outlined the factors to consider in this thread.



Here is my summary of the factors to consider whether you should fix a tracker rate or not.

What is the margin on your tracker?
If you have a tracker rate of ECB + 1.75% (or higher), it's of little value and you should almost definitely fix.
If you have a tracker rate of ECB + 0.5%, then you should probably not fix.

Note: "ECB + 1.75%" means that your tracker margin above the European Central Bank base rate is 1.75%. This is set in your mortgage contract.

And because the ECB base rate is 1.25% (as of September 2022), a person with an "ECB + 1.75%" tracker actually has an interest rate of 3%.

What rate can you fix at and how long can you fix for?
If you are a customer of permanent tsb the maximum term you can fix for is 7 years and the lowest rate is 3% (or 2.8% for their 5-year fixed green rate).
It may be worth giving up a tracker of ECB + 1.75%, but it's not worth giving up ECB + 0.5%

On the other hand, if you can switch to a 10-year fixed rate at about 2.9%, it may be worth doing.

If you are going to give up a cheap tracker, you should be fixing at a low rate for a long period.
There is no point in giving up a cheap tracker to fix for two years, as you would then be faced with the higher rates prevailing at the end of the two years.

How long is left on your mortgage?
If you have 20 years left on your mortgage, don't give up a cheap tracker to fix for 5 years.

On the other hand, if you have 10 years left on your mortgage, fixing for 5 years is probably OK. After 5 years, you will have paid off 50% of your capital, so the rate will be less important at that stage.

If you intend clearing your mortgage early, this would suggest you should not fix
For example, it may not be a good idea to fix if:

• You intend to trade up
• You intend to pay a significant lump sum off your mortgage
• You intend to significantly overpay your mortgage

You can overpay a tracker at any time without penalty, but you may face an early repayment penalty if you pay a lump sum off a fixed-rate mortgage. However, some lenders, including Avant and Finance Ireland, allow you to make large overpayments without penalty – and they will waive any break fee if you trade up and take out a new mortgage with them (subject to certain conditions; see this post).

Some AIB mortgage contracts, and maybe some others, allow you to return to your tracker after fixing
In most cases, when you fix, you lose your right to your tracker. But if your mortgage contract is crystal clear, then you could consider fixing. But it must be crystal clear and the margin must be specified, e.g., "At the end of any fixed rate period, you will have the option of returning to the tracker rate specified in Condition..." Get it in writing from your lender that you can return to this actual rate.

Some contracts say "You will be offered a tracker at the then prevailing rate". That is no good to you, as the prevailing margin at that time may well be 3.5%.

Be careful not to spend so much time arguing this with AIB that fixed rates have risen in the meantime.

Ryan said:

Do not ever consider fixing a tracker rate. Ever
Might be some pain in the short term but it’s a long game

Click to expand...

There are threads on this.

It makes perfect sense if you can fix for the entire or near remaining term of your mortgage at a particular rate

In my case I have 5 years and 5 months left.

My tracker is an excellent 0.95% - so 2.2% mortgage from 1st Oct, probably 2.7% 1st Jan and likely 3.45% or more by next June.

ECB is unlikely to return under 1.5% again (they have stated this)

So a 2.4% fixed for virtually the full remaining term made perfect financial sense.

Where it doesn't make sense is if I was subject to svr or follow on fixed rates for many years more.


It also made sense to some that fixed for 10, 15 or 20 years if they got 2.5% or lower and did not have a long period after the fixed rate finished.

Paul F said:

@peemac As pointed out by user @Ashmck in this post, the following webpage contains the fixed rates that KBC offer to customers on a tracker:

Fixed Rate options for Existing Tracker Customers - KBC

www.kbc.ie

• 2-year fixed: 3.90%
• 3-year fixed: 3.95%
• 5-year fixed: 4.00%

R And a borrower will apparently get their tracker rate back at the end of the fixed-rate period (although the borrower would need to confirm that Bank of Ireland are obliged to honour this condition when they take over KBC's mortgages).

Obviously those rates don't make sense for your case but they might actually make sense for someone with an expensive tracker, e.g., a tracker with a rate of ECB + 1.75% or higher.

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They don’t have to. When you enter a fixed rate contract it will likely stipulate that you default to SVR at the end of your fixed period. That’s why I said never fix if you are currently on a tracker

Ryan said:

They don’t have to. When you enter a fixed rate contract it will likely stipulate that you default to SVR at the end of your fixed period.

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These KBC fixed rates are not the same as KBC's regular fixed rates. The webpage explicitly states that if you fix on any of these rates, you will get your tracker rate back afterwards. Of course, you must double check that the contract for the fixed rate really does say this before fixing.

Ryan said:

That’s why I said never fix if you are currently on a tracker

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Yes you did say that and then @peemac and I gave various reasons why your blanket assertion is, well, a blanket assertion.

This is a very interesting point of view by Ryan.

I have been told that some commentators have said the same on the radio but it's clearly wrong.

It's clear that some people with high margins should fix.

For other cases with low margins, it's quite a close call. It's not clear either way.

Brendan

I am already looking forward to several discussions on the topic of 'the bank should have offered me the cheap 5/7/10 year fixed rate back in 2020/21/22 but they didn't and I therefore want compensation' as soon as the ECB rate hits 2%+ and stays there.

Ryan said:

(I have moved these posts from another thread as it raises an important viewpoint which is widely held - Brendan)

Do not ever consider fixing a tracker rate. Ever
Might be some pain in the short term but it’s a long game

Click to expand...

I'm with you Ryan on your viewpoint.

RichInSpirit said:

I'm with you Ryan on your viewpoint.

Click to expand...

Can you expand on your reasons? I'm curious to know what you think about the "keep the tracker versus fix" decision.

Whatever type the bank are offering you and pushing, take the other type.

My perspective on this is changing slightly. There appears to be no end to ECB increases so I wonder if its worth the certainty.

My parents have a tracker and although there’s only around €70k outstanding, todays 0.5% increase is as much as they can handle before things start getting difficult

Ryan said:

My perspective on this is changing slightly. There appears to be no end to ECB increases so I wonder if its worth the certainty.

My parents have a tracker and although there’s only around €70k outstanding, todays 0.5% increase is as much as they can handle before things start getting difficult

Click to expand...

What's their margin?
Why didn't they look at fixing earlier like so many others (including those with trackers) have done?
Are they holding assets/savings that could be used to reduce/repay the loan?
Maybe they should do a Money Makeover post?

Giving up a tracker to fix is less clear now as fixed rates have risen and ECB rates may be peaking today.

Brendan

Brendan Burgess said:

Giving up a tracker to fix is less clear now as fixed rates have risen and ECB rates may be peaking today.

Brendan

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ECB rate peaking today at 2.5%? I don't think so.

The ECB state in their press release today that:

• PRESS RELEASE

Monetary policy decisions​

15 December 2022
The Governing Council today decided to raise the three key ECB interest rates by 50 basis points and, based on the substantial upward revision to the inflation outlook, expects to raise them further. In particular, the Governing Council judges that interest rates will still have to rise significantly at a steady pace to reach levels that are sufficiently restrictive to ensure a timely return of inflation to the 2% medium-term target. Keeping interest rates at restrictive levels will over time reduce inflation by dampening demand and will also guard against the risk of a persistent upward shift in inflation expectations. The Governing Council’s future policy rate decisions will continue to be data-dependent and follow a meeting-by-meeting approach.

Here is another quote:

"The Governing Council decided to raise interest rates today, and expects to raise them significantly further, because inflation remains far too high and is projected to stay above the target for too long."

Hi Protocol

Agree with you. "May be" is a bit strong.

No one can forecast interest rates but they are more likely to rise than fall or even have peaked.

Brendan

ClubMan said:

What's their margin?
Why didn't they look at fixing earlier like so many others (including those with trackers) have done?
Are they holding assets/savings that could be used to reduce/repay the loan?
Maybe they should do a Money Makeover post?

Click to expand...

I think the margin is 1% but not certain. Mortgage is with PTSB.
Wasnt fixed because mortage reverts to SVR at the end of fixed rate.
They have minimal cash savings but house is worth close to €400k so maybe they need to look at downsizing and clearing the mortgage

ClubMan said:

What's their margin?
Why didn't they look at fixing earlier like so many others (including those with trackers) have done?
Are they holding assets/savings that could be used to reduce/repay the loan?
Maybe they should do a Money Makeover post?

Click to expand...

They probably received some advice along the lines of the first post in this thread that led them not to consider fixing.

I think there's still arguments on both sides, but many of the best fixed rates are gone at this point. If you can get a fixed rate for a few years at close to 2% then I would fix for sure.

I think there are still good fixed rates available but they have certainly increased since I started this thread back in May.

Brendan Burgess said:

Giving up a tracker to fix is less clear now as fixed rates have risen and ECB rates may be peaking today.

Brendan

Click to expand...

ECB rates peaking today??? What commentary are you basing that on Brendan? What I've read, there's more increases to go over the next 6 months. The 2.50% ECB rate now is heading towards 3.50 or upto 4.00% by June 2023.