Downsizing a mortgage with equity

[micheller]

I've been mulling this over for months now, and wanted to open it for discussion in case I might pick up some pertinant points.

Our only property is our PPR, and we are lucky enough to have equity of value vs. mortgage, due to a combination of a good start and paying it down at a rate of knots.
We have an ECB+.75% rate tracker and 13 years left.
Our repayments are manageable and we love our home, it is on the tiny size but this doesn't matter a lot to us.

We have 3 children and I am wondering if we should use the combination of a small amount of equity+ a falling market to our advantage, to try to leap a step up on the ladder in terms of space. This is the only thing that I can see us outgrowing here.
However, we could lose our tracker as AIB are not doing a portable product yet and I have a bit of better the devil you know about this property as we built it ourselves.

The positives calling to me are more space, and perhaps a smaller mortgage for what we would get.

Opinions?

 

[Brendan Burgess]

Hi Michelle

I am a bit confused here. Could you give us some numbers as it would make it much easier to understand.

Are you saying that you can sell your home for, say, €300k and buy a bigger one for less - say €250k?

How much is actually left on your mortgage? If the mortgage is €100,000; you are paying 2% less as it's a tracker. That is a saving of €2k a year. But this will reduce as you are repaying the capital. On the other hand, it might increase if AIB increases their SVR. If the mortgage is €300k, you would be paying an extra €6,000 a year.

My gut feeling is that you should stay in the house you like with a cheap tracker mortgage for as long as possible. When you have to move, in say 3 years, you will have even more equity as you will have paid off more capital (assuming prices don't fall by more than the capital you repay). As there will be only 11 years left on the tracker, you won't be giving up that much.

It is possible that AIB might do a deal on trackers at some stage. So by waiting, you are giving yourself a chance to gain from any such deal.

Brendan

 

[micheller]

There is a max. of 50k equity which I thought could be put to good use at this time in trading up whilst reducing mortgage cost.

However when you see the figures per year for the tracker, it confirms my thoughts on staying where we are alongside not introducing any risk, and we are very risk averse.
Another thing to think about is that if AIB trackers are moved to IBRC with a possible write down, that is worth something to us in this scenario, in which case it would compound it being a bad idea to move now.