What tracker margin is worth retaining?

[Sarenco]

Interesting discussion on the appropriate criteria/margin to consider retaining a tracker rate.

Stay on track or fix now? The tracker mortgage dilemma

Interest rates are on the increase with more hikes expected from the ECB in the months ahead. Tracker mortgage holders have been bearing the full brunt of the increases. Should they ditch their tracker in favour of a fixed rate or hold steady? The answer, as ever, is not straightforward.

www.rte.ie

 

[Paul F]

I find these numbers dubious.

Indeed. The Moneysherpa figures have been discussed in this thread:

Irish Times article: "Tracker mortgage holders can save by switching"

https://www.irishtimes.com/your-money/2023/01/03/tracker-mortgage-holders-can-save-by-switching-says-consumer-finance-adviser/ Moneysherpa.ie founder Mark Coan said the figure was based on Central Bank data regarding current “average” tracker mortgage rates – the main European Central Bank...

www.askaboutmoney.com

In a second Irish Times article, Dominic Coyle pointed out:

These [€132,000 and has 15 years left] are Central Bank figures so they are not wrong per se but they are not really relevant to tracker mortgage holders coming to terms with significant rising mortgage costs.

Figures available from the Central Bank show that, as of last September, the average outstanding balance on an Irish tracker loan on a family home was just under €81,500.

And given that tracker mortgages were phased out over 14 years ago – the last products were pulled in October 2008 – the average term outstanding on tracker mortgages is certainly below 15 years.

Every case must be looked at separately when making the "keep the tracker or fix" decision. See this thread for further guidelines:

Key Post - Should borrowers with trackers consider fixing? (General guidelines)

It seems increasingly likely that we are going to see a series of rate hikes by the ECB in the near future. According to Philip Lane, ECB chief economist - "I think it’s clear that at some point we’re going to be moving rates, not just once, but over time, in a sequence." If the ECB raise the...

www.askaboutmoney.com

 

[peemac]

Banks tend to have their rates at least 1.5% above ECB, in most cases it's at least 2%.

So any tracker 1.25% or lower is worth hanging on to.

There may be short term gains in other rates, but unless you are fixing for near the full remaining term at 3.5% or less, I'd just stick with any tracker of 1.25% or less.

 

[MrEarl]

Getting back to the question in the title of this thread...

The factors to consider when asking if a Tracker is worth keeping, include:

* Lending margin (lower rates are more likely to be worth keeping)

* Term of debt remaining (the longer the term, the more likely that ECB rates will swing, up and down)

* Size of debt (the bigger the debt, the more the repayments will change, as rates increase or decrease)

 

[skrooge]

Getting back to the question in the title of this thread...

The factors to consider when asking if a Tracker is worth keeping, include:

* Lending margin (lower rates are more likely to be worth keeping)

* Term of debt remaining (the longer the term, the more likely that ECB rates will swing, up and down)

* Size of debt (the bigger the debt, the more the repayments will change, as rates increase or decrease)

I was about to post something similar. The other factor worth considering is who your existing mortgage lender is.

Some mortgage providers (Pepper) don't offer fixed rates. Other lenders may have more or less competitive rates that could change the outcome. For those with smaller balances the cost of changing provider would make it cost prohibitive to switch to another lender. As such the decision becomes more about how attractive your existing lenders rates are.

 

[Brendan Burgess]

Surely the average balance outstanding and the average rate is completely irrelevant? ( update: I have deleted the discussion about what the average balance and the average margin is on a tracker at present.)

What matters to someone facing the decision is the rate they are paying, the term remaining on their mortgage and what rate they can fix at.

It's very difficult to give general advice. When pressed, I say " Every case is different, but as a general rule, keep trackers with a margin under 1%, trackers over 1.5% are not worth keeping, and between 1% and 1.5% is a very close call."

Brendan

 

[Sarenco]

It's very difficult to give general advice. When pressed, I say " Every case is different, but as a general rule, keep trackers with a margin under 1%, trackers over 1.5% are not worth keeping, and between 1% and 1.5% is a very close call."

That sounds like a reasonable rule of thumb to me.

I think if I had a tracker with a margin of 1%+, with less than 10 years remaining on the term, I would seriously consider fixing for at least 5 years.

 

[Brendan Burgess]

OK, I looked at a specific case for a Pepper user and I think it illustrates the point well


Now that the fixed rates have risen, it looks as if someone on a margin of 1% should probably stay on it. When rates were lower, it did make sense in many cases to switch.

Summary facts
Tracker margin: 1%
Mortgage of €170k on a house worth €460k
No intention to overpay
No barriers to switching
Not a high Ber rating.



With the ECB rate at 2.5 %, you are currently paying 3.5%.

The problem is that we don't know how interest rates will go in the medium to long term. Economists have been very poor at forecasting. The ECB rate is more likely to rise than fall in the short term but you have 15 years left on your mortgage.

You can't fix with Pepper, so you would have to switch to another lender.

You have an LTV of <50%

Fixing for a short term e.g. 5 years, is not a good idea, as you would then lose the tracker for the remaining 10 years.

You could fix with Bank of Ireland for 10 years at 3.55%. You would then be vulnerable to Bank of Ireland's exploitative treatment of existing customers for the remaining 8 years. It wouldn't matter too much as your balance will be lower, but then as your balance will be lower, it won't justify switching from BoI to a cheaper rate. But Bank of Ireland is behind the other lenders in this rate cycle and so by the time you get approval, rates may have risen anyway.

If you look at a fair lender like AIB or Avant, for 7 years fixed they are charging 3.95% and 4.05%. I see no point in going to the hassle and expense of switching to them.

So overall, it's a close call, but you are probably better off sticking with your tracker.

Brendan