THE move by AIB to hike its mortgage rates by a combined 1pc will mean the repayments gap between trackers and variables will widen to €54,000 over the life of the loans.
The taxpayer bailed-out bank is hiking its variable rate by 0.5pc next month after a similar rise last month, in a move that opposition politicians said would push up arrears.
Repayments on a €200,000 variable rate mortgage will shoot up by €120 a month to €1,222 in total.
But those on a typical tracker rate, set at 1pc over the European Central Bank rate, will be repaying just €988 a month.
"It is neither fair nor reasonable to continue to increase the differential between the tracker interest rate and the variable interest rate," the deputy said.
He added that the Government indicated some time ago that tracker mortgages could be moved to the Irish Banking Resolution Corporation (IBRC) as part of the overall restructuring of the Irish banking sector.
Such a move would improve the overall funding position of the banks and could relieve some of the pressure from variable rate customers, Mr McGrath said.
AIB's standard variable and loan-to-value rates for residential mortgage holders are going up by 0.5pc on November 13, along with buy-to-let rates.
Owner-occupiers will see their standard variable mortgage cost increase from 3.5pc to 4pc.
Around 70,000 homeowners are set to be impacted by the latest rise in the variable rate.
The bank, which has been given €21.5bn from the State, said its variable rate would still be the lowest in the market. Earlier this week AIB made a €1bn bond repayment, despite having to be rescued by taxpayers.
The move by AIB comes after Bank of Ireland and ICS Building Society said their variable rates are to increase by 0.5pc next month.
Mr McGrath said the rate rises by AIB, Bank of Ireland and ICS would push up arrears levels. Around one in 10 of AIB's residential mortgage customers are in arrears.
The ECB meets again today but is not expected to cut rates on this occasion.