Beware of rates and charges if moving with tracker
Q. My partner and I bought an apartment with a tracker mortgage. Our home is now in negative equity of €100,000.
We recently had a baby girl and now need to move to a bigger place. We have enough saved to pay the deposit for a new house but not enough to clear the negative equity. I have heard that banks are allowing people to carry their negative equity with them and still keep their tracker rate. We can afford higher monthly repayments and think that this might be a good option for us. Is there anything that we should watch out for?
A. Until recently, most homeowners on a tracker rate mortgage were not able to keep it if they wanted to move. However, some banks are now offering those on such rates who want to move the option to maintain their tracker for the lifetime of their existing mortgage or for a set period of time.
Consider the affordability of any new mortgage now and in the future. Ask the bank to explain what portion will be on the tracker rate and the impact this will have on your repayments. The bank may apply a margin of about 1pc on the existing tracker rate if you move, which will mean repayments on your mortgage amount will rise. You should also ask how long the new rate will last.
Some banks may allow you to keep it for the lifetime of your existing mortgage whereas other providers will only allow you to avail of it for a set period of time, after which your repayments will rise.
It is very important to note that the tracker rate the new bank is offering you will usually only apply to the amount of your existing mortgage, so you will be charged a variable or fixed rate on any new amount greater than your existing mortgage. Other conditions may be that you have to be an existing customer of the bank to qualify for some of these products. And, you will still need about 10pc of the purchase price for any new property as a deposit.
Make sure you look carefully at your mortgage protection insurance policy or life assurance policy. Also, check that you can comfortably meet repayments now and in the future if interest rates increase.
Siobhán Howe works with the National Consumer Agency. firstname.lastname@example.org