Your guide to trading up on a tracker mortgage
AIB and Permanent TSB have recently announced products which allows people with tracker mortgages to move home and keep their tracker, although with an increased interest rate.
This raises a number of interesting issues for their borrowers.
Permanent TSB details the terms and conditions in a 46-page brochure and these are used to illustrate the examples given here. It is assumed that the AIB product will have similar terms.
Q: I am in mortgage arrears – what do these new products do for me?
A: Nothing. The tracker portability products exclude borrowers who have been in arrears or who have rescheduled their mortgages in recent years.
Q: I am in positive equity and want to trade up – how do these products work?
A: Let’s say you have a house worth €300,000 and a mortgage of €200,000 which is on a tracker interest rate of 1pc (ECB + 0.75pc). You want to buy a house for €400,000.
If you have the salary to justify it,
your lender will lend you an additional €100,000 at their new business rate. You can transfer the €200,000 tracker.
The rate on this will increase to 2pc (ECB + 1.75pc). Your repayments will rise from €900 a month at present to around €1,600 a month in total.
Q: I am in negative equity and want to trade up – how will it work for me?
A: Let’s say you have a house worth €200,000 and a mortgage of €300,000 which is on a tracker interest rate of 1pc (ECB + 0.75pc). You want to buy a house for €300,000.
As you are in negative equity, you will need to have €30,000 cash as a deposit.
The bank will transfer the tracker mortgage of €300,000 and increase the rate to 2pc (ECB + 1.75pc). They will give you a new mortgage of €70,000 at a variable rate of 5.1pc – the rate they charge on mortgages over 90pc Loan to Value.
You will have a total mortgage of €370,000 on a house worth €300,000.
Your repayments will go up from €1,400 a month at present to around €2,000 a month in total. If you have sufficient earnings you will be approved for the new mortgage.
Q: While our house is a bit small for our needs, we could wait a year or two before trading up. Should we trade up now or wait a year or two?
A: The repayments on a tracker of €300,000 are only €1,400 a month and €1,150 of this is repayment of capital. So not only are your total repayments very low, but you are also paying down the mortgage much more quickly than you would be on a larger mortgage at a higher interest rate.
So the longer you stay in your house, the more you save.
If you expect house prices in your area to fall or to remain at the current levels, you would be better off waiting.
There are two other factors which might encourage you to trade up now if you can.
Firstly, your lender may withdraw the product or make it less generous.
Ulster Bank has already made its tracker mover less generous since they first introduced it. Secondly, if your personal circumstances change, you may no longer meet the lending criteria.
Q: We don’t qualify for this at the moment but we might qualify in a year or two. What can we do in the meantime?
A: This product is not available to anyone who has been in arrears or who has had their mortgage rescheduled.
Many people have taken advantage of low interest rates to overpay their mortgage. This is a huge mistake.
Do not overpay your mortgage. If you are in negative equity you will need 10pc of the purchase price of the new house. If you have positive equity and overpay your mortgage, you will be borrowing this money back at new business rate.
If you are thinking of renting out your current home and renting elsewhere, don’t. This product only applies to the family home.
If you are thinking of changing jobs, bear in mind that it might reduce your chances of getting a mortgage.
- Brendan Burgess is the founder of the consumer website askaboutmoney.com
Permanent TSB mover tracker
- Family home only
- You must have 10pc of the purchase price of the new property (can come from equity in existing home)
- You transfer the full existing mortgage to the new home but rate is increased by 1pc
- Term stays the same for existing tracker; term for the additional mortgage may be longer
- If you need an additional mortgage, it will be at new business variable rates
- Must buy within 6 months of selling