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Don't let your bank talk you into switching from a tracker to variable rate

Under no circumstances should Martin allow his bank to persuade or cajole him into switching to a standard variable-rate mortgage. With his current tracker mortgage Martin will pay a total of €99,000 interest over the lifetime of his loan.

By comparison on AIB and Bank of Ireland's standard variable rate of 3.5pc he would pay €185,000 in interest over the life of his mortgage. That's a difference of €86,000.

In practice the actual difference would almost certainly be even greater. While AIB and Bank of Ireland's variable mortgage rate is "only" 3.5pc (for AIB customers this rate applies where the loan exceeds 80pc of the value of the house), Permanent TSB, the country's other major mortgage lender charges a variable rate of 5.19pc.

With all of the banks paying 5pc or more for wholesale funding, they will need to charge higher mortgage interest rates.

This means that, unless there is an enormous change in sentiment towards the Irish banks, the variable mortgage interest rates charged by the other banks will over time be raised closer to the rates currently being charged by Permanent TSB.

A homeowner on the Permo's standard variable interest rate is currently repaying €1,645 a month.

That translates into total interest payments of more than €292,000 over the life of the mortgage.

In other words, if Martin were to switch from his current fixed-rate mortgage deal to Permanent TSB's standard variable rate mortgage he would pay up to €193,000 more in interest over the life of the loan.

For a homeowner on a €300,000 35-year mortgage the interest gap between a tracker and a standard variable rate is even wider.

A homeowner on a tracker of ECB plus 1pc would pay €994 per month or €117,500 interest over the life of the loan.

For someone on the AIB/Bank of Ireland rate the monthly repayments rise to €1,240 or €220,000 in interest and for a homeowner paying the Permo's standard variable rate the monthly repayments are a towering €1,551 per month, which works out at €351,000 in interest over 35 years.

While the ECB is likely to raise its official interest rate at its council meeting this week, any increase in ECB rates is likely to be matched by an increase in the standard variable rates being charged by the Irish lenders so that the interest payments gap between tracker mortgages and variable-rate mortgages will probably remain unchanged.

So what should Martin do? By my calculations, on a 30-year €300,000 loan he would need to have the sum outstanding on his mortgage cut by over 17.75pc to just €246.750 in order to keep his monthly repayments unchanged if he switched to either the AIB or Bank of Ireland standard variable rate and by almost 33pc to a mere €202,000 if he were to switch to the Permo rate.

On a 35-year €300,000 mortgage it would require a 20pc cut in the amount outstanding to €240,000 to keep the monthly repayments unchanged if the homeowners switched from an ECB plus 1pc tracker to either the AIB or Bank of Ireland standard variable rate and a massive 36pc cut to just €192,500 if he were to switch to the Permo standard variable rate.

With his lender banned from forcing him to switch to a standard variable-rate mortgage even if he does get into financial difficulties, Martin should only be prepared to switch if his banks is prepared to write down the value of the loan sufficiently to keep his monthly repayments unchanged.

Mobile phone insurance used to be one of the great wastes of money. With mobile phones cheap, it almost never made sense to insure them.

However, iPhones, which can cost up to €700 to replace, are a different kettle of fish.

It currently costs between €12 and €15 a month, €150 to €180 per year, to insure an iPhone.

My advice would be insure it for the first year and review your options after that.


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