What goes up must come down, as the saying goes, but that may not hold true regarding mortgage interest rates.
The fact is that nobody can predict the trajectory of future mortgage interest rates with any degree of certainty. Pic: Colin Keegan
In the last 12 months, the European Central Bank has increased its marginal lending rate from almost zero to 4.25%. Anyone with a tracker mortgage has felt the full brunt of this, with thousands added to their annual mortgage repayments.
More pain is also coming for those on variable rates and those coming to the end of their fixed mortgage rates.
Tracker mortgage customers with a mortgage of €200,000 over 20 years have seen their mortgage repayments jump by €384 per month, or €4,608 per year. That is a huge chunk of change for a middle-income family, or any family indeed, that is already reeling from spiralling inflation, which has caused day-to-day living costs to rise dramatically during the same period.
The burning question for many customers is if they should continue to sit tight and wait for rates to come down again.
It is a tricky question to answer. Some analysts are saying that rates will continue to rise and then hopefully level off or start to fall again in 2025. It is a guessing game to ascertain how much further interest rates will spike and when they will start to fall again.
What goes up must come down, as the saying goes, but that may not hold true regarding mortgage interest rates.
Mortgage rates may perhaps never return to near zero again and maybe they will never stay as low for such a prolonged period again. It is possible the ECB rate will not fall below 3% for the next 10 years or more. This would mean most tracker mortgages, which are now above 5%, would stay at least above 4% into the future.
This seems crazy. However, according to Money Guide Ireland, the average mortgage interest rate in Ireland over the last 30 years up to 2021 was 5.38%. So, are mortgage interest rates just returning to normal levels after an historically low period for mortgage interest rates?
The fact of the matter is that nobody can predict the trajectory of future mortgage interest rates with any degree of certainty. In the face of this uncertainty, it is important that tracker mortgage holders look at their options.
Stick or twist?
The two choices for these customers are either to stick with the tracker mortgage and hope rates drop again soon, or get a new fixed rate mortgage. You can check with your existing lender and look at options with other mortgage providers.
There is also the third option of winning the Lotto and paying the damn thing off.
There are, of course, pros and cons with the first two options.
Anyone with a tracker mortgage is already 10 to 15 years into their mortgage term and may have only a small mortgage balance left. Staying put might be the best option. Central bankers have indicated that mortgage rates will increase further, but if you think you can afford further increases in the short- to medium-term, then waiting it out might be the best option for you.
On the other hand, let us consider tracker mortgage homeowners who have a larger mortgage balance and or those who are already pushed to the pin of their collar and are vulnerable to further increases.
Checking out your options and making an informed decision may be the best option for you. The good news is that there are still some good options, but the window of opportunity is closing as rates increase. Fixed mortgage interest rates under 4% are still available and you can fix for up to 30 years with one mortgage lender. So, it might be possible for you to lower your monthly repayments now and gain the security of a fixed mortgage rate.
Also, with some mortgage lenders you can retain the flexibility to make overpayments without any fixed rate penalties. So, if you have extra cash in the years ahead, you could still clear the mortgage sooner and save on interest.
As mortgage interest rates look set to continue to rise for the near future, and given the complexities involved in navigating mortgage interest rates, I would advise anyone to seek professional advice.
- Stephen Hamilton wrote this article on the Irish Examiner website.
