Tag Archives | mortgage payments

What have you done with your ECB interest rate windfall of up to €8000 in two years?

At the end of February last, the ECB announced that they were leaving interest rates at their historical low of 1%.

I first wrote about this “ECB interest rate windfall” back in November 2008 when, at that point in time, certain mortgage holders were up to €150 per month better off because of cuts in ECB rates.

My question at the time was what were mortgage holders who were benefiting from these rate cuts going to do with their money:

How’s your “rainy day” savings looking? Or are you planning a big Christmas and going to need a bit extra? Do you need to pay down other debts – credit cards, car loans, etc? Or could you overpay on your mortgage to reduce the term?

And yes, I appreciate that this article is limited to anyone who has a tracker mortgage in particular. However, the key thing was:

Whatever you do, don’t let this welcome extra money to be assimilated into your day to day spending. This money should be seen as a bonus, and should be treated differently to your “normal money” – make sure you get a decent longer term benefit from it.

Then, in May 2009, rates were cut again to the 1% rate they remain at now.

Depending on the size of your mortgage, you’re now paying between €5,000 and €8000 better off because of reduced monthly payments.

Where’s that money gone? Do you have any of it saved, or have other higher expenses and a higher tax take taken it all?

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Should I fix my mortgage rate now?

ECB interest rates have dropped to a historic low of 1% as of this week. Anyone on a tracker or variable rate mortgage will have benefitted to the tune of up to €500 or €600 a month in reduced mortgage repayments.

With these low rates, is it time to lock in your mortgage rate now to benefit from lower rates in the longer term? This would insulate you against any interest rate rises in the coming years – your payments would be unchanged no matter what the ECB does.

The newspapers and airwaves are currently full of commentators telling us that given that rates “will never be so low” we should think about fixing our mortgage rates now. But remember, some of these commentators are the people who told us back in March 2007:

HOUSEHOLDERS struggling to cope with rising mortgage repayments face further crippling interest rate hikes. The spectre of further increases comes as new figures show that house-price growth has ground to a shuddering halt. Financial analysts predict that European Central Bank rates will rise to 4pc in June. That would leave borrowing costs at double the level of 18 months ago, knocking tens of thousands of euro off the prices first-time buyers can pay. But some economists think 4pc will not be the peak, after news that money supply grew at the fastest rate in 17 years in the 13 countries which share the euro.

Rates didn’t go much above 4% after that, and have fallen steadily since.

The point I’m trying to get across is that what you do now is dependent on so many outside factors that it’s almost a pure gamble on what to do now.

And therefore, coming to a decision now is pretty much exactly the same situation that people were in back in 2006 and 2007 when they read and listened to all the commentary out there and decided to fix their mortgages for 3 or 5 years, and who are now complaining about the fact that they’re not getting the benefits of falling interest rates.

So what of the advice to fix now? Well, if you fix now, you’ll pay a little more now for the privilege of getting a fixed rate, but if interest rates go up, you’ll eventually begin to benefit since you’re repayments won’t increase.

But what if the recession lasts longer than anyone expects – given that it’s arrived when many “experts” didn’t expect it at all, and others didn’t expect it to be as harsh as it is. What if the ECB needs to keep rates at 1% for a significant period of time? What if they found that they had to drop rates even further, to 0.75% or 0.5%? In these situations, you’ll end up paying more in your repayments than you are now, and you’ll end up bleating about being caught in a fixed rate mortgage the same as many are at the moment.

Your mortgage is anything from €100,000 to €500,000 or even more. Making any decisions now based on what people are saying on the radio or writing the newspapers, as has been shown in the past, is a complete lottery.

Think long and hard about what you want to do. Speak to some independent professionals. Consider your personal monetary situation and how much you’re paying now versus what you can afford to pay in the future and how that would look if rates when up, went down, or stayed the same and if your income changed dramatically up, or more likely down.

Then make your decision. And when you do, if it doesn’t go the way you like, remember that there’s only one person to blame if it doesn’t go the way you want or expect. You!

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Mortgage rate drops again – where’s your extra cash?

This week saw the ECB rate drop again. Falling by 0.25%, it’s now at its lowest level ever at 1% only.

If you’re on a fixed rate mortgage, you can stop reading now. Sorry, but you won’t enjoy this at all.

Home owners on tracker mortgages and most variable rate mortgages will now be anything from €300 to €500 per month better off because of the drop in mortgage repayments.

So, since rates started falling 7 months ago, you will have saved anything between €2000 and €4000 in total.

What have you done with that money?

Still have it? Tucked away in a savings account for a rainy day? Or spent without really noticing?

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What to do with your mortgage rate reduction bonus?

Irish News of the World

Sunday March 22nd, 2009

Diarmuid MacShane

What to do with your mortgage rate reduction bonus?

One of the better financial news stories over the past few months has been the massive drop in interest rates. The fall in the ECB interest rates has meant that a lot of us have a lot more money in our pockets recently.

Since October 2008, because of the global financial difficulaties, the European Central Bank has slashed interest rates by 2.75% – the last 0.5% drop was in March of this year.

For those with variable or tracker rate mortgages that’s a drop of 60% in the cost of our mortgage repayments – you won’t see too many discounts like that anywhere else.

If you’re on an average size mortgage, all these drops mean that you’ve got over €500 extra each month. That’s a sizeable €6000 per year. And it’s not expected to be the end of it either – it’s thought that there will be another rate cut in May if things don’t get much better before then.

But what are you doing with all that extra cash? I hope you’re not just letting it sit in your bank account where it’s getting slowly spent each month, or even just earning 0.1% interest like most current accounts pay out?

With these tough times upon us at the moment, now is the time to make the best use of that extra cash so that things will be a little easier between now and when things pick up again.

So what should you be doing? In the following order, here are a few things to think about.

Pay off expensive debt first.

While you might think that you could start paying off your mortgage first, remember that it’s only costing you between 3 and 5 or 6%. If you have outstanding balances on your credit card it could be costing you anything up to 24% interest.

Use your extra mortgage money every month to start paying off your credit card bill. By cutting this expensive debt, you’re getting the double benefit of reducing that debt, but also potentially freeing up even more cash every month for yourself.

If you’ve borrowed from a money lender, then this is a debt that you should definitely pay off completely with your extra cash as soon as you can. Interest rates from money lenders, even legitimate ones, will normally be up to 23% and sometimes more. Save yourself the future hassle and clear down this debt.

Pay off personal loans

Next on your hit list should be to pay off any personal loans that you may have. These bank loans are likely to be the next most expensive borrowings that you have – anything up to 14% at the moment. Your overdraft would fit into this same bracket as well – overdrafts can cost anywhere from 9-15%.

Remember though – check the terms of your loans to see if there are any penalties for paying them off early – this is most likely on fixed interest loans. If the charge isn’t too much and you think it’s worth while, clear down these personal loans as early as you can also.

Any more debts?

Do you owe anyone else any more? The credit union? Subs from work? Or do you owe your family or friends any money? See about using your extra cash to clear these debts as well. No one likes having debts hanging over you when it comes to family and friends, so it’ll be in everyones interest to pay these off too.

What comes next?

If you’re now in the happy situation where your higher cost debts are gone, or mostly under control, what happens now?

Well, first of all you should review if, or how, you’re going to borrow in the future. It’s always said that the easiest way to get money from a bank is to prove that you don’t actually need it in the first place.

With your debts under control, maybe now you could apply for a lower rate credit card, or a lower rate overdraft? AIB and Bank Of Ireland now offer credit card rates of 8.5% and 9.5% for qualifying customers – much less than the standard market rate. And National Irish Bank offer some customers an overdraft rate of less than 9%.

Now pay off the mortgage?

I would suggest one final thing to examine before starting to pay off your mortgage. Check out what your upcoming expenses for the rest of the year will be?

What will you spend your money on that you would normally be borrowing for? This could be a holiday in the summer, a car service and NCT, some DIY and garden expenses in the summer, or even back to school expenses for the kids in September – even Christmas.

If you still have a little cash left over – from your mortgage bonus, and reduced repayments on your other loans – maybe you could start to save a little so that you don’t end up going back into debt?

The range of regular savings accounts is still pretty good at the moment, though the falling interest rates mean that some aren’t as attractive as they used to be. Anglo Irish Bank has an account paying 7.3%, and Bank of Ireland has one paying 7%. Some regular savings accounts have minimum monthly amounts ranging from €1 to €100 depending on the institution.

Finally, pay down your mortgage early

Once you’ve the rest of your debt covered, you can now look to overpaying your mortgage repayments. If you chose this option, make sure you clarify (in writing if possible) with your bank that any overpayments are to be knocked of your principle loan amount. There have been cases where disagreements have arisen over this, and the customer can lose out if they’re not clear on their requirements.

There is a huge attraction to paying off your mortgage early. Say you have €200,000 mortgage for 20 years at 4.5%. If you overpay by about €100 each month, you could save yourself up to €15,000 in interest payments and cut your mortgage by nearly 2 ½ years.

But this is really only best done once you’ve addressed your other higher costing debt first!

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It will save you €1,000’s

Irish News of the World

Sunday January 25th, 2009

Diarmuid MacShane

Save Money. Don’t just “Not Spend”

Some of our biggest monthly expenses have decreased over the past couple of months.

Some people could be up to €200 per month better off because of ECB mortgage rate cuts. Monthly petrol costs have gone down by as much as €60 as well. And many of our shops are cutting prices to try to attract our custom.

What are you doing with the money you’re not spending? Maybe the extra money is just sitting in your bank account, gradually being used up on other expenses?

Or are you making the effort to actually save that money? ValueIreland.com suggests that you set up a separate savings account somewhere (if you don’t already have one) and redirect the money that you’re not spending.

Even better to totally resist the temptation to spend this small monthly bonus, set up a direct debit for the €260 or whatever you’re not spending, and move it to your savings account immediately after you’re paid. Out of sight, out of mind!

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