Article by Loans Ireland, information and advice on loans in Ireland.

There are 2 types of mortgage contracts: tracker and fixed. A fixed mortgage breaks down the sum that needs to be repaid into equal monthly rates. On the other hand, a tracker mortgage comes with unequal monthly rates that depend on a number of financial factors like the inflation rate and the interest rate for loans given between banks.

There are quite a lot of people in Ireland who have fixed mortgages. Some of them have now the possibility to get their mortgage on trackers. This will reduce their monthly payments at least in the short term.

Frank Conway, from MoneyCoach.ie, tells us more about this situation: “A few years back fixed rate mortgages became popular as inflation was soaring and interest rates were gathering pace.”

During the past 3 years, oil prices increased, food became more expensive and inflation soared. Given these economic uncertainties: “Irish people generally look for a safe bet so began to lock into their mortgages for about three to five years.” This means that people who borrowed money to buy houses didn’t want to have their monthly payments skyrocket just because of the global economic uncertainties. A fixed rate offered them certainty.

About 3000 to 6000 people living in Ireland signed a fixed mortgage contract that can be also reversed. You can find out if you are one of them just by reading your mortgage contract or by asking your broker. Read carefully the terms and conditions, Conway tells us: “The loan will not automatically revert to a tracker so people should check their terms and conditions. It is important to be thorough and not leave it to the last minute.”

How much can you save by reverting your contract to trackers? Let’s take a mortgage of €250.000 as an example. A fixed mortgage of this value comes with a monthly rate of €1.266. And a mortgage with trackers comes with a variable monthly rate of €988.

It’s important to understand that the €988 tracker rate tells you just what you have to pay this month. The same rate can go from €988 to €1500 in less than a year. Or it can go to even less. Educate yourself about how the variable rate is calculated. Know all the factors that can influence it. In this way, you may be able to predict how it’s going to evolve if for example a double-dip recession is coming.

An important factor that influences the tracker rate is the ECB’s (European Central Bank) base lending rate. ECB prints euros and loans them to the banks. The lower the base lending rate, the cheaper is for the bank to borrow money from ECB. This in turn lowers the mortgage repayment rate for mortgage borrowers.

Article by Loans Ireland, independent loans website in Ireland.