When will mortgage rates rise… and should I ditch my tracker?

Mortgage rates are set to go up, adding even more fuel to the inflationary fire.

But when? By how much? And exactly how much will this mean to our pocket?

‘I believe it is more likely to start happening in the last quarter of 2022 and a 0.25% increase will be the start,’ predicted mortgage broker Michael Dowling, of Dowling Financial.

‘Rates could rise by 1% by end 2023, which is not good news for 300,000 tracker mortgage holders and 175,000 variable-rate customers,’ he said.

Over a decade ago mortgage rate changes were so frequent that most brokers and personal finance journalists like myself knew them off by heart – and kept a table handy to show what each quarter point cut meant.

Now, it’s been so long since interest rates went up that the aul mortgage hike tables are nowhere to be found and I had to start a new one from scratch using handy comparison tables from Bonkers. ie.

As you can see, a quarter percent hike would add €33 to an average new mortgage, which is manageable. But by the time we get to 1%, that €121 a month really adds up. And an inflationary spiral could even force higher increases.

Even the much-envied tracker mortgage holders are no longer safe and are running for the security offered by a fixed-rate loan. ‘In recent months we have seen a steady increase in tracker-rate mortgage holders enquiring about long-term fixed rates, fearing that future interest rate rises could wipe out the benefit of their lowmargin trackers,’ said Joey Sheahan of mymortgages.ie, author of The Mortgage Coach. A borrower that has €300,000 outstanding on a tracker rate of 1%, with 20 years remaining, would have to pay €816 extra per year with every half percent increase, he said.

So what should we do? Mr Dowling has no doubt.

‘My strong advice is to switch to long-term fixed rates 10 years or more as there are greater flexibilities with long-term fixed rates now.’

Another tip is to pay off your mortgage. I know that sounds counter-intuitive, if not downright painful, but it makes a lot of sense financially to use savings for this purpose (after paying off credit card and other debts, of course).