As a homeowner, one of the biggest financial decisions you’ll make is choosing the right mortgage repayment strategy. When you have multiple mortgage loans, you may be wondering whether you should prioritize paying off your tracker mortgage or your variable mortgage first. Both mortgage types have their benefits and drawbacks, and the decision you make could affect your financial future. In this article, we’ll explore the differences between tracker and variable mortgages and help you determine which one you should focus on paying down first.
I currently have two mortgages. The larger mortgage is on a tracker at a rate of 1.1 over ECB, while the smaller mortgage from a later renovation is on a variable rate of 3.25, which is actually cheaper than the tracker. I have recently come into some money and always planned to pay off the smaller variable mortgage, but now I am unsure which mortgage I should put the extra funds towards. While logic suggests that banks will increase interest rates as rates rise, Irish banks have not been doing so since the ECB started raising its interest rates from zero last July. Tracker mortgages have risen, while fixed rates have also increased, but not by the same amount as ECB rates. Bank of Ireland has been extremely reluctant to raise its variable mortgage rates, which are still the same as they were back in July last year. However, companies padding out their profits have contributed to stubbornly high inflation rates, so it is unlikely that banks will deliberately shun the prospect of profit in a rising interest rate environment. While recent events have further muddied the waters, the outcome is likely to be rates rising more slowly to a lower cycle peak than previously predicted, and variable rates may eventually rise to make up for any shortfall in anticipated profit levels. It’s difficult to predict the future, and there are many ifs, buts, and maybes. Ultimately, I have no greater insight into what will happen over the next year than anyone else.
In conclusion, the decision between which mortgage to pay down first ultimately depends on your individual financial circumstances and goals. If you prioritize stability and consistency in your monthly payments, a fixed-rate mortgage with a higher interest rate might be the way to go. However, if you’re comfortable with taking on a bit of risk and potentially saving money in the long run, a tracker or variable mortgage with a lower interest rate may be more appealing. It’s always best to consult with a financial advisor or mortgage broker to determine the best course of action for your specific situation. Regardless of which mortgage you choose to pay down first, be sure to continually evaluate your financial situation and adjust your strategy as needed to reach your financial goals.
