Blog – David McCarthy, Galway Talks – 04/07/2013

galway-bayfmIssue:   Certain banks have corresponded with borrowers, who have a Tracker Mortgage, suggesting a voluntary increase in their monthly repayments.

Comment: If you are lucky enough to be in a position where you can increase the repayments on your mortgage then in the longer term you will benefit from the reduction in the amount of interest you pay over the life of the loan.  This would apply to any type of borrowing.

The problem with formulizing an increase in your monthly repayment with the lender, is that you will have to renegotiate the terms with them, if you want to reduce your repayments at some stage in the future. The best way to address this, is to make occasional once off payments and continue with your normal monthly repayments.

Issue: “ Gold looses its shine”

Comment:  I have been warning, on this blog for a number of years now, in relation to investing in not just gold but any form of commodity.  Commodities are a high risk investment and gold is no different.

This idea that gold is a “safe haven” and will protect you, is delusional!  For example if you had invested in gold during 2012, the market price at that time was in the region of $1800 to $2000 an ounce, it stands at less than $1300.  What a lot of people do not realize is that there are multiple factors which influence the price of gold, not just volatility on investment markets.

Question:  I’ve been offered a fixed rate on my mortgage, what is your opinion on where home loan rates are going?

Answer:  The main issue you need to consider with regard to fixing the interest rate on your mortgage, is the outlook for variable rates.  As we have seen over the last couple of years, Irish banks have been constantly increasing the variable rate in order to increase their interest income.  This obviously has been bad news for borrowers. 

Your decision should be based on whether or not they will reduce their variable rate in the coming years.  This issue has nothing to do with the ECB rate.  It is my opinion that any major reversal in variable rates, will only occur when competition re-enters the Irish market and that seems to be some years away.

I would recommend that you consider fixing for either a period of 2 or 3 years.

Question:  Do you think it’s a good time to invest in US Dollars?

Answer:  I would never recommend for anyone to invest in currencies, due to the risk factors involved.  As with Gold, the currency markets are only for the very “savvy” investor.