Brendan Burgess
Founder
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Some lenders are offering their customers cheaper fixed rates instead of offering them fair variable mortgage rates. Fixed rates are hugely beneficial to the lenders. They lock you into that lender for the period of the fix and they reduce the public pressure for fair variable mortgage rates.
Some of the time, people who fix their mortgage save money as a result, but most of the time, they lose money as a result of fixing and some of the time, they lose a lot of money.
In general, when fixed rates are below the variable rates, it's because the lenders expect the variable rates to fall. That might not be true of the Irish market today. They may be encouraging people to fix to be seen to be responding to the Minister's pressure, and to take lock in the borrowers.
While no one can be 100% sure, the most likely answer today, June 2015, is that you should not fix for a period of over one year at any rate above 3%. If you can't switch lender, the decision is more complicated - check out this Key Post
I can't switch lenders - should I fix?
Even at fixed rates of 3.6%, they are still way above what is being charged across the Eurozone. The Fair Mortgage Rates Campaign will press for all rates to be reduced further, so if you fix at 3.6%, and fixed rates are later brought down to 3%, you will be stuck paying 3.6% when you might have been able to fix for a longer term at a lower rate.
Interest rate forecasting is very unreliable and interest rates could rise, rather than fall. But on balance, a fall is much more likely in the short term.
In the longer term, rates will probably rise as the ECB rate rises but that seems to be some way off.
If you are paying a high variable mortgage rate, you may be able to bring this rate down by switching lender.
Some Bank of Ireland customers who are paying 4.5% are tempted to fix at 3.6% because they are saving 0.9%. But they could get the same savings by switching to KBC at 3.6% variable and still keep their options open of switching again if rates fall further.
Before switching, ask your current lender for a lower variable rate.
You might not even have to switch lender to get a cheaper variable rate. If you threaten to switch, your lender may give you a cheaper variable rate to retain your business. At present, only Bank of Ireland is doing this, but it’s worth asking your bank anyway. If they lose a lot of customers due to their refusal to treat existing customers well, they will change their policy.
If you do decide that you want to fix immediately, then see if another lender has a cheaper fixed rate.
If you have a low loan to value, a low loan to income ratio and a clean credit record, you will be able to switch lenders. Don’t automatically stick with your current lender. Check to see if the benefits of switching to a cheaper lender will outweigh the costs of moving. As of June 2015, all the lenders were charging similar fixed rates so unless you have a very big mortgage, the saving from switching lenders to fix your rate would not justify the cost.
Fixed rates for all lenders
If you do decide that you want to fix immediately, fix for as short a period as possible.
If you fix for 5 years, you will be stuck with your current lender for 5 years and will not be able to benefit from any future falls in mortgage rates. If you fix for just one year, you may get a cheaper rate immediately and you will be free to switch lender after the year is up.
Remember: If you fix, you will not be able to overpay your mortgage or pay off lump-sums without penalty.
If you have a variable rate mortgage, you can overpay without penalty at any time. With very high mortgage rates, this is by far the best place for any excess income or savings you might have.
If you fix your interest rate, you will not be able to pay lump sums off your mortgage without a penalty.
Some lenders may allow you to make overpayments of up to 10% per year to a fixed rate mortgage.
Remember: If you fix, and you later want to move home, you will have to pay an early repayment penalty.
If you want to sell your home while you still have a fixed rate mortgage, you will have to pay a penalty for breaking the fixed term early. This is another reason for not fixing for any period over a year.
If you decide to switch lenders check out this Key Post:
How to evaluate the decision to switch lenders
Some of the time, people who fix their mortgage save money as a result, but most of the time, they lose money as a result of fixing and some of the time, they lose a lot of money.
In general, when fixed rates are below the variable rates, it's because the lenders expect the variable rates to fall. That might not be true of the Irish market today. They may be encouraging people to fix to be seen to be responding to the Minister's pressure, and to take lock in the borrowers.
While no one can be 100% sure, the most likely answer today, June 2015, is that you should not fix for a period of over one year at any rate above 3%. If you can't switch lender, the decision is more complicated - check out this Key Post
I can't switch lenders - should I fix?
Even at fixed rates of 3.6%, they are still way above what is being charged across the Eurozone. The Fair Mortgage Rates Campaign will press for all rates to be reduced further, so if you fix at 3.6%, and fixed rates are later brought down to 3%, you will be stuck paying 3.6% when you might have been able to fix for a longer term at a lower rate.
Interest rate forecasting is very unreliable and interest rates could rise, rather than fall. But on balance, a fall is much more likely in the short term.
In the longer term, rates will probably rise as the ECB rate rises but that seems to be some way off.
If you are paying a high variable mortgage rate, you may be able to bring this rate down by switching lender.
Some Bank of Ireland customers who are paying 4.5% are tempted to fix at 3.6% because they are saving 0.9%. But they could get the same savings by switching to KBC at 3.6% variable and still keep their options open of switching again if rates fall further.
Before switching, ask your current lender for a lower variable rate.
You might not even have to switch lender to get a cheaper variable rate. If you threaten to switch, your lender may give you a cheaper variable rate to retain your business. At present, only Bank of Ireland is doing this, but it’s worth asking your bank anyway. If they lose a lot of customers due to their refusal to treat existing customers well, they will change their policy.
If you do decide that you want to fix immediately, then see if another lender has a cheaper fixed rate.
If you have a low loan to value, a low loan to income ratio and a clean credit record, you will be able to switch lenders. Don’t automatically stick with your current lender. Check to see if the benefits of switching to a cheaper lender will outweigh the costs of moving. As of June 2015, all the lenders were charging similar fixed rates so unless you have a very big mortgage, the saving from switching lenders to fix your rate would not justify the cost.
Fixed rates for all lenders
If you do decide that you want to fix immediately, fix for as short a period as possible.
If you fix for 5 years, you will be stuck with your current lender for 5 years and will not be able to benefit from any future falls in mortgage rates. If you fix for just one year, you may get a cheaper rate immediately and you will be free to switch lender after the year is up.
Remember: If you fix, you will not be able to overpay your mortgage or pay off lump-sums without penalty.
If you have a variable rate mortgage, you can overpay without penalty at any time. With very high mortgage rates, this is by far the best place for any excess income or savings you might have.
If you fix your interest rate, you will not be able to pay lump sums off your mortgage without a penalty.
Some lenders may allow you to make overpayments of up to 10% per year to a fixed rate mortgage.
Remember: If you fix, and you later want to move home, you will have to pay an early repayment penalty.
If you want to sell your home while you still have a fixed rate mortgage, you will have to pay a penalty for breaking the fixed term early. This is another reason for not fixing for any period over a year.
If you decide to switch lenders check out this Key Post:
How to evaluate the decision to switch lenders
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