With ECB rates still at an all time low – and with hints of a possible rise on the way because of EU inflation – is now a good time to fix your mortgage rate ?
Variable mortgage rates are still as low as as they have ever been – and some of the lowest fixed rate mortgages are looking attractive if you can get them.
If you are already with AIB on a variable rate mortgage – it should be just a matter of asking to go on to the fixed rate. There should be no fees to switch from variable to fixed with the same lender . Fixing your rate is not definitely going to be a better option for all borrowers – especially those already on a low variable rate or tracker rate.
If you need to switch lenders to get a good fixed rate – it might be more difficult and costly. Most lenders will only lend up to 92% of the value of the property – so if the value of your house has fallen a lot – you may not be able to switch to a new lender.
Switching lenders will also involve legal fees and valuation fees – which could come to around €1000. So you need to work out if the savings you hope to make will be more than these costs.
Bank of Ireland have a 5 year fixed rate of 3.99% and they will contribute upto €750 towards switchers legal fees. Your loan must be at least €150,000 and switched in directly through Bank of Ireland. I.e – don’t go through a broker) (Legal fees apply on loans drawn down on or before 31/03/10 ) This €750 can be taken back if you move from BOI within 5 years.
If you are on a variable mortgage or a tracker which is currently over 4% – then it could make good financial sense to switch to the BOI 5 year fixed rate of 3.99% or even the 3 year fixed rate of 3.39%. Your repayments would be lower straight away. Variable mortgages are more likely to rise than fall – so you should be better off over the length of the fix – and you will have peace of mind with steady repayments.
If your variable rate is currently over 4% – switching to a lower variable rate instead of a fixed rate would also make a lot of sense. See the lowest variable rates here
If you are already on one of the lower variable rates – i.e below 2.75% – it is not going to be as easy to decide whether to fix or not. Mortgage brokers are putting out press releases and reports to tell people that they should fix their mortgage rates now before it’s too late. Maybe the brokers just want the extra commissions that could be made if people come to them to arrange the new loans?
Fixing mortgage rates to save money is a gamble that may or may not pay off over the length of the fixed rate period. It all depends how much variable rates rise and how fast they rise.
Moving from a 2.5% variable to a 3.99% fixed rate would result in an initial rise in repayments of about €190 a month on a € 250K loan. For that switch to show a “profit” – over the 5 years you would need variable rates to rise to around 5% within 3 years. It could happen – but it could also easily end up costing you more than staying on the variable rate.
Any legal fees involved in switching lenders will also put a fairly big dent in any “savings” to be made. If you can afford the legal fees and the extra €190 a month to start with – why not put that money into a savings account, stay on the variable rate and then use those savings to pay off some of the mortgage in a couple of years?
Another option to consider is to fix half of your mortgage and keep the other half on a variable rate . (Hedge your bets). Many lenders will allow this.