With fixed rates currently on offer sometimes at or below variable rates, now may be a good time to fix particularly given the current global uncertainty in all markets.
For example, although the average interest rate on new mortgages in Ireland is currently 3.56% percent, this compares to mortgage rates in the US of over 6.1%.
Is A Small Change In Interest Rates Really That Expensive?
YES, particularly as it must normally be paid from your after-tax salary. For example, every 1% change in interest Rates on a €350,000 mortgage will result in higher payments of approx. €3,500 a year or approximately €7,000 in pre-tax income you will have to find.
But I Thought The ECB Sets The Interest Rates?
They do but ECB rates mainly affect short-term rates (variable mortgages,)
Bond yields (mainly German) affect long-term rates (fixed mortgages). That is why you may see movement in Fixed mortgage rates even though the ECB have made no changes.
As a more recent example, Japanese bonds hit their highest rates since 1999.
What Is A Fixed Rate Mortgage?
With a fixed rate as opposed to a variable rate mortgage
- Protection from rate rises: No matter what happens to variable rates, your interest rate stays the same for a set period (e.g., 1-30 years).
- Payment certainty: Your monthly payment doesn’t change during the fixed term.
How Long Should I Fix For?
This really depends on how long you intend to stay in the property as it is expensive to break a fixed rate mortgage. With 30-year fixed rates now available in the Irish mortgage, there are great options for homeowners by shopping around. Some borrowers opt for a split Fixed/ variable mortgage allowing them to pay down the variable part of their mortgage early with no penalties should their circumstances change.
Summary
As mortgage repayments are one of the largest costs for the Irish homeowner and are paid from after-tax income, prudent financial planning would indicate that one should consider eliminating the uncertainty of the repayment amount on the household finances.
