Fixed and Variable Mortgages Compared

Approximately 70% of all Irish mortgages are classified as variable.

Most mortgage holders in general have therefore chosen to take advantage of lower variable rates than opting for the safety and slightly higher rates on longer term fixed rate products. With interest rates creeping up and with the variation between variable and fixed rates being quite small there is certainly a reasonable case for adding a degree of certainty to repayments by fixing a certain element of a new mortgage.

In addition, when consolidating debt as part of a remortgage one should certainly consider fixing an element of the new mortgage over a short time frame to eliminate the payment of long term interest bills on refinanced short term debt.

As a general rule, when it comes to remortgages the mortgage term should be kept as short as possible. It is nice to have an end in site when you can look forward to no debt repayments on your family home. Despite the fact that the house will tend to continue to increase in value this is really an intangible benefit as long as you intend living there.

Fixed Rate Mortgages

If you need certainty into the future in regard to your mortgage repayments you should fix your mortgage for a specified period. This certainty comes at a price which is the difference between a variable or tracker rate repayment and a fixed rate repayment.

Your mortgage advisor will advise you of the alternatives and the cost of the various options. Much depends on your risk profile, the level of the mortgage and your income.

Future mortgage rates are uncertain and whilst rates have crept up recently they still remain low when compared to the United States or UK markets thus adding to the wisdom of giving due consideration to fixed rate options.

When fixing rates close attention should be given to the options available to you after the expiry of the fixed rate period. Traditionally rates that are not refixed move to expensive variable rates and one should seek clear clarification on the options. In general, moving from a fixed to a tracker rate after the expiry of the fixed rate period as opposed to moving to a variable rate will yield savings. Having said this, tracker rates will come under increasing pressure as banks are unable to fund their own borrowing at ECB level.

Should you wish to cancel your mortgage agreement, (for the purposes of moving house for example), then you may incur a penalty for breaking a fixed rate contract. Once again it is important at the outset to have clarification as to the costs of breaking a fixed rate contract. An advantage of a fixed rate mortgage is that you are able to budget for the next X amount of years and your repayments will not increase during this time.

Use our mortgage repayment calculator to compare your mortgage repayments under varying interest rate options

Variable Rate Mortgages

If mortgage rates are reducing or expected to stabilise then a variable rate is generally the best option. Tracker rate mortgages are a relatively new variable rate option. These mortgages operate by fixing a set margin over the European Central Bank base rate for the period of the mortgage (eg euribor plus 1%). It is possible to switch from your tracker to a fixed rate should you so require. With a tracker or variable rate mortgage your mortgage repayments will rise or fall in line with interest rate movements on the market