Mortgage Interest Rates - to fix or not to fix?

This is the eternal dilemma of the modern mortgage shopper, since no one can ever be sure what is going to happen to interest rates.  Many leading economists predict small but steady rises over the next 12 months, while others see rates leveling out over this time.  The bottom line for you is whether or not you are willing or indeed able to take a risk.

If you expect interest rates to rise, you may want to go for a fixed-rate mortgage, so that you keep paying the same rate regardless of what happens to the European Central Bank base rate. But if you set your rate when it turns out rates had reached their highest point for some time, then while borrowers around you enjoy cheaper borrowing, you will be paying a higher rate.

It therefore makes sense to match your decision to your lifestyle and your needs, while keeping possible interest rate movements in mind, rather than the other way around. Fixed rate mortgages offer the security of knowing what your repayments will be each month for the next few years. If you are the sort of borrower who is stretched to their limit already, you ought not to be taking a gamble on rates.

However, this comes at a cost, as fixed rates tend to be higher than variable rates. Fixed rates depend not just on the European Central Bank interest rate, but on something known as the swap rate, determined by what the money markets think will happen to the interest rate.

Ironically this means that just as a seems to make the most sense, they start to become more expensive. And just as it looks like rates are likely to fall again, fixed rates become more competitive.

If you do decide to fix, you'll need to settle on the length of time you need to fix for. Mortgage advisers say the most popular terms for fixed rate mortgages are two, three and five years. Dermot Gildea, director at Mortgage Plus, says: “Most borrowers should steer clear of fixes longer than five years as they can't be sure what will be happening in their life much beyond this timeframe.”

“It's well worth looking at three and five-year fixes because their rates are closer than ever. You no longer have to pay extra for longer peace of mind.”
It may also appeal to those who don't like the idea of having to switch mortgage every couple of years to get the best deals. However, there are still those for whom shorter fixes will be worthwhile. In addition Gildea advises clients to think about whether they are likely to need to move within the next few years and switch mortgages, which could mean paying an early redemption penalty.
If you decide against fixing altogether, there are a variety of variable deals on offer. The lowest-price deals tend to be for discounted tracker mortgages. Which offer rates linked to the ECB base rate, but will rise if the base rate rises. Discounted products can appeal to some first-time buyers who need to find money to buy furniture, for example, and want to keep initial payments as low as possible.

If the possibility of future rises still worries you, you can opt for a capped rate. Gildea explains: “You get the best of both worlds with a Capped Mortgage: the reassurance that your repayments won't be higher than a certain level, but the scope to come down if the base rate falls.”

The decision remains a tricky one, but the good news is whether you jump one way for a fix or a capped rate, or the other for a tracker, you cannot go too far wrong, because changes in interest rates at the moment tend to be small and slow. Interest rates have become more settled and move around within a far narrower band than they did in the 1990s when they shifted between 5% and 14% within a few years!

So, whatever changes happen they don't tend to come too thick and fast. So while your predicament is likely to be interesting, you're unlikely to be left feeling cursed.

Whilst a qualified mortgage broker cannot predict the future, they can give informed, expert opinion on the current market and help you make a decision looking at the whole picture. Mortgage Plus are a good example.  They offer mortgage products from 13 different lenders and the variety of mortgage products has never been greater.  It really is worth looking closely at the entire market to ensure you find a product that suits your current circumstances.  Dermot Gildea can be contacted on 01-624 6321 or at dermot@mortgageplus.ie

We currently opperate in the following areas - Carlow Clare Cork Dublin Galaway Kerry Kildare Kilkenny Laois Limerick Louth Meath Offlay Tipperary Waterford Westmeath Wexford Wicklow

Types Of Rates: Discount Variable Rate - Fixed rate - Split Rate - Tracker Rate - Variable Rate

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