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Why are fixed-rate mortgages on the rise?

Mark Whelan

Mark Whelan

Staff Writer

An increasing number of mortgage borrowers are opting for fixed rates over variable rates, but are fixed rates the best option for house-hunters in the current low interest rate environment?

The number of fixed-rate mortgages in Ireland has been steadily increasing since the beginning of 2015.

In fact, over 60% of new mortgages here are now fixed, but are they the best option for prospective buyers at the moment?

What is a fixed rate mortgage?

A fixed-rate mortgage is a home loan that has the same interest rate every year for an agreed period of time.

In Ireland, the maximum length of time for which an interest rate can be fixed is 10 years, but in other EU countries, some rates can be fixed for the lifetime of the mortgage.

What are the advantages of a fixed-rate mortgage?

Fixed-rate mortgages bring certainty, and that can be worth a lot to many house-hunters.

Mortgage repayments tend to be the biggest monthly outgoing for most households and knowing exactly what you’re going to be paying every month can bring peace of mind and really help with budgeting.

What are the risks associated with fixed-rate mortgages?

If you lock yourself into a fixed rate for say, 10 years, there is a chance that interest rates could fall over that time, leaving you stuck paying more than you otherwise would have.

Another drawback of a fixed-rate mortgage is that you may be hit with penalty fees if you want to increase your monthly repayments at any stage. Also, if you receive a lump sum and want to use it to knock a chunk off your mortgage you may be charged an "additional funding fee" for doing so. These fees don’t apply to variable-rate mortgages though.

Similarly, you may be charged a "breakage fee" if you switch banks or switch to a variable rate with your existing bank.

Basically, if you’re committing to a fixed rate, it may only be worth it if you’re happy to stick to that rate and repayment for the agreed term.

What are the best fixed interest rates available?

Let’s say you’re a first-time buyer, looking to purchase a house for €300,000 and you have the 10% deposit (€30,000) the Central Bank requires you to have. You therefore need a mortgage of €270,000, meaning you have a loan-to-value of 90%.

Here's a table with the best 3-year fixed rates for first-time buyers with an LTV of 90%, borrowing €270,000 over 30 years:

KBC 2.65%* €1,088.00 25% off home insurance
Ulster Bank 2.90%* €1,116.60 €1,500 towards legal fees
EBS 3.00% €1,138.33 2% cashback
Bank of Ireland 3.00% €1,138.33 Up to 3% cashback
Permanent TSB 3.15% €1,160.29 2% cashback

*Only available to customers who have a current account with the bank.

And here's a table with the best 10-year fixed rates for first-time buyers with an LTV 90%, borrowing €270,000:

Bank of Ireland 3.50% €1,212.42 Up to 3% cashback
KBC 3.75%* €1,250.41 25% off home insurance

*Only available to customers who have a current account with the bank.

How do the best fixed rates compare to the best variable rates?

To continue with our example of a first-time buyer with an LTV of 90% purchasing a house for €300,000; the best variable rate available for this type of mortgage is 3.15%, which is currently being offered by AIB and Haven.

Over a 30-year term, your monthly repayment would be €1,160.29, but that rate could go up or down at any time.

With Bank of Ireland's 10-year 3.50% fixed rate, your monthly repayment would be €1,212.42 for the fixed term.

So, you would be paying an extra €52.13 every month on the fixed rate, which is an extra €625.26 over the course of a year, but you would have the peace of mind that your payments wouldn’t change. Well, for 10 years at least.

However, if you chose the option of a fixed-rate over three years, you'd pay €1,088.00 a month with KBC, or €72.29 a month less. So you'd get the peace of mind of a fixed rate for three years AND a lower monthly repayment.   

Why are borrowers opting for fixed-rate mortgages?

The Irish housing market has been through a remarkably volatile and unpredictable period, and many believe we're still years away from reliable stability. This could explain why more and more borrowers are opting for the certainty of fixed-rate mortgages.

In Europe, over 80% of mortgages are fixed, so it could also be the case that Irish mortgage holders are simply following what's always been the norm elsewhere in Europe. 

Another reason could be the recent pricing of fixed-rate mortgages by Irish banks. Fixed rates are usually higher than variable rates; the trade-off for the slightly higher rate initially is that you know it's not going to change for a period of time. 

In recent times in Ireland, however, some of the best rates on offer have actually been fixed rates, which is unusual by international standards. As a result fixed-rate mortgage holders are getting peace of mind, stability, and better value, so it's unsurprising that more and more people are choosing a fixed-rate. 

To fix or to vary?

Taking out a mortgage can be a very stressful and nerve-wracking time. Choosing a fixed rate or a variable rate is one of a number key decisions you’ll make when buying a home and it’s important to have all of the information available before committing.

Irish property prices and global interest rate trends are notoriously difficult to predict, but by knowing the value you place on certainty and peace of mind, you will be in a good position to decide whether you should fix or vary your repayment rate.

You can compare fixed rates and variable rates on now.

Thinking of switching mortgage lenders to get a better rate? Check out this video:


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