Take pain of fixed rate now ‘for savings in the long term’

HOMEOWNERS are being told they may save in the long-run if they fix their mortgage rate now — despite an initial increase in monthly repayments.

Member of the Trusted Adviser Group, Kevin McNerney said he would advise mortgage holders to review their current repayment terms taking into consideration the recent announcement by the European Central Bank (ECB), which signals rate increases are on the way.

“All borrowers who are currently on a standard variable should certainly explore the options open to them with regards to fixing their mortgage. It very much depends on the bank they are with and whether or not it would be worth their while fixing,” he said.

A homeowner with AIB could be on a variable rate of 3.49% and could get a three year fixed rate for 3.89%. On a mortgage of €250,000 over 25 years this would be an increase in their monthly repayment of €53. They could also look at a five year fixed at 4.39% which would increase their repayments by €123 per month.

“This may seem like a big jump but the chances are they will be paying a lot higher in the coming years any way so it could end up being a small price to pay in the short term for the peace of mind that comes with it,” said Mr McNerney.

He said the rates offered by Permanent TSB are not as appealing as they are with AIB. PTSB offers a two-year fixed rate of 7.25% which on a mortgage of €250,000 over25 years would see their repayments increase by €398 per month compared with the variable rate.A five-year fixed rate of 8.75% would see their repayments increase by €645 per month.

The mortgage expert believes if someone can get a good three or five-year fixed rate which is 1% to 1.5% above their current variable rate then it’s worth considering, if they can afford the rise.

The ECB is expected to announce an interest rate increase of at least 0.25% in the months to come, with further increases expected before the end of 2011.

“This, coupled with the state of the banks and their need to increase revenues by targeting variable rate holders, means the only way is up for rates in the foreseeable future.

“It’s not all doom and gloom though because if a mortgage holder can secure a good fixed rate now, there is a good chance they could break even, or better save some money over the fixed rate period they go for,” said Mr McNerney.

He added fixing a mortgage rate is a “big decision” and should only be entered into once all considerations have been taken into account.

“For those who find a fixed rate option is available there are still some factors that should be taken into account. Firstly, there are ‘redemption fees’ involved for paying off a mortgage early or for making a lump sum payment on a mortgage that is on a fixed rate.

“Therefore, if you think you would like to sell your house in the next two to three years then it would not be advisable to take out a five-year fixed rate. These redemption fees can be around €2,000, depending on the mortgage and the rate,” he said.