Is the fixed rate on your mortgage expiring this year?

Thousands of these mortgage holders are in for a potentially nasty shock over the coming year as interests rates change

If you have a fixed-rate mortgage which ends this year, you need to start planning now.

The European Central Bank (ECB) has been raising interest rates steadily since July 2022. Anyone with a tracker will be only too aware of the 4.50 percentage points that have been tacked on to their monthly repayments over that time.

And, as Daragh Cassidy of independent price comparison and switching site Bonkers.ie points out, those on variable rates or who have recently taken out a mortgage for the first time will have noticed the big hike in interest rates too.

Mortgage customers who have been on a fixed rate for the past few years, however, will have been shielded from the rate hikes, and many will be enjoying rates of about 3% or less.

But thousands of these mortgage holders are in for a potentially nasty shock over the coming year when their current fixed rate ends and they are faced with much higher rates. If you're one of these fixed-rate mortgage holders, you need to start planning now.

“At the moment the cheapest rate in the entire market is 3.65%, which is a fixed rate on offer from Haven and Bank of Ireland. This compares to rates as low as 1.90% which were on offer at the start of 2022,” Mr Cassidy said.

Note, however, this is a ‘green’ rate. To secure it, your home must have an A or B energy rating. Also, Bank of Ireland only offers this rate to new customers.

Rates available

The best rate available to most existing mortgage holders who are coming to the end of their fixed rate will be at least 4% or more. So if you’re currently paying a rate of less than 4%, you need to be prepared to face an increase in your mortgage repayments.

To illustrate, if you have €250,000 remaining on your mortgage over 25 years and are currently paying a rate of 2.50%, your monthly mortgage payment would go up by about €270 a month if you ended up on a rate of 4.50%. So it’s a big hike.

“By law, 60 days before your fixed rate is due to expire, your lender must write out to you to inform you of your options and the new rates available to you… However this isn’t a huge amount of time," Mr Cassidy said. 

"And it’s not really enough time if you’d like to switch your mortgage to another lender. Ideally you should be planning what to do around three to four months in advance of your fixed rate ending.”

Darragh Cassidy of Bonkers.ie said it’s unlikely banks will pass on any rate cuts immediately.

If you’re not sure when your fixed rate is about to end, Mr Cassidy suggests you contact your lender as soon as possible and ask them. While you’re at it, ask them how much you owe on your mortgage and how many years are remaining. And ask them what rates they’re currently offering existing customers.

“That way you can research the options available to you in advance of getting your rate options letter or at least start budgeting for potentially higher repayments now.”

So what happens when you come to the end of your fixed rate?

You’re first option is to simply roll over onto your current lender’s standard variable rate. That’s what will happen if you take no action. Being a variable rate, this rate could then go up or down over the following years.

Avoid default option

It’s an option that many people end up doing either because they don’t read their rate options letter properly or they simply ignore it. The problem is that some lenders' standard variable rates can be very high — higher even than their fixed rates — so it’s mostly worthwhile avoiding this default path.

You also have the option to lock into a new fixed rate with your existing lender. Depending on who they are, you may have the choice of choosing a new fixed-rate period of 10 years or more. PTSB, however, only offers up to seven years.

“As the name suggests, a fixed rate won’t change for the duration of the term. So if you choose a new five-year fixed rate, for example, you have the peace of mind and certainty in knowing that your mortgage payments won’t change for another five years. But it also means that if interest rates fall over the coming years, you won’t benefit from the fall either.”

Shop around

Note too the fixed rates your lender offers you may not be as good as the fixed rates it’s offering new customers, or as good as the rates that are available elsewhere. That’s why it’s also important to consider shopping around. Which brings us to your next option, switch to a new lender.

At the moment Bank of Ireland is offering a four-year fixed rate of 3.95% to new customers who are borrowing at least €250,000. However the cheapest fixed rate it offers its existing customers is 4.15%.

In the same way you shop around when you get your car insurance renewal, it’s also a good idea to shop around when you get your rate options letter as there may be better value out there.

For example, at the moment Bank of Ireland is offering a four-year fixed rate of 3.95% to new customers who are borrowing at least €250,000. However the cheapest fixed rate it offers its existing customers is 4.15%.

Daragh Cassidy again: “If you have at least 30% equity in your home and switch to Avant Money, you could get a rate of 3.90%. And if you have over 50% equity in your home, you could get a rate of 3.75% if you moved to AIB. So it can certainly pay to shop around and look at switching lender.”

Not everyone has the option to switch of course. If your financial circumstances have changed for the worse since you first took out your mortgage, or you've taken on new borrowings, or even had more children, you may not be approved for a mortgage switch. There are legal fees of up to about €1,500 you’ll have to pay, though the banks do offer cash-back sweeteners to switchers in order to reduce that bill.

The wait-and-see option

The other option is to wait and see. It’s highly likely the ECB will start cutting interest rates at some point over the summer. Tracker customers will benefit almost immediately from any rate cuts. But for everyone else, it’s less clear.

Mr Cassidy points out the main banks have passed on less than half of the ECB rate hikes so far to their non-tracker customers. So it’s unlikely they’ll pass on any rate cuts immediately. It could be several more months, or even into 2025 before they reduce their mortgage rates.

This is why it may make sense to choose a variable rate for now, then lock into a new fixed rate sometime next year if rates have come down. There is no cost in moving from a variable rate to a fixed rate, and you are free to do so at any time.

Whatever you decide, it’s always a good idea to take advice so that someone with the right training and experience can talk you through the options.