When it makes sound financial sense to fix your mortgage
Published 21/02/2010 | 05:00
New 30-year mortgage of €250,000 with AIB Save between €2,718 and €3,222 by fixing
LET'S say you borrow just over 80 per cent of the home's value, so you'd get a standard variable rate of 2.65 per cent -- which is currently cheaper than AIB's three-year fixed rate of 3.19 per cent and its five-year fixed rate of 3.86 per cent.
The monthly repayments under AIB's standard variable rate work out at €1,007, compared to €1,080 under the three-year fixed rate, and €1,172 under the five-year fixed rate.
If you take the standard variable rate today and AIB increases that rate by 1 per cent in the next six months, this would lift your rate to 3.65 per cent -- and your monthly repayment to €1,144. If the ECB also raises rates by 1 per cent over the next 18 months, your interest rate climbs to 4.65 per cent -- a monthly repayment of €1,289.
However, had you opted for a three-year fixed rate today, monthly repayments would have stayed the same and you'd have paid €3,222 less in repayments over the next three years than you would have under the standard variable rate. Had you opted for the five-year fixed rate instead of the standard variable, you'd have saved €2,718.
New €100,000 mortgage with Permanent TSB Save at least €3,648 by fixing
IF you're a new Permo TSB customer who is borrowing less than half the value of your home, it would make sense to fix your mortgage for five years as you'll qualify for a five-year fixed rate of 3.7 per cent -- cheaper than the 4 per cent variable rate that will be offered to you.
Furthermore, if that variable rate increased to 5 per cent after a year into a €100,000 mortgage, you'd pay €76 a month more in repayments than you would under the five-year fixed rate of 3.7 per cent, according to Karl Deeter of Irish Mortgage Brokers. This adds up to an extra €912 mortgage repayments a year, which means you'll save at least €3,648 under the five-year fixed rate. It's what they call a no-brainer.