Sunday 22 April 2018

Homeowners on variable mortgage rates need to fix soon to avoid higher repayments

Homeowners with a variable-rate mortgage have some big decisions to make in the coming months. Eurozone interest rates are on the rise. It may not happen this year, but it is pretty certain that European Central Bank rates will rise next year. Photo: Stock Image
Homeowners with a variable-rate mortgage have some big decisions to make in the coming months. Eurozone interest rates are on the rise. It may not happen this year, but it is pretty certain that European Central Bank rates will rise next year. Photo: Stock Image
Charlie Weston

Charlie Weston

Homeowners with a variable-rate mortgage have some big decisions to make in the coming months. Eurozone interest rates are on the rise. It may not happen this year, but it is pretty certain that European Central Bank rates will rise next year.

The turbulence in global stock markets is being caused by investors trying to work out exactly when interest rates will rise.

Interest rates internationally are at record lows, but rising rates will impact on the value of stock market investments.

Take it as a given that your repayments will rise if you are on a variable or a tracker. Interest rates will probably rise gradually, but rise they will. This should act as a warning for the more than 300,000 people on variable rates in this country.

People on tracker mortgages can expect to pay more, but their interest rates tend to be set at a lower level than those on variables. Tracker people should obviously not fix.

Take a family on a €300,000 mortgage being repaid over 20 years. If the rates go from 3.7pc to 4.7pc it means repayments will shoot up by €160 a month.

Over a year that is close to €2,000 in additional repayments.

People on tracker mortgages pay a rate linked to the main European Central Bank refinancing rate.

If the main ECB rate rises from 0pc at present to 1pc it will add €50 a month to the cost of servicing each €100,000 borrowed, assuming it is a 30-year mortgage term.

It is almost impossible to time interest rate movements, either at ECB or individual bank level. But people on variable rates would be wise to act soon to lock into a fixed rate to avoid getting hit with higher payments.

If you leave that decision too long, the relatively low fixed rates we have at the moment will have crept up.

Go online to the website of the Competition and Consumer Protection Commission, at ConsumerHelp.ie, and run the numbers on its mortgage calculator.

Plug in the amount you have left to pay, and the interest rate on your mortgage currently, along with the number of years left on the loan. Then do the same exercise again, but at higher interest rates.

If increased rates put your household finances under strain, then you need to consider opting for your bank's fixed rate.

If you are unsure of what to do you could opt to hedge your bets. Consider fixing half of the mortgage and leaving the other half on a variable rate.

That way you would have some certainty on repayments on a portion of the loan, and have the flexibility that comes with having the other half on a variable rate.

Sunday Indo Business

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