Latest News

find out more information about Sherry FitzGerald Rainey

Should I take a fixed rate or variable mortgage?

money calculator

One of the most frequently asked questions anyone seeking finance to purchase a property in Donegal will ask is “should I opt for a fixed rate or variable rate mortgage?”

Both come with pros and cons and there is no definitive answer as to which is best – each individual case will have its own best options.

Fixed rates
Fixed rate mortgages have interest charged at a fixed rate for a specified period of time – for example, two or three years – and afford borrowers a certain peace of mind.

Consider the fixed rate as something akin to an insurance policy that protects the borrower from fluctuations in interest rates over the course of the specified time.

Borrowers know exactly what their monthly repayments will be and can budget accordingly.

However, a fixed rate mortgage allows little flexibility and you cannot pay lump sums off your borrowing or increase your payments without facing penalties.

Variable Rates
With a variable rate, repayments can go up and down over the course of the mortgage, depending on the interest rate set by the financial institutions at their discretion.

Generally variable rates are cheaper than fixed and you have the flexibility of adding lump sums or increasing your payments.

However, the disadvantage is that your repayments can increase over the course of the mortgage unlike the stability and reliability of the fixed rate. They can of course also decrease over the course of the mortgage.

Some lenders further offer a twin interest rate with a proportion of your mortgage on a fixed rate and the rest on a variable rate.

Current fixed rate mortgages comparison
The following rates are based on an example of buying a property valued at €150,000, with a deposit of €15,000, and repayments of 20 years, and are correct as of April 10, 2017.

Ulster Bank currently offers a three year rate of 3.4% and a five-year rate of 3.6%.

At Bank of Ireland and KBC the three-year rate is 3.45% while for five years it’s at 3.55%

For a three-year fixed rate Permanent TSB offer 3.6%, AIB and EBS 3.65% while for five years these rise to 3.75%, and 3.8% respectively.

Only Ulster Bank and Bank of Ireland offer a fixed rate for longer than five years. At Ulster Bank you can get a fixed rate of 3.99% on a seven-year term, while Bank of Ireland’s ten-year offer has a rate of 4.2%

Current variable rate mortgages comparison
Using the same example as above, AIB and KBC (only for existing current account holders) offer the best variable rate of 3.5%, followed by EBS, Ulster Bank and KBC at 3.7%.

Many mortgage lenders also now offer enticements such as discounts on home insurance or cash back. At Bank of Ireland, new customers get up to 3% cashback, Permanent TSB offer 2% for new customers, while EBS offers the same deal to switchers.

At Ulster Bank there’s €1500 towards legal fees for all new customers while KBC and AIB both give switchers €2000 towards legal fees.

Sherry Fitzgerald Rainey is not a mortgage advisor. For assistance with your mortgage please talk to your mortgage advisor.

If you are thinking of selling or buying residential or commercial property in Donegal or want to benefit from a free property appraisal, please get in touch today by calling 074 91 22211, emailing property@sfr.ie or messaging us on Facebook @sherryfitzgeraldrainey .