Thousands of people who have taken out fixed-interest rate home loans over the past year can still benefit from the new variable rates of under 4 per cent.
Customers of AIB, Bank of Ireland, Irish Permanent and National Irish Bank should be able to redeem their fixed loans and swop into the new low variable rates free of charge. This option to switch applies to anyone who is on a fixed rate at a cost below that which now applies to these loans, after the recent increase in fixed-rate costs.
For example: a mortgage holder's current fixed rate is 4.65 per cent; the term remaining of the original fixed-rate period is 32 months; current three-year fixed rate is 5.10 per cent. Redemption penalty is zero as the rate the financial institution can lend the funds back at over the remaining fixed-rate period is higher than the account rate.
Many of Ulster Bank's customers are in the same position. Customers of ICS, First Active and EBS are in a less fortunate position. These institutions all charge three or six months' interest and the penalties can be very high.
The news will be welcomed by consumers, many of whom felt they had locked into short-term fixed rates at the wrong time. Those on longer-term fixed rates of three years or more are probably still in a good position and over the longer run may prefer to benefit from peace of mind, as well as being protected from future interest rate increases.
However, those on the very short-term fixed rates are missing out on the latest moves in the market. While interest rates may be on the way back up next year, they would have to rise quite considerably to make up the extent of the cuts over the past weeks.
Thousands of people have one and two-year fixed-rate loans at around 5 per cent. By switching into the variable rate they can save considerable amounts. For example, someone with a mortgage of £75,000 over 20 years on a two-year fixed rate of 5.1 per cent would be paying around £499 a month. If they were to swop to 3.99 per cent that would fall to £453, a saving of £46 a month. Those with larger mortgages would save proportionately more.
One option for someone on a large mortgage could be to keep some of the loan at the fixed rate and take advantage of the low variable rates with the rest.
Borrowers should also remember the reason that they fixed in the first place. Variable loans do not suit everyone and paying a little more can be worth it for peace of mind. Those who would find a rate rise difficult should also think twice about switching into variable rate loans.
If the fixed rate you are paying is above current fixed rates, the option to switch will not apply and so people who took out loans before last year are unlikely to be able to avail of this.
The main banks charge borrowers a penalty which depends on the amount it costs them. Because fixed rates have been rising in recent months they are now more expensive than they were a few months ago and the lenders can lend the money on again at a higher rate. A spokesman for Bank of Ireland confirmed that customers who have taken out fixed rates this year are probably in a position to come out of the loan without penalty.
"It is worth their while checking with us to see the position," he said. "It could be good news for customers."
