Fixed interest rates have been on the slide yet again in recent weeks to the point where homeowners could be forgiven for thinking that now is the time to lock in the rate they are paying over a two or three-year term.
The best two-year fixed-rate, available from Permanent TSB, has a rate of just 3.15 per cent, with Royal Bank of Scotland stable-mates Ulster Bank and First Active next in line with a two-year rate of 3.29 per cent.
National Irish Bank (NIB) has the best of the three-year fixes with a rate of 3.35 per cent. Many homeowners are paying standard variable or variable tracker rates that are higher than these rates, although for many the best variable rate available to them on a standalone basis (with no obligation to sign up to other financial products) was 3.1 per cent.
This variable interest rate, available from several lenders, is open to borrowers with a loan that is between 60 and 92 per cent of the value of their property, and at least €200,000 in size. (For loans below this size, Ulster Bank is the best option with a rate of 3.15 per cent.)
Lower interest rates again are available to people with lower loan-to-value (LTV) ratios. The variable rates mentioned above are variable tracker rates. This means that they "track" the European Central Bank (ECB) base interest rate and go up and down in tandem with it.
The ECB rate has stubbornly remained at 2 per cent for over two years. But if there were to be even a quarter-point rise in the rate sometime over the next two years, variable tracker rates could end up leapfrogging the best of the two-year rates. A half-point rise would quickly leave NIB's current three-year fix offer looking like a good idea. This is the trouble with fixing your mortgage rate: it is usually only ever a good or bad idea in hindsight.
For the best part of last year, all signs pointed toward the ECB lifting its base rate off the historic low of 2 per cent. But it didn't happen, meaning anyone who opted for a two-year fixed rate at the start of 2004 (at higher rates than those available now) is likely to end up paying higher repayments and clock up a greater total interest bill than their variable rate counterparts.
So while even fixed-rate sceptics are acknowledging that now could indeed be that magic time to fix, caution is always advisable.
There are three main reasons why people fix their interest rates rather than exposing themselves to the variable rate market. First-time buyers feel that the one-year fixed rate discounts offered by most lenders are too good to pass up. People following a tight household budget want the security of knowing their monthly repayments will be at a set level for a certain amount of time.
And the third reason people opt for fixed rates is because they think they can save money in interest by doing so. In most cases, the longer the fix, the bigger the gamble.Ten-year fixed rates, very much a minority interest among private borrowers, currently start at 4.39 per cent. By selecting a 10-year fix, the borrower is ultimately betting that lending rates will be around 1.25-1.5 per cent higher on average over the period than they are at the moment. To achieve an average variable rate of more than 4.39 per cent, the ECB, and in turn Irish lenders, would have to make a series of rate increases over the course of the next 10 years, prompted by a variety of economic and geopolitical factors. Who can predict that?
