With many economists predicting that official interest rates in the euro zone will start to rise from next year, more and more borrowers are wondering if now is the time to fix their mortgage rates.
Those on variable rates have reaped enormous benefits from the sharp fall in the mortgage rates on offer over the last year and a half. But observers of the economic scene believe that we have reached the bottom of the cycle and the next move in rates will be upwards.
"With the German economy improving and signs of an upturn in the European economy generally, rates are likely to start to rise," says Marian Finnegan, economist with estate agents Sherry FitzGerald. "It probably won't happen this year but we could see a rise next year."
Ms Finnegan believes that now is an exceptionally good time to fix as fixed interest rates are still close to their lowest levels ever. But borrowers need to move fast as rates are already starting to creep upwards in response to developments on financial markets.
AIB, EBS, First Active, Irish Life Homeloans, Irish Nationwide and ICS Building Society are among the financial institutions which have already raised their fixed rates in response to the upward trend in bond yields which determine the cost institutions pay on the market for the funds they then lend on to customers.
But borrowers can still get five-year fixed rates at under six per cent, while for those prepared to take an even longer-term view, rates fixed for up to 10 years are also available on the market.
For most mortgage holders, issues such as cost and peace of mind are the main factors to consider in deciding whether or not to opt for a fixed or floating rate. It may also be worth making sure you know the penalties involved in case you have to break the contract. Mortgage holders who are unsure whether they may trade up or down-size in the coming years should think hard about fixing. If you know, for example, that you will outgrow your current residence in the next few years or if you decide the time is approaching for you to buy a smaller house or apartment, it may make sense to remain on a variable rate depending on the penalties you face.
Different institutions take various approaches to those who decide to break their fixed rate contracts. Some get customers to pay a number of months' interest - typically three to six months' payments - while others opt for what is known as a yield maintenance formula, where they charge borrowers for the cost they face in honouring the fixed-term contract.
Some institutions also take a more lenient approach to borrowers who break a contract because they choose to sell their property as long as they take out the new mortgage with the same institution. EBS, for example, does not penalise borrowers who do this while some other institutions will roll over the penalty into the new mortgage.
But the time to find out what approach your lending institution will take in the event that you have to break your contract is before you sign it, according to Richard Eberle of Rea Mortgages. He advises mortgage holders to make sure they know the penalties involved and also advises them to get this information in writing.
He also notes that with interest rates on the way up, a yield maintenance formula may work out better for borrowers than having to pay a number of months' interest payments.
If you opted for a fixed-rate contract at five per cent and variable rates rise to six per cent, the cost to the institution of servicing the contract is lower, whereas if you are facing a three-month or six-month payment penalty, there is no way around it.
"What formula they use is important," says Mr Eberle. "A yield maintenance formula can end up not costing the customer when interest rates are on the way up."
