The homebuyer's quick fix: which mortgage rate should I choose?
Understanding rate options for first-time buyers – the benefits of fixed and variable rates
There are two key categories of mortgage rate options available when you’re taking out a mortgage, fixed and variable, and understanding the difference really does help. There is a wide range of fixed and variable rate products available, and you can even choose both - a split interest rate - where you put a percentage of your mortgage on a fixed rate and the rest on a variable rate - this marries the benefits of variable and fixed rates.
Your rate is also determined by your loan to value (LTV) – that is the size of your mortgage amount compared with the value of the property. For example, if your property is valued at €300,000 and your mortgage is €240,000, your LTV is 80 per cent. Typically, the lower the LTV, the lower the mortgage rate options available to you.
This is a quick guide to understanding which rate will suit you best.
With a fixed rate mortgage, the interest rate doesn’t change for the fixed rate period. This brings certainty and stability as you know exactly what your home loan payments will be each month regardless of interest rate fluctuations and making budgeting easier
- You can choose the period you would like to fix your mortgage for – there are fixed rate products available between one and 10 years
- Some mortgages let you overpay by up to 10 per cent of your monthly repayment each month if you have the cash available. If you make a lump sum payment, repay your mortgage in full or switch to a variable rate during the fixed rate period - a fixed rate breakage fee may apply
- It is also worth noting that you can bring your fixed mortgage with you if you move to another home as long as your new mortgage is drawn down within six months of redeeming the old mortgage.
With a variable rate mortgage, your monthly mortgage payments could rise or fall at any time.
A variable mortgage interest rate gives you the option to make overpayments, lump sum repayments, or repay the loan completely, without having to worry about early repayment charges.
A twin rate mortgage is a helpful option if you want a level of certainty on your monthly repayments, while retaining a degree of flexibility to make a lump sum payment if you have cash available. With a twin rate mortgage, you can choose to put a portion of your mortgage on a fixed rate and the remainder on a variable rate. You can decide how much you want to fix and how much you want to retain on a variable rate. It could be 80 per cent fixed and 20 per cent variable, or 50 per cent fixed and 50 per cent variable, and so on.
HELP! I’M STILL LOST
To better understand the options, sit down with a mortgage expert who can take you through the different options available and answer any questions you might have. Don’t be afraid to say you don’t understand - it's their job to decipher the tech talk so that you can make like-for-like comparisons on which option suits you and your home purchase best.