Ask an economist “is the era of low interest rates over?” and they will likely respond with “is the pope a Catholic?”.
(Actually they’ll probably say “you should buy my book and find out”, but that’s another story.)
It’s not what you want to hear if you are one of the thousands of mortgage-holders coming to the end of a fixed-rate mortgage term.
According to switcher.ie, most new standard fixed rates are averaging at 3.5 per cent to 4.0 per cent. A far cry from the rates beginning with a ‘2’ five years ago.
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Fixed, variable or switch? How to make the best choice for your mortgage now
As with any household bill, the advice is to shop around for the best deal because, as our consumer correspondent Conor Pope will often tell you, inertia costs.
After coming to the end of a contract, utility companies will often move you on to a plan with a higher tariff. Shopping around generally means those looking for new business will offer a more attractive deal.
While the same principle applies to mortgages, it’s not as easy as switching energy providers; a transaction that can be completed in less than a day.
Cian Carolan of DNG Financial Services tells this week’s Better with Money podcast that the paperwork and admin will be akin to the effort involved in securing the mortgage in the first place. However, the time frame for securing it would be a fraction of that.
“When you’re switching mortgage, once you get to the point of approval you don’t have that same wait to close out. So you could quite conceivably apply to switch mortgage provider and have it switched within five to six weeks.”
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While it’s a more expedient process second time around, it’s not a cheap one. After legal fees, Carolan says “you probably won’t have much change out of €2,000″.
What’s required is a good hard look at the numbers to make sure it’s worth it. If it could save €7,000 over five years, for instance, you might decide to find that two grand somewhere.
For many of those mortgage holders who would love to pay off their loan sooner, the aforementioned rate rises will eat into their capacity to do so.
Rising inflation means meeting the repayments is a challenge, let alone overpaying. That may be off the table for now.
But Carolan says there is a cohort who are particularly motivated by the idea of overpaying on their mortgage. Reducing the principal should shorten the overall term of the loan, and save money on the interest repayments.
However, he warns there are things to consider, like the structure of your loan, whether you plan to move at some point or perhaps renovate your home in the medium term. And crucially, what are your lender’s terms for overpaying?
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“You could walk into overpayment penalties very easy (sic),” Carolan says.
Which begs the question: If you have the ability to make extra payments on top of your monthly sum, should you do so? Or would it be a financially sounder decision to put that money into an investment vehicle that would see it grow?
You can listen to this episode on the player above, or search for Better with Money wherever you get your podcasts.
This episode is for information purposes only and does not constitute financial advice.
