When choosing a mortgage, the interest rate is the most important factor to consider. The rate you pay has a significant impact on the amount you pay each month, and over the lifetime of the mortgage. There are a number of different types of interest rates available, so when you are deciding which one suits you best there are some important things to consider.
Use the annual percentage rate of charge (APRC) to compare mortgages for the same amount and term. The APRC takes into account all the costs involved over the term of the mortgage such as set-up charges and the interest rate. The lower the APRC, the lower your repayments and cost over the term of the mortgage .
You can use our mortgages money tool to see what your monthly repayments would be as well as the total cost over the full term, based on the rates that are currently available from the different lenders in the market.
There are three main types of mortgage interest rates available. The one that suits you best will depend on your personal preferences and situation.
Variable rates can rise and fall so your mortgage repayments can go up and down during the term of your mortgage. A variable rate offers the most flexibility and may allow you to pay extra off your mortgage, extend the term or top it up without having to pay a penalty.
Types of variable rates
Standard variable rate – this rate can rise or fall over the term of your mortgage and is influenced by a number of factors. It is important to remember that the amount you pay each month towards your mortgage can go up as well as go down.
If you had a mortgage of €250,000 over 25 years at a variable rate of 3.2% your monthly repayment would be about €1,210 and the total cost of credit would be €113,509.
If the rate was increased to 3.45% your monthly repayment would go up to €1,245 and the total cost of credit would be €123,459.
An increase in the interest rate by a quarter of a per cent results in the amount you pay per month going up by €35 and the cost of credit going up by nearly €10,000.
Loan-to-value (LTV) rate – this rate is based on the amount you owe on your mortgage relative to the market value of the property. For example, if your home is worth €300,000 and you owe €150,000 your LTV is 50%. Many lenders offer lower variable rates for lower LTV mortgages and it is worth regularly reviewing the amount you owe and what your home is worth.
Tracker rate – none of the lenders in the Irish market offer tracker rates any more. Tracker rates are set at a fixed percentage or margin above the European Central Bank (ECB) rate and as this rate rises and falls, so does a tracker mortgage rate.
If you switch from a tracker rate you are unlikely to be able to revert back to it. If you are coming to the end of a fixed term and you think you are entitled to revert back to a tracker rate you should check this with your lender.
Discounted variable rate – this is a temporary rate, typically for 12 months, set below the standard variable rate. It is usually offered as an incentive to new customers and reduces the amount you repay in your first year. At the end of the discounted period, you will revert to the standard variable rate or move onto a fixed rate, if that’s what you choose.
If you are thinking about taking out a mortgage based on a discounted rate always compare the rate the lender will offer after the discount period to other rates on the market. The discounted rate may be lower but the follow-on rate could be higher than other lenders are offering.
Capped rate – this is when a cap or upper limit is set on the variable rate for a specified time. A capped rate can rise to a certain limit but not above this. For example, a variable rate cap could be set at 6% and your variable rate could increase to this level but would not go beyond it. These are not widely available in the Irish market.
In accordance with the provisions of the Consumer Credit Act 1995, the following are for your attention:
Warning: Your home is at risk if you do not keep up payments on a mortgage or any other loan secured on it. The payment rates on this housing loan may be adjusted by the lender from time to time.
Note: The above notice in respect of adjustments to repayment rates will not apply during any period when the loan is at a fixed rate.
In accordance with the provision of the Consumer Protection Code (CPC) 2012 the following are for your attention:
Warning: If you do not keep up your repayments you may lose your home.
Warning: If you do not meet the repayments on your loan, your account will go into arrears. This may affect your credit rating which may limit your ability to access credit in the future.
The following warning applies in the case of variable rate loans:
Warning: The cost of your monthly repayments may increase.
The following warning applies in the case of fixed rate loans:
Warning: You may have to pay charges if you pay off a fixed rate loan early.
The following warning applies in the case of debt consolidation loans:
Warning: This new loan may take longer to pay off than your previous loan. This means that you may pay more than if you paid over a shorter term