Is it time to nip’n’tuck your hefty mortgage?
With loans as high as 6.95%, a clever rate tweak could save €80k!
More than 80 THOUSAND euro – that’s the difference between paying back the dearest and cheapest mortgages right now.
Unprecedented turmoil in the home loans market means you could be paying as little as 2.9% or as much as 6.95%.
So how can we make sure not to be at the wrong end of this financially critical spectrum?
That’s a question 70,000 households will be asking right now.
These are the borrowers who are coming off very cheap fixed-rate mortgages and – if they’re not careful – could immediately get hammered by much higher rates.
But any mortgage-holder who isn’t locked into a good fixed-rate deal should also ask themselves the same question.
This is far and away the biggest financial issue right now, far outweighing any other in its impact on our pockets.
Not everyone can save €80,000 by switching their mortgage – that’s the highest potential saving over 25 years.
The lowest credit union loans are limited to members of particular unions. And there are thankfully few borrowers on the highest rates.
Most of us are somewhere in between. Yet even so, on average, the sheer scale of our mortgage debt means average borrowers could still save of tens of thousands just by tweaking their rates.
Remember, you save nearly €2,000 for every 0.1% you shave off your mortgage rate over 25 years!
SO WHO IS CHEAPEST?
Incredibly, a handful of friendly local credit unions are beating all the banks in Ireland – and most across Europe (see panel, right).
For example, Youghal, a Cork town of around 8,000 people, has a mortgage rate that tops what’s on offer in the great financial centres of Europe.
A €240,000 mortgage from
Youghal Credit Union at 2.9% would cost just €1,126 a month over 25 years.
At the other end of the spectrum, are ICS and Finance Ireland, which charge over twice as much – 6.4% and 6.95% respectively – due to the nature of their finance.*
In the case of Finance Ireland, that’s a €563 difference in monthly payments.
Or €6,756 a year – totting up to €81,072 over 25 years.
That alone would be enough to
buy you a home in most countries.
*ICS and Finance Ireland fund mortgages directly from money markets, while banks and credit unions use vast pools of deposits to fund loans and cushion borrowers from fluctuations.
WHAT SHOULD I DO?
First use our table to see where you stand – and where you can get better deal.
Go to CCPC.ie, Bonkers.ie or Switcher.ie to check out the best rates.
Decide whether you want a fixed or variable loan.
Check out your credit union deal, contact a mortgage broker and… get switching!
WHERE DO RATES GO FROM HERE?
Four official interest rate cuts might be on the way by the end of the year, we learned this week.
The European Central Bank should cut rates twice by August and twice again before Christmas, one of its own council members said on Wednesday.
‘We need to start cutting rates soon,’ Yannis Stournaras, who also heads Greece’s central bank, said in an interview.
‘It is appropriate to do two rate cuts before the summer break and four moves throughout the year seem reasonable. Insofar, I concur with the markets’ expectations.’
Mr Stournaras expects the ECB deposit rate, now at a record-high of 4%, to fall ‘to 2% at the end of 2025 or the beginning of 2026’. Crucially, for those fixing their home loans, he expects rates to then stick at around 2%.
Mr Stournaras is considered a ‘dove’ on interest rate policy, meaning that he favours lower rates than more ‘hawkish’ members of the ECB.
As such, his forecast goes a little further than most others.
‘Professional forecasters indicate [ECB] rates will average over 4% for 2024 before falling to just over 3% for 2025 and settling at 2.75% in 2026,’ said Mark Coan of Moneysherpa.ie
That’s 1.25% lower than they are right now – but also 0.75% higher than Mr Stournaras would like. Where we end up depends on factors like inflation and energy
prices. However, nobody sees rates falling as low as 0% – where they fell 10 years ago. We seem to be heading for an ECB rate of around 2.5%.
Mr Coan warned Irish mortgage holders not to expect that these rate cuts will be passed on in full, or maybe even at all, unless they drop to the lower end of expectations.
‘Given the Irish banks didn’t pass on all of the ECB rate increases on the way up, it seems unlikely that they will pass on all of the decreases on the way down,’ he said.
‘In fact in a mortgage market with such limited competition there is no guarantee that the predicted fall of 1.75% in ECB rate will translate to any falls at all in fixed and variable rates.
WHAT IS A GOOD FIXED RATE RIGHT NOW?
Banks usually take a margin of around 2% or more on top of the ECB rate, which suggests mortgage rates settling at around 4.25%, which is pretty close to where they are now.
This makes the cheapest current fixed rates of 3.65% (from Haven) look reasonably attractive. But with interest rates due to fall very soon, is it worth locking in right now?
Fixed rates already ‘price in’ future movement in rates and further falls, while likely, won’t be substantial.
‘Fixed rates may be slightly lower down the track,’ said Mr Coan.
‘But given the scale of likely reductions it’s generally not worth delaying switching or buying on the off-chance they are. Best talk to a broker to get market-based advice.’
If there are falls, they will happen soon so it’s worth getting the ball rolling now so you are ready to make your move even if it is in a couple of months’ time. By then, the fixed market may even have bottomed out.
Another option to consider a very cheap variable rate – like AIB or EBS – for now and then lock into a fixed rate later.