Fixed & Variable Rates

When applying for a mortgage, you will notice the wide array of options available to you. One of the most important factors that will influence whether or not you wish to take out a mortgage and with whom, will be the type of interest rate set by the lender.

There are two types of interest rates applied on mortgages: fixed and variable

A fixed rate is one in which the interest repayments remain the same and unchanged. In Ireland, the maximum period of time for which a mortgage can be fixed is 10 years.

Advantages of a fixed rate:

• Predictability of repayments allows you to budget better
• Protection from changing base and interest rates

Disadvantages of a fixed rate:

• Cannot benefit from reduced repayments if interest rates drop
• If you choose to switch mortgage providers, you may face a penalty charge (redemption charge or breaking fee). It may also be applicable if you simply want to choose a different rate

A variable rate is one in which the interest repayments can change; they can rise or fall in line with the current economic climate.

Advantages of a variable rate:

• Can benefit from reduced repayments if interest rates drop
• Flexibility to increase repayments or add lump sums which can help you pay off your mortgage faster and in a more cost-efficient manner

Disadvantages of a variable rate:

• Unpredictability of rates makes it very hard to budget for in advance, especially over a longer period of time

Complete exposure to the fluctuations of the market which can make interest rates rise dramatically