Is it worth breaking from your current fixed rate mortgage?
We have been asked this question repeatedly over the last number of months and in most cases the answer has been yes, mainly because Irish borrowers have preferred shorter term fixed rate products in the past. However, that was in a time of interest rate reductions from all lenders.
Such is the volatility we are seeing today, Ireland has gone from having the second highest interest rates in Europe in May 2022 (weighted average interest rate of 2.76% in Ireland vs. 1.76% in Europe), second only to Greece, to having the third lowest interest rates in Europe by November 2022 (weighted average interest rate of 2.57% in Ireland vs. 2.84% in Europe).
This has been enabled by the three pillar banks (AIB, BOI & PTSB) being the last to pass on the European Central Bank’s (ECB) rate increases, allowed primarily by their funding model (funds on deposit). However, this position will become more and more unsustainable over the months ahead and we will no doubt begin to see Irish interest rates being amongst the highest in Europe again. Just today, Bank of Ireland announced another rate increase of 0.75% for new business customers.
In relation to breaking your fixed rate however, one of the most prominent questions we are asked is, will I incur a cost? You likely won’t have any breakage penalties (lenders would only be delighted to move you off your current low fixed rate), but you need to consider the opportunity cost, what rates are available now and where they might be when your current fixed rate is due to expire.
When the ECB’s key lending rate was at nil, the best rate available by Irish lenders was 1.90% (trackers aside). The ECB’s rate is now at 2.50% and we are anticipating a series of further rate increases in the year ahead with the next rate review meeting to be held on the 2nd February.
For context, when Avant Money first entered the Irish market in late 2020 with the lowest fixed rates, their 5-year fixed was 1.95% (for LTV of 60% or lower). Their equivalent offering today is 3.65%. That’s an additional €420 per month based on a mortgage of €500,000 over a 20-year mortgage term.
So, to answer the question on whether it is worth breaking your current fixed rate, if you have 1 – 2 years left to run on your current fixed rate then the answer is most likely going to be yes. At Biograph Wealth Advisors we have an experienced mortgage advisory team who are available should you require advice on the above.