Understanding mortgages

With a fixed rate mortgage your monthly repayments are fixed for a set period. The main benefit of a fixed rate is knowing exactly what you will repay each month and having the peace of mind that your repayments will not increase during the fixed-rate period. However, if rates drop, you may end up paying more in the long run.

If you want to break out of a fixed rate you may have to pay a penalty or fee. You might want to break out of your fixed rate if you decide to switch lenders, re-mortgage, pay off a lump sum or if you want to sell your home. You should find out more about any penalty before you sign up to a fixed rate or decide to break out of an existing one.  The penalty or fee lenders are entitled to charge should not exceed the financial loss to them, that means that the sum charged should reflect the possible costs to the lender directly linked to an early repayment.

At least 60 days in advance of the end of the fixed rate period, your lender will write to you and inform you of your options which may include moving to a variable rate or availing of another fixed rate.  They must provide details of the new rate applicable from the expiry date. If you don’t choose an option, your lender may automatically put you on their standard variable rate which might not be the most suitable or cheapest option for you.

If you wish to overpay / pay more than the monthly repayment amounts on your fixed rate mortgage you will need to review the terms and conditions of your mortgage to see

• the number of overpayments per annum that are permitted and
• how much the overpayment can be, as it may be limited to a set percentage of the outstanding sum

A variable rate is a rate which is set by your lender and can change at any time. Variable rates may not be the cheapest option, but they allow you to over pay, switch lenders or sell your home without any breakage fees.

None of the lenders in the Irish market offer tracker rates to new customers, however many existing customers still have these rates. 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.

Some fees you may have to pay for your mortgage include:

Arrangement fee – some lenders charge a fee to arrange the loan. This may be a percentage of the loan amount, such as 0.5%. In general, this is for buy-to-let and investment mortgages.

Brokers’ fees – some brokers charge a fee to arrange your mortgage or for mortgage advice. This might be a percentage of the mortgage amount or a flat fee. Not all brokers charge a fee so if you are planning to use a broker it is important to ask about this and to shop around.

Valuation fee – this is paid to a professional valuer to estimate a property’s value, some lenders may pay this fee for you.

Structural survey fee – a structural survey is done to find out the condition of a property. If any issues arose during the valuation of the property or it is very old, your lender may insist on a structural survey. Even if your lender does not require it, you may want to get a survey anyway to be sure there are no problems with the building.

Many mortgage lenders offer incentives to take out a mortgage with them, but you need to consider if these short-term incentives are worthwhile when compared to the long-term costs of the mortgage. The interest rate should be your main consideration as this is what will determine the overall cost of credit.

If you get a cashback payment when taking out your mortgage, your lender is not entitled to claw it back if you switch to another lender.