Mortgage interest rates

Comparing rates

When comparing the various mortgage interest rates on offer, use the annual percentage rate of charge (APRC) to compare mortgages of the same amount and term. This is the yearly rate of interest and includes all of the costs involved, such as set-up charges, the term of the loan and the interest rate.

Use our mortgage calculator to help you work out your monthly repayment using different APRCs and terms. Different lenders use different ways to calculate interest on your mortgage. It can be calculated daily, monthly, or quarterly. Generally, the more often the interest on your mortgage is calculated, the less you will pay in interest. And the lower the APRC, the less costly the mortgage should be.

Types of interest rates

There are three main interest rate options available:

  • variable rate
  • fixed rate
  • split rate

You may also have heard about subprime mortgages. These are mortgages with higher interest rates that people may take out if they are having difficulty getting a mortgage elsewhere.

Variable rates

Variable rates offer most flexibility. They allow you to pay extra off your mortgageextend your mortgage term or top up your mortgage without having to pay any penalties. However, because variable rates can rise and fall, your mortgage repayments can go up or down during the term of your loan.

The following types of rates may be available from some lenders:

  • Standard variable rate– when European Central Bank (ECB) rates rise, your lender can pass on the increase in whole or in part. If ECB rates fall, your lender may pass on some or all of the reduction to you. The variable rates offered by a lender also depend on the lenders’ costs and the level of competition in the market. Lenders are not obliged to pass on any rate reduction in full or in part and can increase rates if they decide to do so
  • Loan-to-value (LTV) rate– these rates depend on the size of your mortgage compared to the value of your home. So, if you borrow €200,000 and your property value is €400,000, you are borrowing 50% of your property value. You then have a LTV rate of 50%. Some lenders offer lower variable rates if your LTV rate is below a certain level, such as 60%. This is because there is a lower risk to the lender as your home is worth much more than the amount of your mortgage
  • Tracker variable rate/tracker mortgages– this is set at a fixed percentage or ‘margin’ above the ECB rate. For example, it could be set at the ECB rate plus one percentage point. So, if the ECB rate rises by a percentage point, so does your rate. It will also ‘track’ the ECB rate when this rate goes down.Tracker rates continue over the term of your mortgage. Few, if any providers offer tracker mortgages to new customers any more. If you already have a tracker mortgage, you have the benefit of a guaranteed link to the ECB rate. If you switch from a tracker mortgage, you may not have the option to get a tracker rate again. So, you need to carefully consider your options. A history of ECB rates is available on its website.If you are coming to the end of a fixed rate mortgage and expect to revert to a tracker rate, find out more about whether a tracker rate is available to you
  • Discounted rate– this is a temporary rate, set below the standard variable rate. It is usually offered as an incentive to new customers and gives you lower repayments for an initial period, typically a year. At the end of that time you have the option to go onto the fixed or variable rate on offer at that time. Before you accept a discounted offer, make sure you know what rate you will pay after the offer ends and how much it will cost you in total
  • Capped rate– this is a variable rate that can change, but will not go above ‘cap’, or set rate, even if interest rates rise. For example, it could be set at a maximum rate of 6% in the first two years. The rate can rise to that level but not above it, regardless of what happens to the ECB rate. It can also fall in line with ECB rate reductions

Fixed rates

With a fixed rate mortgage, your interest rate and monthly repayments are fixed for a set time. Fixed rates are commonly available over one, two or three years, although longer periods may be available.

Although a fixed rate means your repayments cannot increase for a set period of time, your repayments will not fall during the fixed rate period. As a result, you could miss out on lower interest rates and lower repayments.

Fixed rates may cost more over the long run but they offer peace of mind as you know your repayments will not rise.

During the fixed rate period, you will face penalties if you want to switch lenders, move to a variable rate, re-mortgage or pay off all or part of your mortgage. Also, you cannot usually pay more each month than your standard repayment. You should be aware of these penalties before you sign up to a fixed-rate contract and before you decide to exit a fixed-rate contract.

At the end of a fixed rate term, your lender will write to you and outline your options, which may include:

  • moving to a standard variable rate
  • fixing for another term, perhaps one, three or five years
  • moving to a tracker rate – but only if this was offered to you at the time you signed up for the fixed rate. Look at the documentation your lender sent you when you signed up to a fixed rate, as this will detail what your interest rate will revert to after the fixed rate term ends. If a tracker mortgage was one of the options, then your lender must offer you the tracker rate, even if they are no longer widely available. If you do not have the documentation, contact your lender and ask for a copy. If you are unhappy with the options your lender is offering you when your fixed rate term ends or you feel that your options were not explained fully, you can make a complaint.

Split rates

This is where a portion of your mortgage is on a fixed rate and the other portion is on a variable rate.

Your repayments on the fixed part won’t change – but you may benefit from any fall in rates on the variable part. However, your repayments on the variable part may also rise.

A split rate could be a good option for you if you are unsure about the direction or scale of interest rate movements, but need some security.

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