There have been eight consecutive interest rate hikes and that is making loans, to say the least, very damn expensive! However, that doesn’t mean you have to sit back and take it. Mortgages, like all debt are affected by movements in the European Central Bank base rate which is now 4%. Two years ago the rate was half this amount so the interest portion of loans has doubled!
The good news is that Mortgage Interest Relief, or ‘Tax relief at source’ has also doubled for first time buyers since the last budget, and its up by 20% for non-first time buyers. An important note is that you are a first time buyer for the first seven years, if you sold your first house and moved into another one within the first seven years you still qualify as a first time buyer.
So how do you hedge yourself against rising rates? The simplest means of doing it are as follows:
- Refinance to a better deal – this means moving your present loan to get one at a cheaper rate, most banks don’t reward loyalty, they reward new customers and you can capitalise on that by moving your loan. Contact your mortgage broker (hopefully that’s us!) and find out what the best rates for your situation are, call your current lender, ask them if they will match it and if not move it to a lender who will. Doing this now is faster than in the past, and we can offer legal deals from €99 thus saving you a lot of money!
- Fixed Rates – If your concern is that rates will rise you can always fix your loan rate for a certain period, usually from one to ten years. Some of these rates are really attractive at the moment and it will ensure that your monthly repayments stay exactly the same for the duration of the fixed rate. The only downside is if rates fall below what you have fixed at, then you will be paying more, and if you want to pay off the loan early this is one of the times when the law (specifically the consumer credit act of 1995) doesn’t protect you from paying fines for early redemption. However this doesn’t mean fixing is a bad idea, indeed for many home owners this is going to be key to weathering the higher rates.
- Go for a shorter term or make extra payments – Both of these options ultimately achieve the same thing, paying off the loan faster than the term that was agreed at the start of it all. By making extra payments you eat into the principle (the borrowed amount) faster, by shortening the term you do the same thing. In both cases your monthly outgoings for the mortgage will increase however if you are able to cope with this then it will give you big savings on interest payments in the long term. An extra €50 per month will cut two years off of your loan and over €20,000 in interest payments!
- Pay attention! – This probably seems like the most simple thing in the world…. Paying attention to your finances but you’d be surprised just how many of us spend more time planning a holiday every year than we do planning our finances – which are what actually pays for that holiday! In some cases financially savvy people pay for holidays only with their investment gains, that would be a great way to live! And it is possible for the majority of people with some careful planning, it doesn’t mean you have to live on €5 a week either, its just about an ongoing consistent approach to financial planning and at Irish Mortgage Brokers we can show you how.
We hope this helps take the edge off those rate rises! And if you want to call to discuss this or anything else please feel free to do so, you can reach a broker during regular business hours on 01 679 0990.