A mortgage is one of the biggest loans you’ll ever take out. So, it’s important to get a mortgage at a rate you can afford. There are a number of options available in the Republic of Ireland. The more you know about each rate before you start shopping around, the more the process will remain as smooth, seamless and stress-free as possible.
A fixed loan rate will stay the same for a pre-defined term of the mortgage, regardless of what happens to interest rates across the market. The period of the fixed rate will depend on the agreement of the loan. You might see it advertised as a “two-year fix” or “five-year fix” and when the agreed time comes to an end, you’ll move to a standard variable rate unless you remortgage at a fixed-rate.
If you wish to live in your home for a minimum of five years, a fixed-rate loan makes it easier to forecast your repayment costs.
The market has a number of variable rates available. Each type has its own unique features, so choosing the most suitable one for you depends on your budget and lifestyle.
1. Standard variable rates
The standard variable rate (SVR) is the interest rate a mortgage lender usually will apply. It generally follows the national bank’s rates – meaning your rate will move according to any changes in the bank’s base rate.
2. Tracker rates
Tracker rates are linked to another interest rate, normally the national bank’s base rate (plus a little increased percentage). This means if the bank's base rate goes down, your rate will decrease by the same amount.
Tracker rate mortgages usually last between two and five years, so are better suited to shorter mortgage loans.
3. Capped rates
A capped rate refers to a limit set on how much the variable rate can increase for a predetermined amount of time. It can rise, but the cap cannot go above the set limit.
4. Discounted rates
A discounted rate refers to a discount off the lender’s standard variable rate for an agreed amount of time. Usually, this discount is set to a short amount of time of the loan, between two and three years, after which the customer could switch over to a fixed or standard variable rate.
Look around when considering discounted rates. The standard variable rate might be higher if a larger discount is in place — meaning when the discount falls away you might be stuck with higher payments.
5. Loan-to-value rates
Also known as LTV rates, this rate is based on how much you owe on the mortgage in line with the value of the property you are buying.
For example, if you owe €150,000 on the property you are buying and it’s worth €200,000, your LTV would be 75%. Basically, this means you own 25% of your property and still owe 75% of the home’s value.
Lenders typically offer lower variable rates if you have a lower LTV rate, so the less you owe on your property, the better your rate can be.
Anything less than 50% is considered a low LTV and rates will be more favourable because the lender will be at less risk.
For this loan, it is always worthwhile reviewing the amount you owe along with your house's value to calculate your LTV — and doing this on a regular basis can save you money down the line.
A split rate is when your mortgage is a combination between a fixed-rate and a variable rate.
With a split rate, part of your mortgage will be at a fixed rate — where the rate won’t change, and the other part will be at a variable rate — where the rate will shift with the market and bank’s movements.
Keep in mind: A split loan isn’t a separate loan. It requires splitting your home loan balance into two different accounts: one with the fixed-rate and one with the variable rate. For this, you’ll generally need to make separate repayments for each.
Not all lenders offer split rates. However, it’s worthwhile considering the combination of both. With split rates, you get the certainty that comes from a fixed rate and the benefits that might come from decreased payments at variable rates.
To find out more about taking out a mortgage and the different steps of the home buying process, we've got a wealth of info for you. Visit our content hub to learn everything you need to make an informed decision about buying your first home.