Irish interest rates are well above the eurozone average (1.18% higher). This means the average Irish borrower is paying significantly more than the average eurozone borrower for the same mortgage. With inflation rates rising, the ECB is expected to hike interest rates, which means new borrowers in Ireland would be paying an incredibly high-interest rate for their mortgages. However, the rising interest rates can be a powerful tool for some borrowers. When someone is proactive in recognizing how the market will affect them, they can use it to their benefit. Every crisis comes with opportunity, so with this knowledge, the Irish housing crisis and rising interest rates can be used as an opportunity to save money on mortgages.
You generally want to look for the lowest rate because this means you’ll have to pay less over the lifetime of your mortgage. However, it’s not that simple when it comes to interest rates. You also have to pay attention to whether you’re getting offered a fixed or an adjustable (variable) interest rate. Fixed-rate is usually better as long as it’s a competitive rate. In the current market, fixed rates are looking increasingly enticing because of the hiking interest rates. With adjustable interest rates, you can choose to pay off your mortgage early or increase your monthly payments. Falling interest rates help you, but you can also get hurt from rising interest rates like in the current market. Changing interest rates can leave you vulnerable at some points if you don’t prepare for it. When looking at different interest rates, be sure to mention that you’re shopping around because they might offer lower rates to win your business. Another thing to keep in mind is the duration of your loan. A longer loan means a lower monthly payment, but it also means you’ll be paying a higher total cost because of interest. Check payment amounts with your monthly income to be sure you aren’t paying more than you have. For current borrowers, switching to a fixed interest rate mortgage sooner rather than later would be wise as variable and fixed interest rates will likely rise in the near future.
With hiking interest rates, it may be worth it to remortgage your loan. Remortgaging is when you renegotiate the terms of your loan with your bank, or you can even switch banks to get a new loan agreement. The new renegotiated loan is used to pay off the old loan, so the term and interest rate can be completely reset. Often times if you switch lenders, they will over to cover the switching costs in order to win your business, but this offer is sometimes unavailable if you choose their lowest interest rate option.
However, the lowest interest rate option is often still the best one. When thinking about saving money long term, the interest rate is the most important factor. Remortgaging can allow you to switch from a variable interest rate to a fixed interest rate, or it could allow you to lower your existing interest rate.
When you remortgage, the total value of your new loan is less than the value of your original loan because you have already been making payments on your home. This means that you have more equity in your home, which will improve the interest rates available to you.
Additionally, the equity you have in your home acts as the deposit for the loan. This means that the Loan to Value (LTV), which is the percentage of your house that is paid by the loan, will be much lower. A lower LTV usually means lower interest rates, meaning the total amount you’ll pay for the new loan will be less, even if the term is the same as the old loan.
Another factor to consider is the amount of your monthly payments. With a lower total balance to pay because of better interest rates, either the monthly payment or the loan term will decrease. If you choose to decrease the loan period, the monthly payment could remain high, but you won’t have to make as many payments. If you choose to lower the monthly payments, you may have to make loan payments for the same amount of time or possibly even longer. However, you will have more money to spend(or save) monthly, allowing you to be more financially flexible.
Remortgaging gives you a lot of flexibility when it comes to how you want to manage your finances. In general, you want to choose the lowest interest rate available, this will bring you the most savings. If you choose to lower your loan term, your total amount paid could be less by the end of your loan because you have less time to be hit by interest. However, a shorter term means higher monthly payments and less financial flexibility for other aspects of your life for the duration of the loan period.
Keeping the same loan term, or even increasing it, can significantly reduce your monthly payments. The main benefit of decreased monthly payments is cash flow. Cash flow means financial flexibility. The money you save from monthly payments you could put towards other things like a retirement account or a spending account and allow you to enjoy life a little more. Lower monthly payments can also help build your credit score because this means you have less risk of missing a payment, and you have more payments to make which all affect your credit score.
When interest rates go through big changes like in the current Irish mortgage market, it creates an opportunity to save money. If someone has a fixed-rate mortgage, their mortgage payments are immune to the rising interest rates which could save a tremendous amount of money. Remortgaging allows a borrower to be flexible with their financial portfolio and enjoy the benefits of a lower interest rate.