“But I don’t want a fixed rate mortgage as I may want to make a capital payment or overpay my mortgage”
There are a few options open to you
Your lender may allow you to make some capital repayments without penalty. For example, I understand that Bank of Ireland allows borrowers to repay up to 10% of the mortgage each year without penalty. (Anyone got a link for this?)
It may be worth splitting your mortgage into part fixed and part variable, so that you can repay the variable element without having to pay a fee.
You can repay part of it early and pay a break fee. It is not expected that the break fees will be high for someone fixing now.
“But why not fix now for 5 years or, even for ten years?”
You could fix with Bank of Ireland for 5 years at 3.35% instead of two years at 3.2%.
It would cost you an extra €300 per year on a €200,000 mortgage
Or €1,500 over 5 years.
At the end of the 5 years, BoI will refund you 1% of the amount borrowed or €2,000
The ten year rate is 4.2% which is way too high.
“But I have better things to be doing than worrying about my mortgage – which bank treats its customers best and offers the best long-term value?”
In general, I would say that AIB is the best long-term bet:
- Their variable rates for new and existing customers have been close to the lowest rates in the market for some time.
- They pass on rate cuts automatically to existing customers and new customers alike
- Their Standard Variable Rate is 3.4% compared to 4.5% for Bank of Ireland and permanent tsb, 4.3% for Ulster Bank, 4.1% for KBC.
- They don’t use gimmicks to attract customers.
But unfortunately, AIB’s fixed rates are way too high and, at the moment, fixing seems to be the right idea. Fixing with AIB for three years at 3.65% without any cash back is just not the best choice, when you can fix with Bank of Ireland for 3.2% and get 2% cash back.
Ulster Bank also passes on rate cuts to existing customers and they also allow existing customers on variable rates who reduce their Loan to Value to move to a lower rate, (which AIB does not allow). They have a fixed rate of 3.2% for amounts of €200k plus and €1,500 cash back vs. the same interest rate and €4,000 cash back from Bank of Ireland.
Bank of Ireland has very competitive fixed rates, but they boast about keeping their variable rates high to encourage people to fix. That may be the right decision now, but it’s not usually the right decision.
KBC has offered competitive rates to attract new business, but then has not passed on rate cuts to existing customers. It has changed its policy recently to allow existing customers to apply for the rates on offer to new customers, but most customers don't know about this or don’t bother to change, so they end up paying much higher rates than they would be paying had they chosen AIB.
Permanent tsb is the worst offender of all. It charged 6.25% SVR when other lenders were charging 3% and 3.25%. It continues to discriminate between new and existing customers. It is definitely a lender you do not want to be stuck with.