Mortgage rates are dropping – should you go fixed or variable now?
Spring is traditionally the busiest time for the housing market, and this year there's an extra buzz in the air. Many people are now wondering what will happen with their mortgage interest rate. The long period of rising rates has finally come to an end, and mortgage interest rates have begun a clear downward trend. This is, of course, welcome news for both those dreaming of a new home and those looking to renegotiate their existing loans.
Euribor has turned – what's next?
When we talk about mortgages in Ireland (and Europe), we inevitably talk about the Euribor. In recent months, the 12-month Euribor, in particular, has been making headlines, and it has now clearly fallen from its peak. Analysts are cautiously optimistic: many expect the European Central Bank to continue cutting its key interest rates, which would also put downward pressure on longer-term reference rates. This means that repayments on variable-rate loans could become lighter in the coming months.
Is the fixed-rate mortgage making a comeback?
When rates were rising, the fixed-rate mortgage almost completely disappeared from the market. Now that the peak has passed, some banks have started offering fixed rates at more attractive levels again. Is it a sensible option today? It depends entirely on where you believe interest rates are headed. If you think rates will continue to fall, a variable rate is cheaper. If you want certainty and peace of mind without any surprises, a fixed rate could be your safety net – especially now that offers are starting to reappear.
Choosing your reference rate matters
When negotiating with your bank, you'll come across the term reference rate. This is the baseline to which the bank's margin is added. The most common options are the various Euribor rates (1-month, 3-month, 12-month) and the bank's own prime rate. Euribor rates fluctuate with the market, while the prime rate moves more slowly. In the current market, a loan tied to Euribor will react faster to any drop, but it could also turn upwards just as quickly if the economy surprises us.
- 12-month Euribor: The most popular reference rate, reset once a year. It offers predictability but doesn't necessarily react to minor interest rate fluctuations.
- 1-month Euribor: More sensitive to market changes; it can fall faster, but it can also rise faster.
- Prime rate: Set by the bank, changes infrequently. Suitable if you want stability and prefer not to keep a close eye on financial news.
Calculators can help – try it yourself
Just reading the news isn't enough, as every borrower's situation is unique. This is where an interest rate calculator comes into play. Many banks and mortgage brokers offer online tools that let you see the impact of different interest rates on your own finances. For instance, the EMI Laina interest rate calculator is easy to use: you input the loan amount, the repayment term, and an estimated reference rate, and you'll immediately see your monthly payment. It's a good idea to get to grips with one before you go to the bank to negotiate – you'll then have a rough idea of what to expect.
This spring's situation is historic in many ways. Mortgage rates are falling, but no one knows how long this will last. The best tactic, therefore, is to prepare for different scenarios. If you already have a loan, now might be a good time to shop around for a better deal and check your margin. If you're buying your first home, don't be fooled by the low rates – do your calculations based on both the current rate and a rate that's a couple of percentage points higher. That way, you'll sleep soundly, even if the market gets shaky.