If you’re on a fixed rate mortgage, now might be a good time to review it.

The Iran conflict has pushed future rate expectations higher, quietly reducing break fees for many fixed-rate borrowers. Irish lenders haven't yet repriced their products upward.

What Has Changed?
Since the start of the current conflict in the Middle East, Eurozone inflation jumped from 1.9% in February to 2.8% in June. This has been driven almost entirely by rising energy costs. Ireland recorded 3.4% annual inflation in June.
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In response, bond and money markets have moved sharply. The European Central Bank (ECB) increased the deposit rate from 2% to 2.25% in it’s June meeting and markets are pricing in a 70% chance of another hike in September.

Mortgage Fixed Rate Break Fees
Most lenders charge a break fee if you move out of a fixed rate before the term is up. Sometimes this fee will be quite high and other times there will be no charge at all. It all depends on what the rate was when you took out the loan and what rates are available now.

If rates now are higher than when you took out the loan, then the break fee will likely be zero as the lender will not be losing out. If, however, the rate available now is lower than when you took out the loan, then the lender will charge a break fee to compensate them for any loss.

It’s important to note that banks look at the wholesale market when calculating break fees and not the rates available from retail lenders. The wholesale market rate is changing on a daily basis in reaction to future expectations whereas lenders only update their mortgage rates periodically.

The current energy crisis has pushed up wholesale rates, but lenders have not increased their mortgage rates yet. This means that break fees will have come down significantly in recent months and it may be worth reviewing if you could get a better deal.

Who Could Benefit?
If you are currently on a fixed rate mortgage that is at a higher interest rate than you could get now, then you may be able to break your current rate for little to no break fee and switch to a lower rate either with the same lender or switch to a new lender. This will reduce your interest payments or term on the mortgage.

Example: John and Mary fixed for 4 years in 2024 at a rate of 4% with Bank of Ireland. The same 4-year fixed rate with Bank of Ireland is now 3.20%. They called up in January and Bank of Ireland quoted them a break fee of €3,500. When they called again in April the fee had reduced to €300. They can now switch to the lower rate of 3.20% with Bank of Ireland and start a new 4-year fixed term with a reduction in monthly repayment of €150.

What Should You Do?
Step 1 - First check the rates available now against the rate you are currently paying. If your current rate is already better than what is available now, then there is no benefit to switching. You can review current rates for a selection of lenders below:

• AIB
• BOI
• PTSB
• Avant Money​

Step 2 – Call your lender and ask them to confirm what your break fee would be if you were to transfer to a new rate. Also confirm how long the quote is valid for as some lenders calculate it on a daily basis and the actual break fee will be dependent on the rate of the day the switch goes through. Generally if you’re staying with your current lender this break fee is added to your overall mortgage balance, so you don’t have to pay it immediately.

Step 3 - Consider if it makes sense to switch to another lender. There is no right or wrong answer here and everyone’s situation will be different. You may be able to bring down the monthly repayment to free up cashflow or reduce the term. You will be signing up to a new fixed term which you need to be comfortable with. Switching with your existing lender should be a relatively easy process but switching to another lender will involve a new application, solicitor fees etc.

While inflation/interest rate expectations have increased in recent months due to the conflict in the Middle East, it’s impossible to know where they are going and things can change quickly as we have seen in recent years. If you have a mortgage broker, it may make sense to have a chat with them to review your options.

​Disclaimers 

• This document is intended as a general guide and does not constitute advice. Please contact us to arrange advice specific to your own situation. 
• All figures, calculations, statistics and tax rates are based on indicative rates as at the date of this article which is noted above.
• Please note this document is not meant to be a comprehensive assessment of the tax rules that could apply under all scenarios and it is possible the tax rates outlined above may change and may be different depending on the individuals’ circumstances. 
• Worked examples are intended as a guide only and the actual return will depend on the product available at the time and the tax rates applicable to your own situation. 
• Examples are for personal investors. Different tax rules apply for Corporations and Charities.