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Fixing Your Mortgage!

Thursday, 21 January 2010

Liam Croke: Money Expert

Liam has worked in the financial services industry for the past 21 years and seen by many as an expert in the field of personal finance. He is a qualified financial and mortgage advisor.

In the past he has held senior management positions with two well known financial institutions along with one of the "top 5" accountancy practices in Ireland.
Liam gives his advice and wisdom on a daily basis to those who are just starting out to high net worth individuals. He currently works for a financial services company based in Limerick.

He is frequently asked to contribute and comment in all areas relating to personal finance on both national and local radio stations. You will have heard him for example recently on RTE's "The Mooney Show" and on Newstalk's "The Right Hook."
Liam was invited to make a presentation to the Joint Oireachtas Committee on Social & Family Affairs on trends and levels of personal debt in Ireland. He made his presentation to the committee on the 24th June 2009.

Liam is author of 4 personal finance books:

. The best selling "The Mortgage Maze Explained" published by Currach Press in 2006.

. The best selling book "Your Money Your Life - Managing your finances in today's Ireland" published in 2007.

. "I'm Broke! A teenagers guide to Money" - Published by Crabtree and distributed in the UK & USA in 2009

. "Stash or Splash" which is being released in Ireland and the UK in September of this year.

. Liam previously wrote a weekly personal finance column for The Sunday World entitled "Mr. Cash - How to Save it, Spend it, Earn it" and has also written articles for the Sunday Business Post, the Evening Echo, the Sunday Independent, the Irish Sun, Prudence Magazine to mention just a few.


Fixed rate mortgages are the straightforward, reliable product that everyone understands. They are good for first time buyers and anyone who is on a budget and needs the stability of a set monthly repayment. The concept is this, no mater what happens to base rates, your monthly repayment will remain the same for the duration of the fixed period chosen. They are rarely the cheapest mortgages on the market (depending on the fixed period chosen) but nonetheless there are a range of different fixed rate products to choose from that are now available from most lenders that offer stability at an affordable cost. Current low interest rates have also narrowed the gap between fixed and variable rates with some fixed rate offerings lower than lenders standard variable rates.

With a variable rate mortgage, your payments will go up or down according to the European Central Bank's base rate. If interest rates go up, fixed rate customers will know for certainty that their repayments will remain unchanged following the increase. On the flip side however, it will also mean that if rates decrease and stay low for a period of time, your repayments will remain high as they ever were for as long as the fixed period lasts. Many people will remember back to the end of 2008 when rates began to increase nearly every month over a very short space of time and due to uncertainty as to whether rates would continue to increase many people had no option but to fix their rate for peace of mind. Many people chose fixed rates over 3 and 5 years and it just turned out to be very bad timing as rates began to tumble to record lows so many people ended up paying way over the odds and were going to be penalised heavily for breaking the fixed rate agreement by either switching lender or moving house and because the penalty was so high it meant neither was an option.

So, when fixing your mortgage rate timing and luck are two things that need to be on your side! Even if interest rates do not increase, you are still probably going to pay slightly over the odds because fixed rates tend to be offered at a higher initial rate than variable ones, but this is considered as a bearable premium for the peace of mind that a fixed rate gives you. The rate offered for fixed rates will depend on the length of time you decide to fix for. So the shorter the fixed rate term the lower the rate and the longer you decide to fix for the higher the rate is and subsequently the higher your monthly repayments will be. You can fix from periods of 1 to 10 years and rates vary from as little as 2.35% to 7.75% depending on the fixed term chosen and or course your lender!

It is very important for you not to fix for longer than you think you will be comfortable with as one of the main disadvantages of fixed rates is that if you wanted to either re-mortgage or move to another property before the fixed rate expires, you may have to pay a sizeable early redemption penalty for doing so as stated earlier. So when choosing a fixed rate term make sure you can afford the monthly repayments and secondly make sure that you will be in your new house, to the best of your knowledge at the time of deciding, for at least the same period of the fixed rate so you can avoid early redemption penalties. With rates being so low, the temptation to fix for a long time is strong and people who have large financial commitments and look likely to remain on a tight budget for several years could benefit from fixing for a longer period of time so as to avoid having to meet larger monthly repayments should rates increase

It makes sense to choose a fixed rate if you think rates are likely to increase. Rates are at record lows, and whilst fixed rate mortgages are becoming a very popular choice particularly with first time buyers and because of the savings that may be made, no-one can be absolutely certain which way rates will go. The other important factor of course is that your lender may not have attractive fixed rates on offer and trying to move your mortgage to one that has could prove very difficult particularly if your house has decreased significantly over the past couple of years and if you are employed in a particular sector that lenders are not comfortable with at present.

What happens after your fixed rate expires? Your lender will normally write to you about a month before your fixed rate period expires and will outline the options available to you. So you will be given an option to choose a fixed rate for another year, two three or 10 of maybe revert to a variable type repayment. For people purchasing or re-mortgaging when choosing your lender always ask will the rate offered to you when you were a new customer to them be the same when the fixed rate period is up for renewal. Some lenders may distinguish between new and existing business and increase the rate for existing customers and the difference can be substantial - example PTSB offer 3.7% fixed for 5 years to new customers and 5.75% to existing customers!

Did you know.

. Ideal for first time buyers or those on a budget.

. High redemption penalties can apply should you break your fixed rate agreement.

. Worth considering if you think rates are on the increase.

. Your monthly repayment will remain the same for the duration of the fixed rate chosen.