Mortgage rates are around their lowest ever levels following the latest interest rate cut from the European Central Bank (ECB).
Following the fourth cut in a year, official inter-bank rates are now only 3.25 per cent - the lowest since February 2000. Interest rates did fall to as low as 2.5 per cent in 1999 and 2000 following the introduction of the euro on financial markets and in the aftermath of the Asian financial crisis and some analysts believe they still have further to fall this time around.
However, the larger than expected cut of a half percentage point probably means there will be no more announcements this side of Christmas. The bank is thought to have been clearing the decks in advance of the changeover to the euro.
According to Mr Dermot O'Brien, chief economist at NCB Stockbrokers, the ECB is now likely to wait for its meeting at the beginning of January to cut interest rates to 3 per cent. Further cuts in 2002 will depend on how quickly the global economy appears to be picking up, according to Mr O'Brien.
Others believe the ECB may be a little more cautious. And according to Mr Austin Hughes, chief economist at IIB Bank, further cuts will not arrive until February or March.
The cheapest mortgage on the market is now AIB. Its standard variable mortgage rate will fall to 4.25 per cent on November 19th.
Other variable rates are around 4.6 per cent or 4.7 per cent following the rate cuts although some lenders have still not moved. Some are also still very slow about passing on the cuts to their existing customer base. First Active's cuts, for example, do not come into effect for their existing customers until December 13th.
If the rate cutting cycle is coming to an end, now could be the time to consider fixing all or part of your mortgage. The longer term money markets have already discounted this level of rate cuts, and as a result cheap fixed rates are available on the market.
Last week, Bank of Ireland cut its three, five and 20-year fixed rates. It is now matching AIB's three-year loan at 4.99 per cent, a rate that many economists feel is good value over the longer term. Its five-year fixed rate has been reduced to 5.25 per cent, while its 20-year fixed rate for new customers is now 6.99 per cent. Bank of Ireland is the only financial institution to offer such a long term rate as few people take out 20-year fixed rates as they currently provide little flexibility over such a long period.
Most institutions charge some form of penalty on the early repayments of a fixed-rate mortgage. These can vary from a fixed three or six months' penalty to the difference between the cost of redeeming the loan and the variable rate prevailing at the time of redemption.
However, some are now offering a little more flexibility and partial prepayments of up to 10 per cent to the loan without penalty are sometimes possible.
Often, fixed rate do not suit those who receive bonus or are expecting lump sums. Moving house is generally allowed without breaking the loan agreement, so long as you stay with the same lender and keep the same size loan. One compromise that many mortgage brokers now advise is dividing your loan in two, particular if it is large. That way you can be sure of the repayment on half of the amount while still benefiting if rates do fall on the remainder, which is left variable.
All rates correct at time of writing
