Fixed v Variable rate mortgages

NoQuarter

Hi all

I'm slightly confused about something. It seems that fixed rate mortgages have a lower APR than variable mortgages. Instinctively I would have thought it would be the other way around as a fixed mortgage comes with the security of having a stead rate for as many years as you sign up to.

Can anyone tell me what I am missing because I must be missing something?

Thanks

hognef

NoQuarter wrote: »

Hi all

I'm slightly confused about something. It seems that fixed rate mortgages have a lower APR than variable mortgages. Instinctively I would have thought it would be the other way around as a fixed mortgage comes with the security of having a stead rate for as many years as you sign up to.

Can anyone tell me what I am missing because I must be missing something?

Thanks

Fixed rates will normally be lower than variable rates when rates are on a downward trajectory; vice versa when rates are on an upward trajectory.

You are right, though, that there should be a premium attached to fixed rates. However, that premium is relative to the expected average rate over the fixed-rate period, rather than to the rate as it stands on day one.

NoQuarter

hognef wrote: »

Fixed rates will normally be lower than variable rates when rates are on a downward trajectory; vice versa when rates are on an upward trajectory.

You are right, though, that there should be a premium attached to fixed rates. However, that premium is relative to the expected average rate over the fixed-rate period, rather than to the rate as it stands on day one.

Thanks, that's very helpful and clears it right up. I see that fixed rates are currently lower than variable rates. I had also thought the market is now back on an upward trajectory, wouldn't that indicate that variable rates should also be on an upward trajectory and thus the fixed rates should be higher than variable?

hognef

NoQuarter wrote: »

Thanks, that's very helpful and clears it right up. I see that fixed rates are currently lower than variable rates. I had also thought the market is now back on an upward trajectory, wouldn't that indicate that variable rates should also be on an upward trajectory and thus the fixed rates should be higher than variable?

Ireland has among the highest rates of all Euro countries, so there's still downward pressure here. The EU economies are also still slow, and inflation is below target, so I don't think anything is actually pointing upwards yet, though of course there's speculation (hope?) that this may start maybe 18 to 24 months from now.

There's probably also an element of discounted rates to attract new customers (and which may be available only to those new customers), which may be set below the 'normal' levels.

NoQuarter

hognef wrote: »

Ireland has among the highest rates of all Euro countries, so there's still downward pressure here. The EU economies are also still slow, and inflation is below target, so I don't think anything is actually pointing upwards yet, though of course there's speculation (hope?) that this may start maybe 18 to 24 months from now.

There's probably also an element of discounted rates to attract new customers (and which may be available only to those new customers), which may be set below the 'normal' levels.

Thanks for taking the time to respond.