HARD-PRESSED homeowners wishing to break out of fixed-rate mortgages supplied by their local council could pay a penalty of almost €15,000 on a €150,000 mortgage.
The Department of the Environment has advised local authorities they must pass on the full cost of converting loans to the borrowers.
Interest rates on mortgages are at historic lows and those who opted for a fixed rate, when they took out a mortgage with their local authority, are finding that what seemed like a good deal at the time now means they are paying considerably more per month than someone on a variable rate.
Local authorities offer mortgages to people who may not be able to secure a loan from a bank or building society, or to those purchasing a home from the local authority.
The variable interest rate currently being offered is 2.25 per cent, while the fixed rate is 4.4 per cent, down from 5.5 per cent since July.
A person with a €150,000 home loan on a five-year fixed rate is likely to have to pay €14,756 if they wish to break out of it with four years remaining. The interest they will save is €18,000, but this may be reduced if the variable rate subsequently goes up.
Funding for mortgages is provided to local authorities by the Housing Finance Agency (HFA).
In a circular to local authorities, sent at the end of July, the Department of the Environment said the HFA required that “any conversion from a fixed loan must compensate the agency for any losses that might arise”.
