The interest rates on mortgages tend to be lower than personal loans or car loans because mortgages are secured against property, which by and large is a fairly safe bet.

The banks ability to take your house if you stop paying back the loan enables them to give you the very low interest rates that mortgages attract.

As if that wasn't good enough the government also likes you to take out mortgages so it pays some of the interest that you owe. A sweet deal all round.

Mortgage Options
In some countries there are a bewildering array of ways in which a mortgage can be structured.

In Ireland the basic option is the type of interest charged.

Fixed Rate
You can fix the interest rate for a number of years so you know what you'll be paying. In other countries you can actually fix the rate for the entire life of the mortgage. In Ireland the maximum you can fix for tends to be 10 years.

With fixed rates if you try to clear the mortgage before the fixed term is over you will pay a penalty. This has caught out a number of people who fixed their rate then when variable rates dropped below their rate they wanted to be allowed to switch to that lower rate, and didn't like the idea of paying a penalty to do so.

Variable Rate
A variable rate can be raised or lowered by the bank. You are exposed to the risk of interest rates going up, but you benefit if rates go down.

Variable rates don't attract a penalty if you pay down the mortgage early.

Tracker Rate
For a time you could get tracker rates which meant that the rate would rise and fall when the European Central Bank (ECB) changed their rate. It was similar to a variable rate, but the changes were out of the hands of your bank.

Trackers are less common now and any banks with customers on trackers are likely to be losing money on them.

There have been anecdotal stories of banks trying to trick customers with trackers into switching to other kinds of mortgages.

The Rate You Pay
The actual rate you'll be charged can vary. If you have a big deposit you'll be charged a lower rate than someone with a smaller deposit. This just recognises the fact that someone with a big deposit is a lower risk.

This is another plug for having a deposit. You are borrowing less and you are paying a lower interest rate. A double saving.

Similarly the rate can vary depending on how long you want to fix the rate for. In some countries you can fix your rate for the full life of the mortgage. In Ireland the max tends to be about 10 years.

To see the various interest rates simply go to the website of any mortgage lender. You'll probably find two tables, one for Owner Occupiers and one for Buy-To-Let rates.

Assuming you'll be living in the house you'll want the owner occupier table.

The type of rates you're dealing with should be easy enough to understand from the name. E.g. the following are some of AIB's options:

Standard Variable (Discontinued)
LTV Variable <= 50%
LTV Variable > 50% <= 80%
LTV Variable > 80%
1 Year Fixed (First Time Buyer New Bus.)
1 Year Fixed (Existing Bus.)
2 Year Fixed
3 Year Fixed
4 Year Fixed

And so on.

As you can see they've Discontinued their Standard Variable Rate and instead have three variable rates based on the Loan To Value (LTV).

Loan To Value
LTV is simple a measure of what percentage of the value of your house you have borrowed. A 20% deposit means you have an 80% LTV.

This is worth watching. As you pay down your mortgage you may be able to get better deals based on your improving LTV.

Similarly if the value of your house falls, your LTV might get worse even though you've kept up repayments.

A little change makes a big difference
For each of these different options you will be quoted an Interest Rate (APR). The lower the better, and even a small change can make a big difference.

The following example from AIB illustrates this point.

2 Year Fixed 2.80% (Cost Per €1,000) €5.44
3 Year Fixed 3.19% (Cost Per €1,000) €5.64

The rates are 2.8% and 3.19% respectively. AIB have kindly provided a cost per €1,000 value. If you want to borrow 300K you simply multiple the Cost Per €1,000 by 300 and you have your monthly repayment.

In these examples 300K would cost €1,632 a month on the 2 year rate, and €1,692 a month on the 3 year rate. €60 is nothing to be sniffed at. Paying just €60 a month too much over a 25 year mortgage gives a total of €18,000.

That's not to say that the 3 year rate here is a worse deal than the 2 year rate. This is where things start to get away from clean cut maths and into opinion. If you think that interest rates will be a lot higher in a year or two, then it might be worth fixing now for a longer period of time, even if that means paying a higher rate in the short term.

The Interest Rate Guessing Game
There is genuinely no way of predicting with any certainty where interest rates will go. The recent years have seen numerous "experts" get their predictions absolutely dead wrong.

If you want certainty then fix. If you can afford to handle an increase in rates, and are willing to take the chance in the hopes that they'll fall, then go variable.

Just know that whichever you choose you have about a 50/50 chance of making the right decision.