Mortgage advice - tracker or fixed?

hepcat

My current fixed rate period is up, and my mortgage lender is offering 3 options:

1. Flexible mortgage which trackes European Central Bank base rate. Although the base rate may change the margin you pay is fixed. Current rate is 3.45%
2. Fixed rate of 3.99% til 2008, 4.2% til 2009 or 4.45% til 2011.
3. Standard variable ragte of 3.75% currently.

If stories about expected interest rate increases are correct, would it be wise to opt for a further fixed rate, and is 3.99% the best I can do?

Any advice most welcome!

Ogham

The 3.99 fix for 2 years sounds OK.
You could try moving to BAnk Of Scotland - they have a 2 year discounted tracker if you switch to them - an dthey pay 1000 towards legal fees. The current rate is ecb plus 0.45 for loans under 75% of house value or ecb + 0.7 if you borrow more than 75 % of the house value. Your banks tracker is ecb + 0.95. The BOS
Worth considering ?


http://www.mortgages.blogs.ie

REDZ

4.2% til 2009 sounds good, the rates,the rates,they are arising.

mrbig

tracker or variable are the only real options in my opinion,
Fixed rate is a sucker bet the difference in rate is far higher, The european base rate is controlled by the institutions loaning the money so they won't be offering you a rate which will cost them.

kluivert

Please take note and you heard it here ok.

Am not an economist but I am an accountant who studied economics for three years.

Interest rate will rise to 6% within two years. I have no hard evidence for this, this is just based on economic trends and the strenght of the euro zone.

These moves are to improve the strenght of the currency.

In my advise is to fixed for a long as possible and as sson as possible. The good times are going.

12.75% of the countries employment is construction, when that starts to be affected, see tax rates rising to fund unemployment.

This is just a suggestion more than anything else, its not based on hard facts, but it has happened in Australia and Japan and Ireland has the same trends as these two countries so be warned.

whizzbang

Fix it fast, fix it long.

Rates are on the way up!

whizzbang

kluivert wrote:

Please take note and you heard it here ok.

Am not an economist but I am an accountant who studied economics for three years.

Interest rate will rise to 6% within two years. I have no hard evidence for this, this is just based on economic trends and the strenght of the euro zone.

These moves are to improve the strenght of the currency.

In my advise is to fixed for a long as possible and as sson as possible. The good times are going.

12.75% of the countries employment is construction, when that starts to be affected, see tax rates rising to fund unemployment.

This is just a suggestion more than anything else, its not based on hard facts, but it has happened in Australia and Japan and Ireland has the same trends as these two countries so be warned.

6% ECB rate or 6% being paid by Joe Bloggs?

daveirl

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whizzbang

daveirl wrote:

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fair enough, I laugh every time I hear a "have a life after a mortage with an AIB interest only Mortage", man, those people are going to be screwed... especially if they are doing "Lie to buy" to encrease their ability to get a mortage. they should be "Do you want Mortage repayments that are likely to double over the next 2 years?! Get an interest only mortage! Pay 1,000 per month now, and 2,000 per month in 2 years time! for the same house!"

how long before all the "Buy property in Bulgeria" ads on the radio turn into "Having trouble paying your mortage? come into XYZ Inc where we can help spread your blah blah blah"

daveirl

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Gegerty

I'm looking forward to earning pre 2000 salaries as people will be less complacent in their jobs and start demanding higer wages.

daveirl

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whizzbang

daveirl wrote:

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roll on the property "Correction"

J

whizzbang

daveirl wrote:

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will this really be true? or will all the immegrent trades people just move to the next boom county? I hope its true but I'm not sure.

shakeydude

Do you really think that the prices of houses will come down daverirl?? Surely if interest rates do rise the price will level out as demand will still be there. I am working in the construction industry as an engineer myself and while the building will continue for another 3 years I am quite anxious to see what happens after that.....anyone have a job knocking around the place....and what about the price of oil....woe is me

daveirl

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Mezcita

daveirl wrote:

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Strange example. What if the house for rent is a complete kip, while the one for sale has been done up to a very high standard? While capital appreciation is not a given how people do you know who have not made money on their property in the last ten years?

Also you say that people are losing money on second houses is wrong. According to the recent report from daft.ie rents are starting to increase again after a year of easing off. This therefore indicates that demand is still strong.

http://www.daft.ie/report/index.daft

I can't see how interest rates would rise to 6% in such a short time. One of the main reasons that the ECB has been keeping rates low is because the German economy has been struggling. So any increase in rates would not only affect Irish owners but also everyone else. Thus further hammering the Germans.

My two cents is to get a variable but shop around a bit. Don't be afraid to tell your current lender that you have received a better offer and see what they will do. Banks won't walk away from say €300 grands worth of business without putting up fight so make them earn your business. Worked for me and my mortgage.

whizzbang

Mezcita wrote:

Strange example. What if the house for rent is a complete kip, while the one for sale has been done up to a very high standard? While capital appreciation is not a given how people do you know who have not made money on their property in the last ten years?

Also you say that people are losing money on second houses is wrong. According to the recent report from daft.ie rents are starting to increase again after a year of easing off. This therefore indicates that demand is still strong.

http://www.daft.ie/report/index.daft

I can't see how interest rates would rise to 6% in such a short time. One of the main reasons that the ECB has been keeping rates low is because the German economy has been struggling. So any increase in rates would not only affect Irish owners but also everyone else. Thus further hammering the Germans.

My two cents is to get a variable but shop around a bit. Don't be afraid to tell your current lender that you have received a better offer and see what they will do. Banks won't walk away from say €300 grands worth of business without putting up fight so make them earn your business. Worked for me and my mortgage.

everyone has made money on proerty in the last 10 years, this does not mean they will make money in the next 10 years.

Interest rates will rise for a few reasons

1) German/French Economy improving - Check
2) Inflation (Due to oil prices) - Check

the ECB will not keep rates low for Ireland we are only 1.5% of the EU population. When the rates go up to the 2000 levels of 6% and our property starts to fall the ECB will not lower the rates for us. We are currently in an artificially good rates environment for our Economy. This is currently helping us. When we are in an artificially bad rates envoronment this will hammer us. Imagine, 10% interest rates house prices plummeting here as people can't get mortages for mor than 2 time salary. House prices are not based on value, they are based on how much money is available form the banks.

daveirl

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Sponge Bob

kluivert wrote:

Please take note and you heard it here ok.
Am not an economist but I am an accountant who studied economics for three years.

I tremble and quake ......as I do.

Interest rate will rise to 6% within two years. I have no hard evidence for this, this is just based on economic trends and the strenght of the euro zone.

I disagree . The base rate will not rise to 6% unless Germany starts to boom massively with GDP there growing year on year at 4-5% . There is no evidence of this yet .

These moves are to improve the strenght of the currency.

They are worried the currency is too strong already.

12.75% of the countries employment is construction, when that starts to be affected, see tax rates rising to fund unemployment.

if the base rate is so high it is because there is a boom ELSEWHERE in the EU so the immigrants and the paddies will be on the plane to Berlin just like the paddies were some 10 years back .

This is just a suggestion more than anything else

I thought it was an absolute

The ECB base rate in 2000 was 4.5% implying a mortgage rate around 5.5% max.

daveirl

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whizzbang

daveirl wrote:

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The ECB site http://www.ecb.int/stats/monetary/rates/html/index.en.html says 4.75 was the max for 2000.

daveirl

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Noelie

daveirl wrote:

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Your assuming that the investor has paid current market prices for these houses. Most investors would have bought property many years ago and for far less. houses in my area are worth 600K for a 3 bed, 10 years ago they where less than 100K. The rental income far exceeds the mortgage.

If an investor has 5+ properties, which a fair few would, he won't really worry about making a loss in one as the others will offset the loss. In the long run he will make money. They can always look out for Section 52 properties.

as you point out if a investor is only interested in appreciation he would have a interest only mortgage which would cut a couple of hunderend off the repayment. however prices have gotten to such a way that captial growth seems to be a less important factor in investing.

With property prices I can see apartments stabilising over the next few years, however IMO house prices won't fall. It's all suppy and demand, in most new development in the dublin area all that seems to be built now is appartment's.

whizzbang

daveirl wrote:

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I thought the base rate of 2.5% is what was generally quoted? this is the rate they adjust and everything else come off that no? The rate you pay is above this.

Gurgle

Noelie wrote:

I can see apartments stabilising over the next few years, however IMO house prices won't fall.

I agree, if somebody is considering selling their house and finds out that they'll get less than they hoped then very often they'll just decide not to sell for the moment.

whizzbang

Gurgle wrote:

I agree, if somebody is considering selling their house and finds out that they'll get less than they hoped then very often they'll just decide not to sell for the moment.

why the faith in appartments? who lives in them? who will live in them in 10 years time? I think appartments are the worst investment and suburban houses are a much lower risk. 10 to 15 years from now don't be surprised to see appartments full of low rent immegrants stacked 5 to a room with suburban house full of 2 and 3 children families. have you noticed how many babies are abouts these days?!

The great immigrant hope for the renters is being over exadurated I think. Most immigrants are interested in making a few bob and heading home, not in spending 600 a month each on rent.

Sponge Bob

Base is 2.5% now , an Irish Mortgage variable rate is typically between 1.3 and 1.6 over that unless you have a tracker in which case the margin is locked.

a 1.0% over base tracker mortgage is now 3.5%

It was 4.75% base in 2000 ...my mistake

daveirl

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Sponge Bob

neways.

I cannot see the ECB bringing rates to where they were in 2000 .... ie 4.75% implying a mortgage rate here between 5.5% and 6% based on normal spreads .

In 2000 the ECB were attempting to support a currency in freefall was it below 80c US at one point???? . Now they freak if it breaks US 1.30 on its way up. Only last year the pundits were banging on about $1.50 to the Euro which would kill European exports.

Where they had to offer an interest premium over the US back then it would be the opposite now . If the € vs $ rate moves towards 1:1 we could see interest rates start to equalise on both sides of the Atlantic .

s8n

some excellent opinions here.

daveirl

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toddy

Guys,

Look at rational economics. The simple facts are

1) The Euro is expected to decline in value by 2-4% to the USD given the oscillations in the fx forward rates. This will make Europe slightly more competitive and push up inflation slightly - cause for small rate hike to take price pressure out of the market.

2) Oil won't get much more expensive unless their is a catalyst. The world is rather unstable. This is factored into the price of gold at 600/ounce - a multi-decade high. So the market thinks there might be a catalyst but it's dependent upon a nutcase blowing up something - which may or may not happen. Consequences of it happening would depend upon where it happened, if it was an attack on oil supplies, it would hike the oil price - however, it may depress the global economy if it was sufficent pushing rates down (re-inflate the economy).

3) The interbank swap rates have rocketed in the past few weeks, the in six months, the 10 year SFR swap has gone up nearly 50% (2.05%-2.85%). The EUR swap has gone from 3.1 to 4%, while the dollar is stablising but with slight increases supporting the currency's strenght. The 10 yr EUR swap is up nearly .2% in two weeks! This has not yet be factored into the AIB fixed rates but is factored into the EBS fixed rates.

4) The market predicts the SFR to strenghten over the next year by 2% so ideally one would borrow in SFR for their finances as it's a stable currency. However, once the pooh hits the fan, there will be a funds inflow to safe-haven currencies like the SFR pushing up the strenght.

5) Gloabl asset value bubble - with all due respect, anyone buying a house in Ireland now needs their heads looked about - history always repeats itself and prices will come down. However, this time we can't even play games with our own monetary policy - when we need to soften the affects, Germany's recovery will push rates up - a doubly whammy...if US prices contract, consumer spending WILL go through the floor. This will have serious consequences for US trading partners (like Ireland and England as well as to some degree, Germany)

6) Gold is the perfect place to be (you can also easily finance against it) but many of the risks are factored into the price at this stage so there's no premium to be got unless you know something we don't.

7) Buying an apartment on the shores of Lake Geneva, Zurich city or Lugano in SFR sounds like an optimum investment. You can fix your rate there for 4% for 15 years, they will benefit from the German recovery, have the lowest financing cost in Europe, are donimated in a safe-haven currency etc.

Should you fix rates?

Yes, absolutely. The 5 year rate in the market is about 4.3-5%. Remember that if you've an amortising mortgage, your debt value will be less in real terms in 5 years as well as actually being less. Therefore after 5 years, you're much more likely to be able to manage it if rates go up (i.e. if you have a 295,000k mortgage, costing say 1,545 EUR/month, in 5 years, remortgaging it will cost you 1,341 EUR/month in nominal terms and given inflation at 3% p.a., that's 1,223 EUR/month - 21% more affordable.

So... the markets predict rates will increase towards over the next couple of years towards the 4% mark (not 6% but inc bank margin, 5-5.5%). Do as you wish but personally, I've fixed some mortgages in cheap currencies for the maximum time period and pay interest only using the extra cash to reduce the balance of mortgages held in more expensive currencies i.e. USD.

Toddy

Sponge Bob

toddy wrote:

So... the markets predict rates will increase towards over the next couple of years towards the 4% mark (not 6% but inc bank margin, 5-5.5%). Do as you wish but personally, I've fixed some mortgages in cheap currencies for the maximum time period and pay interest only using the extra cash to reduce the balance of mortgages held in more expensive currencies i.e. USD.

Good stuff Toddy, I agree wholeheartedly and assume in addition that this up cycle will take until late 2007 and peak at around 4% base meaning mortgage rates 5.2-5.5% variable c 5% on most trackers.

A strong German and French economy with growth up to around 3% each could cause the base rate to overshoot 4% but I consider this unlikely

mrbig

Its funny reading this to see how nobody could predict what was about to happen. I would like to revise my answer to definitly a tracker:(

Mezcita

Anyone got a Tardis?