Any advice appreciated

darkskol

Ok first off sorry if this has or similar has been posted a thousand times before.:o

I am really at my wits end with this one. My girlfriend and I are at the stage of picking a mortgage (35 years) and we have narrowed it down to 2 choices.

1) 5 year fixed with Bank of Scotland with repayments of €1441 a month.

or

2) 3 year fixed with AIB with repayments of €1437 a month but with the €2000 cashback offer.

Our broker is hinting at a 3 year fixed over a 5 year fixed (not necessarily with AIB), as she says you dont know whats going to happen to you over the next few years i.e. having to break the fixed early and repay excess to bank. I was half thinking about the 5 year as I see myself living there for at least that and no sign of a slowdown with the increase in ECB rates anytime soon.
This is my dilemma I really dont know which option would be better.

Any comments on what people think about this or what might be the better option would be definitely appreciated! Thanks in advance.

Zambia

darkskol wrote:

1) 5 year fixed with Bank of Scotland with repayments of €1441 a month.

Thats what I would go for assuming it fits with your plans for the next 5 years, kids , work , salaries affordability etc

Ask your mortgage Broker what are the get out options

It really depends on your own attitude to risk.
Personally, I would take the 3-year fixed, but perhaps that's because I remember my brother being forced to buy his way out of an 8% fixed rate. :eek:

Gurgle

Zambia232 wrote:

Thats what I would go for assuming it fits with your plans for the next 5 years, kids , work , salaries affordability etc

Ask your mortgage Broker what are the get out options

ditto

+ anything that comes with a cashback offer is inherently dodgy.

uberwolf

most banks will allow you split the level of fixing, so that 1/3rd over 3 years, a 1/3rd over 5 and the rest on tracker, so that if you come into cash you can throw it against it without penalty.

Whether fixing remains a good option? Not convinced.

Moonbeam

Remember at the ned of the fixed term you will get hit with the increases that happened in the meantime a nd your payments could rise significantly.
So look at the bigge rpicture and how their other mortgage rates compare.

Degsy

Dont fix.The amount you're paying oer the top for "security" of interest rates is likely to be FAR in excess of anything you'll pay in interest rate increases.For me to fix for one year was going to cost 120 quid a month more than the standard variable rate and as the bank manager pointed out,this is far more than i'd be paying even if the interest rate increased FOUR times.Fixing for five years is ridiculous IMO,and you'll end up paying out huge amounts of money that would be better off in your pocket now.

conor_mc

It's horses for courses and depends on your personal situation.

If the property you're buying is not suitable for your medium-term needs (kids etc) then don't fix - you'll probably want to change before 5 years is up.

Looking at repayments of €1400 or so, I'd say if you couldn't afford a repayment of €1700, then fix. It's possible that rate rises could pump your repayments up to a figure like this so you need to be able to absorb that. If you can't and you're already stretched, it's worth fixing for "security". No use keeping that money in your own pocket if a rate peak for 6 months or so causes you to lose your home, even if fixing costs you more over 3 or 5 years overall.

In my personal opinion, if you're not going to fix, I'd be sure to stress-test myself to and ECB rate of 6% - it might not look likely we'll get there, but you don't stress-test on a best-case scenario so 6% is probably as bad as it might get over the next few years. If you can't afford that, then fix.

The_Conductor

Obviously there is a price to pay for having the security of having a fixed mortgage rate. We are one of only 3 countries in the Eurozone though who have mortgage rates that are tied to ECB baserates. In the Netherlands, Germany and elsewhere- while you can get packages similar to those on offer by the financial institutions in Ireland, the vast majority of people plump for fixed term rates, in a lot of cases for the entire length of their mortgages. What you have to realise is banks and other financial institutions do not necessarily borrow money from the ECB, at ECB baserates- this is often a facility of last resort for them, there are far cheaper sources of funds open to them elsewhere.

Personally- for peace of mind, if the rate on offer for 5 years is reasonable enough- I'd advocate going for it. While ECB base rates are predicted to rise at least another 50 basis points, and possibly a good deal more- you can only guess how high and when- and when rates will go down again. Its like peering into a crystal ball, no-one knows what will happen. For peace of mind, and the knowledge of knowing what your repayments will be for the next five years, I'd be inclined to take the 5 year offer and run with it.

patrickolee

Personally I would take the 3year. Here's my reasoning. As i think most people would agree nobody knows for sure if rates will go up or down or stay the same in the 3-5year timeframe. Much less little old me, writing on a forum! But I can look at what the banks think... not necessarily what they say. Looking at AIBs mortgage rates we see the following

Variable Owner Occupier 5.10%
1 Year Fixed Rate (new business) 5.24%
1 Year Fixed Rate (existing business) 5.47%
2 Year Fixed Rate 5.65%
3Year Fixed Rate 5.70%
4 Year Fixed Rate 5.80%
5 Year Fixed Rate 5.82%
6 Year Fixed Rate 5.84%
7 Year Fixed Rate 5.86%
8 Year Fixed Rate 5.93%
9 Year Fixed Rate 5.98%
10 Year Fixed Rate 6.00%
Taken from http://www.aib.ie/servlet/ContentServer?pagename=ROIPersonalPortal/AIBContent_C/pp_article&cid=1141323015155&c=AIBContent_C&channel=P005

i.e. The difference between a one year fixed and a 10 year fixed is slightly over 0.5%. This tells me that they think (and it's safe to assume that they know more than me) that rates are going to increase by at worst 0.5% in the next 10 years. In fact considering that they will want to cover their bets, its reasonable to read it that they think rates may even stay the same or decrease slightly in that timeframe. Given that they are offering you a juicy 2000 Euro for fixing for 2 less years, I would be inclined to take it.

3 or 4 years ago when rates were very very low... the difference between a variable and fixed rate was quite large. The variable was around 3% and the 10 year fixed was around 6%. That at that time it indicated to me that the banks thought rates were going to increase. They were right.