Mortgage advice

13/04/77

Hi, we have a 100% variable mortgage with monthly repayments of 2750 (before mortgage relief) at 5.88%. We bought the two bed cottage in dublin 2 about two yrs ago.

We have been offered these two fixed rates..

6.2% 3yr

5.9% 5yr.

seriously considering fixing at 5.9%,

any advice?

thanks.

suckslikeafox

Wont comment on the rates because I havnt my numbers head on me this morning but ya should know theres usually a fee if ya pay off a fixed rate one early, just something you should keep in mind

13/04/77

thanks, I suppose we are managing alright at the current repayment amount, so therefore fixed would calm our nerves about any more hikes - Is this a big gamble? or does it seem reasonable that it shouldn't drop below current rates too much but has the potential to rise further?

suckslikeafox

Id say rates will go up again at least once but thats just my guess...5 years is a long time in economics though, its anybodys guess what the situation will be by then

Moneyback

As previous poster says, 5 years is a long time in economics. Can you see yourself there for the next 5 years? As you got a 100% mortgage I presume you were first time buyers? Will circumstances change in the next 5 years (eg kids, new job, trading up to bigger house) and as a result you have to move. If you do and you have to break the five year fixed rate then the money you save by fixing (if rates continue to rise) could be obliterated by this penalty.
If you are sure that you will be there for 5 years and want the certainty of €x going out for the next 60 months then by all means fix but just remember there may be penalties for
- paying off or switching the mortgage
- paying back a lump sum
- overpaying the mortgage!! (if only)

chump

13/04/77 wrote: »

Hi, we have a 100% variable mortgage with monthly repayments of 2750 (before mortgage relief) at 5.88%. We bought the two bed cottage in dublin 2 about two yrs ago.

We have been offered these two fixed rates..

6.2% 3yr

5.9% 5yr.

seriously considering fixing at 5.9%,

any advice?

thanks.

ecb rate is 4.25%

I imagine the upside for ECB rate is 0.5% increase within 12 months. I personally see this as a max., and would be of the opinion it will hang where it is for a good while.
I would stick with what you have personally.

johnnyskeleton

chump wrote: »

ecb rate is 4.25%

I imagine the upside for ECB rate is 0.5% increase within 12 months. I personally see this as a max., and would be of the opinion it will hang where it is for a good while.
I would stick with what you have personally.

First of all, there is nothing to say that ECB rates will not go up by more than this. An ECB base rate of 6-7%, which admittedly seems unlikely, is not beyong the realms of possibility.

Second of all, the banks' variable rates are not linked to the ECB, so even if the ECB stays the same, variable rates could go up several percent. The ECB base rate is meant as an emergency fund rather than a regular source of funds for banks, so if international capital markets have higher rates, and banks have increased overheads, variable rates could rise without any increase in the ECB rate.

As already said, interest rates could go down as well as up, and if you enter a fixed rate you may have to pay penalties for doing so. Discuss these things with your bank, and weigh it up for yourself. Consider the cost of breaking the fixed rate and the liklihood of variable rate drops in the next 5 years on the one hand, and the liklihood of increases over the next 5 years and the security of knowing that the mortgage is fixed on the other hand.

chump

johnnyskeleton wrote: »

First of all, there is nothing to say that ECB rates will not go up by more than this. An ECB base rate of 6-7%, which admittedly seems unlikely, is not beyong the realms of possibility.

Second of all, the banks' variable rates are not linked to the ECB, so even if the ECB stays the same, variable rates could go up several percent. The ECB base rate is meant as an emergency fund rather than a regular source of funds for banks, so if international capital markets have higher rates, and banks have increased overheads, variable rates could rise without any increase in the ECB rate.

As already said, interest rates could go down as well as up, and if you enter a fixed rate you may have to pay penalties for doing so. Discuss these things with your bank, and weigh it up for yourself. Consider the cost of breaking the fixed rate and the liklihood of variable rate drops in the next 5 years on the one hand, and the liklihood of increases over the next 5 years and the security of knowing that the mortgage is fixed on the other hand.

Well johnnyskeleton.
I was expressing an opinion.

I didn't state anything that was incorrect.
Variable rates as you say are not based on the ECB rate, it'd be fairer to say that they are determined by the banks and are typically a margin above the interbank rate.

The interbank rate typically hovered very close to the ECB rate, and it is reverting to this trend.

The point is, the banks are likely to pass on any ECB rate increase to the customers as this will likely be reflected in the interbank rate.

here's the opinion piece,

I don't see the ECB rate increasing by much more that 0.5% in the short to medium term.

Therefore their current variable rate of 5.88 + 0.5 = 6.38%


I would favour sticking with the variable rate than fixing at
6.2% 3yr

5.9% 5yr.

why?

1. I don't see a huge risk of rates increasing dramatically (this is whole other conversation)
2. I'd prefer to be flexible, with respect to freedom to shop about for a better deal if and when I feel like it

Victor

Are banks willing to offer 50% fixed and 50% variable?

I don't think we are going back to a 2% ECB for a long time and certainly for the next two years rates are likely to stay high.

If you are happy with the penaly situation, go with the 5 years.