Good Idea with Interest Rates??

blue1980

I know there are similar threads but I was just looking for some opinions here.

I unfortunately bought a property in 2007 but I have been quite fortunate with interest rates... I think.

My original two year fixed rate ran out just as the ECB rates plunged so I stayed on low variable (2.25%) for the last year or so. From the first of this month I fixed into to five year fixed rate of 3.86% (AIB) which increases my repayments by about 250euro.

However I have being doing some research and it looks like the ECB will not higher their rates until this time next year.... but I also see that the Irish banks are running at a loss and are increasing their rates on some products.

My question is.... Do you think I should have held out for a few more months before I fixed in? And when do you see the Irish banks increasing their mortgage rates and by how much??

Any opinions would be greatly appreciated.

Cheers.

FergA.com

Assuming you weren't on a tracker variable, I'd say you were right to fix, if the prospect of rate hikes would worry you. AIB themselves have suggested recently that they will start hiking their standard variable rates pretty soon - the Indo speculate that it will be by the Summer. This could well be the first of several. The ECB will increase rates too - the question is when, not if.

Cheers,


Liam

country home

since asking the same type of question myself a few days ago, "should i fix or shouldnt I"

here what i was faced with. .

2.45 variable
3.6 3 yrs fixed
4.25 5 yrs fixed

the difference would have been between 180 and 220 per month on the mortgage. . .

im currently on variable. .

i googled and read, and googled more and read more. . . . . and the more my self and my wife read in to it, the sentence below reflected the "common rule in all media/material".

If you are looking to save on mortgage repayments, trying and hedge against the interest rate hikes down the line, or trying to out think the market by fixing "you wont".
Fixing the morgage with rates so low is only advisable to those who need to know exactly what the payments are per month for a No of yrs.

And with this info, we decided against fixing. ..
this information together with the fact that at current figures staying variable would cost the same as ESB,Phone,Sky,Heat, per month.

each to their own. .

we were thinking about it, but if you can afford and accept pops in the market in the coming years, stay variable (just my opinion)
but if ur light hearted and affraid of a .5% hike which could impact the household, then fix might solve this. . .

hope this helps.. .

blue1980

No I wasn't on a tracker rate so after reading that article I'm feeling like it was a good move. Cheers.

dotsman

on average, over the term of the fixed period, you will pay more for a fixed rate than a variable.

As mentioned by "country home", fixing is only advisable where you want to ensure that your monthly repayments don't go above a certain figure. If AIB is offering 3.86% for 5 years (which is one of the lowest rates for 5 years on offer), then they are predicting that the average over the next 5 years is circa 3.5%.

Fixing is not about saving money for for the customer (or for the bank to rip off the customer before someone suggests it:)). It's about paying a small bit extra for the guarantee that repayments will remain at a level you believe you can afford for that period.

It should be noted that you will be liable for (possibly large) fees, should you wish to change during the fixed rate period or make additional repayments etc.

FergA.com

In normal circumstances, I tend to agree with dotsman and country home's view on fixing - it's very hard to beat a bank at making money.

But I think we're in very extraordinary times at present. Bank of Scotland & Halifax have gone from Ireland. AIB have stopped offering switchers. This trend worries me as it may lead to the complete inability to switch lenders. Which then leads to the spectre of banks being able to hike up interest rates as much as they like, in the full knowledge that their customers can't do a thing about it. With the enormous losses that all the banks have made recently...:eek:

Just my two shillings worth.

dotsman

FergA.com wrote: »

In normal circumstances, I tend to agree with dotsman and country home's view on fixing - it's very hard to beat a bank at making money.

But I think we're in very extraordinary times at present. Bank of Scotland & Halifax have gone from Ireland. AIB have stopped offering switchers. This trend worries me as it may lead to the complete inability to switch lenders. Which then leads to the spectre of banks being able to hike up interest rates as much as they like, in the full knowledge that their customers can't do a thing about it. With the enormous losses that all the banks have made recently...:eek:

Just my two shillings worth.

Possibly, but there will be massive political/media pressure to keep them as low as possible. Look at the uproar at the moment, just because AIB hinted that they can't continue to lose money on mortgages forever. I just don't see large rate rises happening any time soon.

blue1980

ok.... I was thinking that if current ECB rates are 1% and these are set to rise to 2% + at the end of the year and the Irish banks need to add to that in order to make a profit, then in a year and half the standard variable rate will be around 4% (AIB)... ergo my 3.86% fix will save me money over the following three years...

Either way my 3.86% 5 year fix is still good in comparison to other banks current variable rates....no??

dotsman

blue1980 wrote: »

ok.... I was thinking that if current ECB rates are 1% and these are set to rise to 2% + at the end of the year and the Irish banks need to add to that in order to make a profit, then in a year and half the standard variable rate will be around 4% (AIB)... ergo my 3.86% fix will save me money over the following three years...

At present, ECB will remain as they are until the end of the year. Then, slowly move up. Unlikely to be at 2% until well into next year. ECB won't start rising until the financial markets are settled, so the pressure on the banks won't be as bad, thus the margin over the ECB rate won't need to be as high.

That being said, it is impossible to predict precisely! The only concern is that the amount you have to "overpay" in the time between now and when the variable rate exceeds the 3.86% exceeds the amount you save from then on to the end of the fixed period.

Me personally, I am considering fixing half my mortgage, thus minimise the potential damage of large increases, but also not need to overpay too much for the moment.

blue1980 wrote: »

Either way my 3.86% 5 year fix is still good in comparison to other banks current variable rates....no??

True.

hinault

I cannot see the ECB increasing interest rates this year.

The fallout from Greece and the continuing problems in the world economy have still to play out and there is a serious possibility that the major economies in Euroland could return to recession.

The economic situation is fragile and inflation appears to be benign in Euroland for the forseeable future.

The ECB may begin to raise interest rates in early 2011 - but any increases will be minimal until the ECB is sure that the threat of recession is off the horizon and that there is an increase in inflation too.

Joey the lips

My understanding is if the EU dont start raising interest rates in stagnates investment in the euro. As there is no real return on investment so I wonder if greece will actually stop it.

As for my situation I am on a 2.86 veriable rate at the moment. If I fix this to the nearest rate on offer the rate will be 4.05% this will increase my repayemnts at the moment by 100 Euro a month. That is on the shortest term rate of 3 years. Where as if I hedge a little and put the 100 euro away at the end of the year I will have 1200 saved and if the rate does rise slightly the I can use tha fund to absorb it. My thinking is that if rates rise as slow as I suspect over the 3 years then I should not see much of a difference.

What my assumption is down to is 2 things

1. How much above the ECB rate will the bank add on. I am not on a tracker

2.Over what period of time.


you can go mad thinking about it. But the way I see it is I have 100 Euro more in my pocket now. But the way I should be looking at it is. Can I afford to pay 100 euro more than I have.... No I cant.

elchanco

Interesting posts! Im in the same dilema at the moment. With the banks all raising there svr im thinking of fixing (even though i fixed in 2008 and missed out on the low rates)...

im with ptsb.. currently on a massive 5.7% fixed rate:rolleyes:m what rates should i expect now?

igorbiscan

how far can the banks raise their rates before they put a lot of people(possibly their own customers) under severe pressure forcing even more bad debts and foreclosures, bringing more losses to the banks.They certainly dont want the houses back! So I think we will see some rises but the banks will have to walk a fine line.my two cents:P

Joey the lips

igorbiscan wrote: »

how far can the banks raise their rates before they put a lot of people(possibly their own customers) under severe pressure forcing even more bad debts and foreclosures, bringing more losses to the banks.They certainly dont want the houses back! So I think we will see some rises but the banks will have to walk a fine line.my two cents:P

Banks dont rise interest rates to put people under pressure they do it to make money. At the moment they are not making money because they are not issueing loans. Money on the international market is worthless so really raiseing interest rates is there only option.

tbh I have now fixed my mortage for 3 years but sometimes the way I think I would fix it for 10 years.

FergA.com

Joey the lips wrote: »

tbh I have now fixed my mortage for 3 years but sometimes the way I think I would fix it for 10 years.

Just out of curiosity, what convinced you to abandon your earlier plan of accumulating the lower monthly repayment as a buffer against future rises?

Joey the lips

FergA.com wrote: »

Just out of curiosity, what convinced you to abandon your earlier plan of accumulating the lower monthly repayment as a buffer against future rises?

Maybe fear.... But following the market i recekoned when the banks started rising interest rates with the nama scheme they would all follow and EBS my bank did.

So Half percent in may estimating another half in december and this is before the loans start defaulting....

I followed every thread and studied the form. I agree that banks cannot rise rates to high but I am fearing the term "cheap money"

Then there was the interest....How can banks be giving high interest if they are not getting it in.

Then there was the tracker situation. A lot of EBS customers(cant remember the figure) are on trackers so i figured the variable one's like me would suffer.


Do you think I was wrong.... Out of curiosity.

FergA.com

Joey the lips wrote: »

Do you think I was wrong.... Out of curiosity.

Frankly, no - I think you were right, though it's a tough one to call and I have no more "insider" knowledge than the next man. I didn't like to see the speed that other lenders followed AIB in hiking up rates a few weeks ago. It suggests a return to the cartel-style practises of some years ago.

Joey the lips

FergA.com wrote: »

Frankly, no - I think you were right, though it's a tough one to call and I have no more "insider" knowledge than the next man. I didn't like to see the speed that other lenders followed AIB in hiking up rates a few weeks ago. It suggests a return to the cartel-style practises of some years ago.

My thoughts and fears exactly...

elchanco

interesting discussion...

What is the arguments at staying SVR and save the money to soften the blow against any increases in rates in the next year or two!

Lets say you fix today at... 4%. How long would it take banks to increase SVR above this 4%...??