fixed or variable

BlueIsland

right have to decide on rates for mortgages in next week. three year fixed at 4.88 or variable at 3.29. I know its speculation but with that 1.55% difference do you think variable would rise that in the next three years? At least we could go on fixed if it rose drastically but cabt move off a fixed. What everybody think?

Pablo Sanchez

Its always tough to make a call like this one. On the one hand it looks like ECB rates will decrease by at least 0.5% over the next quarter.

On the other hand inflation is relativly steady at EU level at 3%, this is 1% or so above what the ECB wants it to be. Luckily the new ECB presedent Super Mario looks less paranoid about inflation then his predecesor but thats not to say if the European economic situation improves he wont let the air out of the tires somewhat via increased rates.

Another consideration is the actual currency in our pockets. Should we revert to the punt, we get to set our rates again, thats likely to mean we will leave rates somewhere between 0 and 0.5%. I want to be clear though its unlikly that this will happen but if it does it will mean low low interest rates for the forseeable future.

Probably dosnt help you too much but if it was me i would pick the variable rate option on balance.

cookie1977

It's a very tough call. In days gone by I'd have recommended a variable rate in light of the proposed .5% cut coming from the ECB but now with the banks individually out on their own putting up rates whenever they feel they need to it's very hard to know what the banks will do with variable rates.

The best advice I could give is for you to consider how much of an increase could you afford with a variable rate if it did go up. If you're near the bone then maybe the fixed rate is the way to go and 4.88 isn't too bad out there at the minute.

Rates are so low at the moment with the ECB that while they may go a little lower they will eventually have to go back up eventually (that's guaranteed). When that will happen is hard to know. It could happen as you come off your fixed rate and so you'd have "possibly" missed all the cuts.

If you're asking me what I'd pick I'd say if I can afford a 2-3% increase in rates then I'd pick the variable rate like Pablo.

BlueIsland

thanks guys. Its the banks id be worried about lumping up their variable rate! I suppose it really speculating at end of day isint it? Id hate to go fixed for the three years and spend 100 euro a month extra cos variables dont go up or maybe drop!!!!

colugo

I've faced a similar decision myself and have come to the conclusion that variable makes more sense. In my case, I worked out that the variable rate would have to rise steadily over the three-year period to almost 7% before it would be a more expensive option than fixed over that same period.

Can I ask you which bank is offering you 3.29%? My bank is currently 3.8% and although I have told them they will have to come down, I'd like some hard evidence of what other banks are actually giving to back up my demand!

BlueIsland

AIB. we were in with our broker there at weekend. think we will go variable!