Variable or fixed

greenbicycle

Sorry if this has come up before......

We are well into the process of buying a house, have our loan offer, deposit paid on a place we like, survey showed it was in great condition, reckon we will cose soon enough,hope so anyway!

And now we are getting to a bit i cant make my mind up on because i dont know enough about it. Which are we better off going for, a variable rate or a fixed rate, its a term of 35 years... Will rates stay low if we go with variable? I know there is no definite answer because we cant predict the future but what is the general feeling out there?

Need advice!!

Senna

It depends completely on what the rates actually are. What rates have they offered you?

greenbicycle

Rates are

1yr fixed -4.29
2yr fixes- 4.49
3yr fixed- 4.69
5yr fixed- 5.29
Variable- 3.75

Can you negotiate rates with the bank at all? I realise that there are better rates available out there but i think we were just so relieved to be offered the mortgage that we just stuck with this bank.

twerg_85

Fixed rates would normally be based on what the bank expects the variable rate to be on average over the next few years, plus an extra margin on top of this to cover the risk.
This is why you'll often hear people saying you should never go fixed, because on average you'll pay more than if you stay variable.

What's also important is to think about what would happen if the variable rate went to 7%,9%,over 10% ?
Would you still be able to pay ? Would you be at risk of losing the home ?

If you'd still be able to pay the mortgage and you dont think repossessions are going to be a threat, then probably stick with variable rate.
If the max you can pay is interest at 7% say, and anything above this would put you in serious trouble, then fixing protects you from this possibility.


You need to make the decision yourself, but some factors to consider are affordability at different variable levels vs extra expected cost.

F.

Man007

twerg_85 wrote: »

home ?

If the max you can pay is interest at 7% say, and anything above this would put you in serious trouble, then fixing protects you from this possibility.


.

This doesn't neccessarily protect you if you go fixed for 5 years and rates go to 10% once your fixed term is up you will revert to a variable of roughly 10% or be offered a fixed of about 12% so if you can't afford over 7% fixed will only help you for a short period of time

It's not likely that rates will rise by enough to make fixed worth your while

Gurgle

twerg_85 wrote: »

If the max you can pay is interest at 7% say...

then you shouldn't even be considering the purchase.
Not that rates are likely to hit 7% anytime soon, but a mortgage lasts way longer than 'soon'.

Anyone

If you are on a variable rate, can you choose to take a fixed rate at a later date? Or are you stuck on a variable rate for a certain term?

Chris_5339762

I went fixed for three years and if I had the decision again I'd go variable. THAT SAID, if you know you're due a promotion and more money in years to come, then at least for the first three years you'll have the peace of mind in knowing exactly what you're going to pay each month. But it would be more than if you went variable.

Chris_5339762

I went fixed for three years and if I had the decision again I'd go variable. THAT SAID, if you know you're due a promotion and more money in years to come, then at least for the first three years you'll have the peace of mind in knowing exactly what you're going to pay each month. But it would be more than if you went variable.

greenbicycle

Thanks for all the replies!

There are attractions to both rates aren't there? obviously variable is cheaper if it stays that low but the fixed gives comfort of knowing exactly what we will be paying.

How often would you see a shift in how much you are paying? every month? every year?

I am feeling a bit more clueless the more I look at this, apologies if i sound stupid. Say we are paying 1200 per month on 3.75% and the rate went up to 7.5% would that mean we were paying 2400 per month? ( I just picked the 7.5% to make the maths easier)

what are the possibilities of this going up to 10%? that would be a lot to be paying out every month, i think the bank gave us our mortgage and are satisfied that we are well able to pay it back but i THINK they were thinking of it reaching a max of 6%. i know that we have further income that wasn't taken into account when going for this mortgage which gives us a good bit of further wiggle room but rates rising to 10% would be very worrying.

magicbastarder

i'd go variable; it means that if you find yourself with some cash, you can stick it into the mortgage as an out of schedule repayment, and bring down the principle and thus the term of the mortgage.
before i sold my last place, i was paying (by agreement with the bank) about 25% more per month than the term and interest rate would nominally dictate.

fricatus

greenbicycle wrote: »

I am feeling a bit more clueless the more I look at this, apologies if i sound stupid. Say we are paying 1200 per month on 3.75% and the rate went up to 7.5% would that mean we were paying 2400 per month? ( I just picked the 7.5% to make the maths easier)

It's not that simple I'm afraid. The simplest thing is to work it out with a mortgage calculator, or if you have access to Excel, use the PMT function:

=PMT(0.035,25,200000) (that's 3.5% yearly, 25 years, 200k loan)
12,134.81 per year
1,011.23 per month

=PMT(0.07,25,200000)
17,162.10 per year
1,430.18 per month

magicbastarder wrote: »

i'd go variable; it means that if you find yourself with some cash, you can stick it into the mortgage as an out of schedule repayment, and bring down the principle and thus the term of the mortgage.
before i sold my last place, i was paying (by agreement with the bank) about 25% more per month than the term and interest rate would nominally dictate.

That's what I'm doing at present - IMO this is good advice. See how much fixed costs, then take the variable mortgage, and then save the difference (you must absolutely commit to doing this; if you don't think you can, then fixed might be the better option).

StillWaters

I agree that if you have a cushion in there variable is the way to go. You can however hedge your bets and fix 50% and have the other half variable.

I've never gone fixed, it is so rare that you are a winner from it.

greenbicycle

What you are all saying very much makes sense, it seems variable is definitly the way to go and saving the excess that would be paid if we went for fixed sounds like very good advice, am i right in saying then thst instead of just paying off some of the loan as we would be with the fixed rate that we would do better to save that excess and make a lump payment in say five years and then reduce the overall payment (a reduction that would not happen if we went with fixed)
Great i am understanding this more now and its making sense.

Still havent gotten my head around the maths of increasing rates though,despite fricatus' efforts. Might need more help with that,just to be sure i am not going to fall into dangerous ground if it increased by huge amounts!!

greenbicycle

Maybe if i gave more figures the maths bit might be easier to explain.

So its 35 year term

Credit advanced is 281,000

Interest rate on variable is 3.75

So i think thats about 1200 per month.

Shocking what the cost of the credit is :-(

magicbastarder

here's one way of looking at the option of putting extra cash into the mortgage if you go variable; let's say you won €10,000 on the lotto.
by putting it into the mortgage, you'd effectively be earning 3.75% on that, which is higher than you'd hope for in a deposit account - but with an important caveat that if you put it in a deposit account, it'd be there in an emergency; putting it into a mortgage means you don't have that liquidity to draw on.

knocking 10k off the principal would not reduce your monthly payments, but it would reduce interest charged on your mortgage by about €30 a month.

[Jackass]

greenbicycle wrote: »

Rates are

1yr fixed -4.29
2yr fixes- 4.49
3yr fixed- 4.69
5yr fixed- 5.29
Variable- 3.75

Can you negotiate rates with the bank at all? I realise that there are better rates available out there but i think we were just so relieved to be offered the mortgage that we just stuck with this bank.

Those rates are an absolute disgrace considering the cost of funds is about 0.75%.

That's a margin of up to circa 4.5%!! Basically, you're paying your interest and the interest of an arrears account with the bank.

If you can't get a better rate, I'd go variable, but rates at the moment are just disgraceful given the base rate is so low. They banks are lending, but they're only lending to people with virtually zero risk and who are willing to get absolutely fu*ked on rates.

I'd rent to be honest.

greenbicycle

Yes, i am realising more and more that these rates are not great at all.

Are they negotiable at all does anyone know or has anyone tried?

But we just do not want to rent any more and we are getting to a stage where buying is the better option, right now paying a mortgage at the rates i quoted is working out cheaper than renting per month. I know that there are extra associated costs with buying but they are fine with me. Also the longer we wait now the shorter the term of the mortgage will be so now is the time for us and the available rates will have to do unfortunately.

magicbastarder

AIB are quoting 3.5% SVR at the moment, and that's about as cheap as any of the banks are offering.

[Jackass]

You could try and negotiate rates, but banks really aren't in the business of lending at the moment (as crazy as that sounds!) so they really pick and choose who they lend to. Essentially, the loan book ratio in the banks are such a mess, that they want very low loan to value ratio (maybe about 80% - meaning 20% of purchase price must be covered by the buyer) and they want to charge extortinate rates to those who'll take them.

They're not competing for people to lend to any more, so I would be very suprised if they would budge on any variable or introductory rate. Your best best on getting a reduction might be if you agree to fix, and on a longer term fix rate they may give you a modest reduction (as they're so expensive as it is).

Unfortunately it's not a lendee's market any more (you can't win, can you?) so the banks are really only interested in highly security, high return investments in financing at the moment.

Fixing or variable is an important decision, and I don't want to give financial advice, but I am of the opinion that ECB base rates will absolutely not begin to rise any time soon. If you want to know when a good time to fix would be, keep an eye on ECB announcements and rate changes. Essentially though, because of the lack of spending in the Eurozone at the moment, ECB are keeping interest rates extremely low to remove an incentive to save cash, promote investing as a means for return and also to give cheap money for banks to lend, so an increase in rates would only occur if there was a very positive turn around in European fortunes, but I think it would take a couple of years at this rate, but I'd wait for very positive mootings and growth expectancy from the ECB and a couple of consecutive rate increases when the time comes before fixing - IN MY OPINION - but that's up to you to decide to time it, but I wouldn't touch a fixed rate at the moment.

I understand sometimes you can't fight whats on offer and buying suits, so I'd suggest research all the first time / introductory rates from any of the banks left (:p), I think AIB has offered the best rates over the last couple of years though.

Best of luck with it.