New Mortgages - To fix or not to fix?

sconry

My husband and I are about to buy a house and are trying to decide between a cheaper variable rate and a more expensive fixed rate. What are peoples thoughts? Fix to be secure? Or variable to pay less in the short term? Thoughts on likelihood of an imminent ECB rate increase? Thoughts on what Irish banks will do to variable rate if that happens?

ted1

sconry wrote: »

My husband and I are about to buy a house and are trying to decide between a cheaper variable rate and a more expensive fixed rate. What are peoples thoughts? Fix to be secure? Or variable to pay less in the short term? Thoughts on likelihood of an imminent ECB rate increase? Thoughts on what Irish banks will do to variable rate if that happens?

I'd go variable. If you can afford to pay the higher fixed price put the money aside and pay of some of your capital with the difference

sconry

Interesting. Would you not be afraid that you'd miss the boat to get the fixed rates available now? If ECB rate goes up? Our broker is pushing us towards a variable rate, but the cynic in me wonders if he gets more commission for that. I've no clue how commission structures work but I imagine banks want people to take variable so they can recoup tracker losses through hiking the variable rate?

Little Miss Cutie

Hi scorny
We are drawing down our first mortgage next week and have decided it fix it for 2 years.

While I think rates will increase in this time, one of my main reasons for fixing is certainty of the monthly expense while we settle into being homeowners.

Dint think it impacts commission whether you have a fixed or variable mortgage...

Good luck with your purchase

Grab All Association

I can see this thread getting locked. I don't think were allowed to give financial advice (would be classed as that I imagine) on here. Best advice is talk to an expert Mortgage broker, financial adviser, bank manager etc

The_Morrigan

Chris___ wrote: »

I can see this thread getting locked. I don't think were allowed to give financial advice (would be classed as that I imagine) on here. Best advice is talk to an expert Mortgage broker, financial adviser, bank manager etc

If detailed advice is given on what rate to choose (as in percentages) or asking for pm's with more details, we run into the 'professional' advice area, however, personal experiences with regards to choosing one over the other is quite alright.
/Mod


OP - in my situation I locked into a fixed rate for the first few years so that I could budget as a new homeowner - I knew exactly what my outgoings were every month and I knew I could save a certain amount for the squirrel fund for emergencies.

timetogo

I'm not a financial advisor. I work in IT so don't treat anything below as financial advice. It's just my feeling and experience.

I'm with KBC. For the last 3 (could be more) ECB drops they didn't drop the variable rate. Actually during one of the drops they brought their variable rate up by .25%. I was not happy that week.

I think every time the ECB drops their rate the banks end up losing more money on the trackers. The reverse should be true.

What are the fixed and variable rates the bank is offering you and for how long?

If it's .5% of a difference in the rate and you're borrowing €200K then there's a grand you could pay off extra this year by going variable if the rates don't change.

I don't think what the ECB is doing is achieving the results they want so I can't see them bringing rates up in the near future. But bear in mind line one of this post.

I went with a broker too. He recommended I fix when I got my mortgage (in 2008) at 6.15%. That was a fun few years as I watched the variable rate go down. The variable isn't probably going to go down but I'm saying this bit as brokers don't know everything either.

Zamboni

I would fix for as long as I could get. Regardless of what the ECB does, Irish banks are not going to lower their SVR.

Dr Strange

Why are the poll results hidden?

sconry

Sorry, must have set it up wrong and can't seem to edit now. Right now 40% say variable and 30% say 5 year fixed with 20% saying 2 hear fixed and 10% saying 1 year fixed

The_Morrigan

sconry wrote: »

Sorry, must have set it up wrong and can't seem to edit now. Right now 40% say variable and 30% say 5 year fixed with 20% saying 2 hear fixed and 10% saying 1 year fixed

I've edited the poll there for you.

sconry

The_Morrigan wrote: »

I've edited the poll there for you.

Nice one! Thanks to the moderator!

sconry

Any more thoughts on this one? I have a great a variable rate meaning we get crippled by rising interest rates. But theres no doubt that right now it would be cheaper. Thanks to those who've already shared their view. Really useful. I'd love to hear what others think

Villa05

Check out haven mortgages. i think you can fix the rate for the entire duration of the mortgage up to 35 years. if you have no intention of paying the mortgage quickly i would be jumping on this opportunity. Avoid if you wish to pay off the mortgage early as there will probably be penalties for doing so.

Villa05

Duplucate.....

Bigcheeze

In the long term over the life of the mortgage you will pay more on fixed rates because there is a premium built into the rate. The certainty of knowing what you're going to pay comes with a price.

Brego888

I'm in the process of drawing down a mortgage for €180,000 and have fixed for 3 years with haven at 4.2%.
For me personally this was the way to go as this fixed rate was coming out lower than a lot of variables.

Villa05

Bigcheeze wrote: »

In the long term over the life of the mortgage you will pay more on fixed rates because there is a premium built into the rate. The certainty of knowing what you're going to pay comes with a price.

That premium is based on the current cost of capital. THe cost of capital in 10 years time will probably much higher than now

Bigcheeze

Villa05 wrote: »

That premium is based on the current cost of capital. THe cost of capital in 10 years time will probably much higher than now

have you seen the rates for 10 years fixed? much higher than current rates.

Villa05

Villa05 wrote: »

Check out haven mortgages. i think you can fix the rate for the entire duration of the mortgage up to 35 years. if you have no intention of paying the mortgage quickly i would be jumping on this opportunity. Avoid if you wish to pay off the mortgage early as there will probably be penalties for doing so.

Apologies: This is incorrect, I misread the rate chart.

Term Rate APR 20 Years* 25 Years* 30 Years* 35 Years*
1 Year 3.50% 4.6% 5.80 5.01 4.49 4.13
2 Year 4.60% 4.7% 6.38 5.62 5.13 4.79
3 Year 4.20% 4.6% 6.17 5.39 4.89 4.55
4 Year 5.00% 4.9% 6.60 5.85 5.37 5.05
5 Year 5.20% 5.0% 6.71 5.96 5.49 5.18

http://www.havenmortgages.ie/mortgage-rates.html

sconry

Did anyone go with kbc? They seem to have competitive rates. Thoughts?

The_Conductor

sconry wrote: »

Did anyone go with kbc? They seem to have competitive rates. Thoughts?

They announced last week that they intend to roll-out a retail network around the country- and have a target for branch openings before the end of this year and the end of next year. I would expect them to remain competitive- as they are likely to trying to tempt away the customers of the mainstream banks. Where they end-up longer term- is anyone's guess.

The_Conductor

Villa05 wrote: »

That premium is based on the current cost of capital. THe cost of capital in 10 years time will probably much higher than now

I'm not so sure.
There is consternation in the ECB that the negative overnight rates has not resulted in greater inter-bank lending, and a consequent increase in lending to the private sector. Comments out in the last week- indicate that they are thinking of further interventions, possibly of an inventive nature, to try and encourage lending, bring inflation up towards the 2% target, and resume growth at an EU level.

Recent business sentiment readings in Germany in particular- have everyone running scarred.

10 years is a long time- but keep in mind, we're already in year 8 of the current mess.

sconry

The_Conductor wrote: »

I'm not so sure.
There is consternation in the ECB that the negative overnight rates has not resulted in greater inter-bank lending, and a consequent increase in lending to the private sector. Comments out in the last week- indicate that they are thinking of further interventions, possibly of an inventive nature, to try and encourage lending, bring inflation up towards the 2% target, and resume growth at an EU level.

Recent business sentiment readings in Germany in particular- have everyone running scarred.

10 years is a long time- but keep in mind, we're already in year 8 of the current mess.

So are you thinking that people on variable rates will suddenly get an unexpected hike? Are you a fixed rate proponent? I'm wary of haven but kbc also have a 5 year fixed rate ..

Villa05

Bigcheeze wrote: »

have you seen the rates for 10 years fixed? much higher than current rates.

Variable rate ranges between 4.5 and 5%

Fixed rate 10 years 6.19% http://www.finfacts.com/Private/dip_rate/mrt_10yr.htm

Ecb Rate is at 0.5% variable rate is ECB Rate + 4%

Under normal conditions Ecb rate would be at 3/4%, in an inflationary environment this could be far higher.

Banks variable rate has been rising despite the ECB rate falling. In a situation where Europe is returning to a normal or inflationary environment and Ireland's banks continue there zombie like existence. I can easily see variable rates going well over 6% in a 10 year span,

sconry

What about 5 year fixed? 10 years seems too long for me to fix. Is it worth while fixing for 5 do you think?

Zamboni

That poll, whilst small, shows how willing Irish people are willing to gamble on potentially one of the biggest financial decisions of their lives.

The majority of people choose the cheap high risk option and only a fraction of the total are willing to pay a premium for security.

SVR could easily be 6.5% by end of 2016.

Tip: all new and future mortgage applicants will have to help pay for all those trackers from the boom

ted1

Zamboni wrote: »

That poll, whilst small, shows how willing Irish people are willing to gamble on potentially one of the biggest financial decisions of their lives.

The majority of people choose the cheap high risk option and only a fraction of the total are willing to pay a premium for security.

SVR could easily be 6.5% by end of 2016.

Tip: all new and future mortgage applicants will have to help pay for all those trackers from the boom

If variables start to raise you can then go to fixed. Currently at the moment I prefer to use the difference between variable and fixed to to pay off additional capital.

Also I may be wrong but I do believe that there are penaltys for paying off a fixed mortgage early

jester77

I would fix for as long as possible, 5 years is even too short. You should be looking at at least 15+ fixed. Rates can't get any lower and the only way they are going is up. I fixed for 20 years last year with the option between year 11 and 20 of fixing again, so I have 9 years where I can see how the markets are doing before I extend my fixed rate if I've not already paid it off. It gives ease of mind and you are not at the mercy of the banks when rates change.

The_Conductor

If there was a life-time interest rate mortgage- the same as elsewhere in Europe- I'd suggest it as a good idea for everyone to use. I agree with the previous poster- us Irish have a remarkable propensity to gamble- some work out (tracker mortgages) many don't (buying multiple properties into a heated market- with the intention of holding them and flipping them at a profit).

This whole 'people before profit' brigade- are nearly the worse of all- as at the end of the day- its the ordinary taxpayer of the country who is left carrying the can.........

So- I'd suggest fixing- at the best possible rate, for as long as possible. People shouldn't gamble with the biggest financial decision of their lives.......

sconry

ted1 wrote: »

If variables start to raise you can then go to fixed. Currently at the moment I prefer to use the difference between variable and fixed to to pay off additional capital.

Also I may be wrong but I do believe that there are penaltys for paying off a fixed mortgage early

If variable rates start to raise, will fixed not raise too? I.e. should you lock into a 5 year fixed with a rate circa 1% to 1.5% higher than current variable on basis that (A.) Interest rates are likely to rise and (B.) When they do start to rise everybody on variable will all want to switch to fixed at the same time but banks may push up fixed cost significantly.

I'm thinking of the long term cost. If interest rates rise 2% in next 3 years, would locking in to a 5 year mortgage now actually work out cheaper in the long run ...?

Zamboni

ted1 wrote: »

If variables start to raise you can then go to fixed. Currently at the moment I prefer to use the difference between variable and fixed to to pay off additional capital.

Also I may be wrong but I do believe that there are penaltys for paying off a fixed mortgage early

Ted that strategy may work for you.
But the masses will not work out the difference between fixed and variable repayments and pay down the loan. No chance!

And again the masses will never have any need to pay down early so penalties won't affect them.

ted1

sconry wrote: »

I'm thinking of the long term cost. If interest rates rise 2% in next 3 years, would locking in to a 5 year mortgage now actually work out cheaper in the long run ...?

Are we all using smart phones ? Or can someone do up a excel spreadsheet shown the difference in the two, using the balance between repayments to pay off the capital, and as Zamboni suggested, not using the balance to pay down the capital

sconry

jester77 wrote: »

I would fix for as long as possible, 5 years is even too short. You should be looking at at least 15+ fixed. Rates can't get any lower and the only way they are going is up. I fixed for 20 years last year with the option between year 11 and 20 of fixing again, so I have 9 years where I can see how the markets are doing before I extend my fixed rate if I've not already paid it off. It gives ease of mind and you are not at the mercy of the banks when rates change.

Hi Jester77 - I see your location is Hamburg. Is the rate you're referring to a German one? I doubt having an option between year 11 and 20 of fixing again would be offered by Irish lenders. I'm not seeing anything greater than 5 year fixed with Irish lenders

sconry

ted1 wrote: »

Are we all using smart phones ? Or can someone do up a excel spreadsheet shown the difference in the two, using the balance between repayments to pay off the capital, and as Zamboni suggested, not using the balance to pay down the capital

This is a SUPER idea! Essentially, find the break-even point! Ted: Are your accounting skills strong enough to have a go.

The_Conductor

sconry wrote: »

So are you thinking that people on variable rates will suddenly get an unexpected hike? Are you a fixed rate proponent? I'm wary of haven but kbc also have a 5 year fixed rate ..

I'm not suggesting that- at the moment those on variable rates are subsidising loss making tracker mortgages. If rates go up- it could well be that variable rates may be way to go- as tracker mortgages are less expensive for lenders- perhaps they won't see the need to gouge other mortgage types to pay for the folly of trackers.......?

Wishful thinking though- they'll probably put everyone up- to maximise their profits.........

At the moment- the commentary is more about lowering the external exchange rate of the Euro- than it is playing with interest rates. This would be a mess for Ireland- given that our largest trading partner by far- has its own currency- though it may prove a boon for exporters- who in turn may help drop our unemployment rate.

In the medium term- we could be looking at an inflation rate here- vastly in excess of the rates of Germany and some of the other central European markets...........

MB05

My tuppence for what it's worth is that if banks are offering 3 year fixed deals for 4.2 or 4.25% then they are not expecting huge jumps in interest rates. They are not in the business of (willingly) losing money so I suggest you have a look at each lenders fixed rates and see if they all come in around the same mark. If say no 3 yr fixed rate is above 5% then none of them foresee the rates going much above that.

They are not going to offer fixed rates of 4.25% if they thought that interest rates would reach 5% or more in that time frame. Yes they may go to 4.5% and they lose out for a portion of the fixed period but they would have gained for the other portion.

You also have to look at what rate they will offer you AFTER the fixed rate period ends. We were caught out like this a number of years ago. We fixed a portion of it and went variable with the rest, hedging our bets essentially. When the fixed rate ended the new one was very uncompetitive so we went back to variable BUT the variable we went back on to was dearer than the discounted variable they offered at the beginning. So we have one part our mortgage at 4.05% and the other at 4.25% now. If we stuck with just variable from the start all of it would be on 4.05% so we are paying 0.2% higher for 28 years to get a bit of a saving for 2 yrs!

My brother is going through this now and we have to make this decision too because he is eligible for an LTV of < 75% at 4.1% (0.4% discount for life of mortgage) or he can go on a fixed rate of 4.25% for 3 years. My personal thinking is that if he goes with the fixed rate he will revert to the SVR at the end of it therefore losing 0.4% discount for the remaining years of his mortgage.

You rarely gain with a fixed rate over the life of the mortgage. If money is tight and you will struggle to make additional repayments if the rates go up, fix or if you will come back on to the same variable rate as what you are being offered now, fix but if not think long and hard about what 'discount' you might be giving up for the remaining years of your mortgage by fixing now.

Any of the banks rates I looked at only offer LTV rates for new customers now meaning they are not an option to you as an existing customer when you come off your fixed period. That could change but highly unlikely ..

This is just my opinion based on personal experience, I am not qualified to give personal or professional advice. The rates I used are just an example, I have no idea what they will end up as in years to come.

Mrs OBumble

I think it depends on how much it would hurt you if interest rates went the wrong way.

Years ago I went with revolving credit, which is a little similar to variable here
here. I did a sensitivity analysis of the effect on my monthly budget if the interest rate increased by several amounts, up to 300% which seemed like vastly more than it ever would, and found that it would hurt but I could still manage. So I went for it on that basis. And because I did, I saved an enormous amount overall, by paying it off early. But it could have gone the other way, too.

IMHO it's all about consequences in the worst case.case

gaius c

Think of it like a casino. The house (bank) always wins. While one person might come up better off for fixing, the other nine will not.

Banks try to protect themselves so generally a fixed rate won't be all that attractive unless you have inside knowledge of impending financial Armageddon.

karlitob

Mrs OBumble wrote: »

I think it depends on how much it would hurt you if interest rates went the wrong way.

Years ago I went with revolving credit, which is a little similar to variable here
here. I did a sensitivity analysis of the effect on my monthly budget if the interest rate increased by several amounts, up to 300% which seemed like vastly more than it ever would, and found that it would hurt but I could still manage. So I went for it on that basis. And because I did, I saved an enormous amount overall, by paying it off early. But it could have gone the other way, too.

IMHO it's all about consequences in the worst case.case

Hi all,

Would anyone know the last time variable outstripped fixed within a three year period?

Why I ask is that we are coming out of three fixed but the variable has been below is all that time regardless of the increase. So essentially, we've paid more that what we should've. So I feel I could make a better decision if I knew the last time that variable outstripped fixed within a three year period.

Thanks in advance

MouseTail

karlitob wrote: »

Hi all,

Would anyone know the last time variable outstripped fixed within a three year period?

Why I ask is that we are coming out of three fixed but the variable has been below is all that time regardless of the increase. So essentially, we've paid more that what we should've. So I feel I could make a better decision if I knew the last time that variable outstripped fixed within a three year period.

Thanks in advance

Over a sustained period? I reckon you would have to go pre euro.

karlitob

sconry wrote: »

Sorry, must have set it up wrong and can't seem to edit now. Right now 40% say variable and 30% say 5 year fixed with 20% saying 2 hear fixed and 10% saying 1 year fixed

I asked the following question recently, when was the last time that variable rates climbed higher than fixed rates...over the period of time of the fixed rate. And apparently thats been a very long time. If variable doesn't outstrip fixed (depending on how long you fix for) then the cheaper will always be fixed regardless of ECB rate. We fixed for three years as new homeowners, and paid more than those paying variable even with increases in variable. So now we're variable.

The_Conductor

karlitob wrote: »

I asked the following question recently, when was the last time that variable rates climbed higher than fixed rates...over the period of time of the fixed rate. And apparently thats been a very long time. If variable doesn't outstrip fixed (depending on how long you fix for) then the cheaper will always be fixed regardless of ECB rate. We fixed for three years as new homeowners, and paid more than those paying variable even with increases in variable. So now we're variable.

It was a long while ago- because we haven't been in the situation we are now in, ever before. Europe is in a slump worse even than Japan's- which is stark. Even with what are effectively negative lending rates- and massive injections of liquidity into the financial systems (the ECB is online to release another 400 billion in September for example)- the slump is getting worse.

Its all well and good pointing at the multinationals- and the jobs they're creating (both here and in our other member state countries)- but the fact of the matter is- 65% of Europes economy is in the SME sector (companies of less than 250 employees) and this sector cannot get finance at the moment- and this is acting as a brake on Europe's economy.

Until Europe lifts from its stagnation- and inflation ticks up consistently above 2%- the low interest rate regime is going to continue.

The 3.5-4% variable rate- reflects the capital cost of equity for the lending institutions on the capital markets- not the rate at which they borrow money from the ECB to lend to individuals, companies and institutions. For every shekel a bank borrows to lend- it has to back up this with X amount of capital equity- from the market- this is part of the cost of lending the money. The overnight rate- is one part of the equation- the ECB have made it as unappealing as possible to park money overnight with it- however, lenders are refusing to lend to one another their excess liquidity- the trust that was in the market up to 2007- is gone, and very possibly may never return.

So- long term fixed or floating rates? Its a bit like asking how long is a piece of string- and depends entirely on how well the European economy does is the medium term. Even Germany is now contracting- which indicates even looser ECB policies imminently- which means floating rates will get even better in the short term- but longer term- when things pick up- it could be more worthwhile to fix.

There have been a number of approaches to the central bank about launching products similar to those on offer on the continent- aka mortgages with fixed rates for the life of the mortgage- and none of this 5 or 10 year lark). I think its a great idea.

gillamandango

mortgage of 340k, should i go fixed rate or tracker? Its with KBC

gillamandango

What would people do now, fixed or variable, considering the economic outlook?

Eldarion

That 1 year fixed rate at 3.30% is crazy good.... I'd be snapping their hand off.

Also tracker isn't an option here. Your choice is Fixed for X years or Variable.

tigershould

gillamandango wrote: »

What would people do now, fixed or variable, considering the economic outlook?

Wondering the same meself.

I have a few options

3.5% fixed 1 yr
3.8% fixed 2-3yrs
3.9 fixed 4-5 yrs
3.8% variable

They all look great to me. I can handle a change in variable upto 5% I think.
I'm expecting ( hoping ) for more interest rate cuts when QE starts next month.

gillamandango

leaning towards 3yr fixed @3.8%

van_beano

My tuppence worth.

I'm on 4.2% 5 yr fixed for 1 more year, I'd actually love to be out of it now as the the latest fixed rates look very good. However my suspicion arises because some of the fixed rates are lower than the current variable. Charlie Weston in the Independent seems to be suggesting variable rates are in for big cuts in the future on the basis of the current case been taken by a North Dublin couple http://m.independent.ie/opinion/columnists/charlie-weston/bankers-face-day-of-reckoning-over-mortgagerate-apartheid-30991509.html

If I was out of my fixed rate tomorrow then I'd ride my luck on the variable on the basis, again, that the fixed is now lower than variables which would suggest banks want to tie you into fixed so you won't benefit for a possible 1% cut to the variable.

Please don't take my opinion as Gospel or anything but that's what I would do if I was out of my fixed tomorrow.

brownej

Eldarion wrote: »

That 1 year fixed rate at 3.30% is crazy good.... I'd be snapping their hand off.

Also tracker isn't an option here. Your choice is Fixed for X years or Variable.

The 1 year fixed rate rolls to 4.5% variable after the year though which is quite high.

Eldarion

brownej wrote: »

The 1 year fixed rate rolls to 4.5% variable after the year though which is quite high.

Can you not avail of the 4.1% and subsequent 3.69% rates as LTV decreases?