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 ...?