New Mortgages - To fix or not to fix?

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?

brownej

Eldarion wrote: »

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

It would seem not.
The text under the table states that the 2,3 and 5 year fixed roll to the LTV variable rates while the 1 year fixed rolls to the SVR which is 4.5%

by the seaside

Can you afford a 5 year fixed rate?

How much of a gambler are you?