Bank of Ireland Fixed Interest Rates Letter in post

DulchieLaois

Yesterday, I received a letter from BOI advising me new fixed rates for 2,3,5 and 10 year period.

I am just wondering if it is worth my while looking into this practise for a set period or do people think that variable rates will come down and therefore, this is a ploy to get people fixed on their mortgage before they announced ?

Also, what does the text 3.80% for 2 years (4.3%APR) mean ?

Thank you

coylemj

When banks start pushing fixed interest deals, it means that they expect rates to come down and if the ECB start quantitative easing (printing money), that is precisely what will happen.

seamus

APR is basically taking the full cost of the loan (i.e. interest + charges + penalties) and dividing it by the term of the loan to find out how much the loan actually costs per year over the life of the mortgage rather than how much each individual year will cost.

So the 3.8% is how much you will pay for the two fixed years, but over the life of the mortgage the average cost will be 4.3% per year.

As said above, the banks structure their fixed rates in a way that they don't expect to lose money on them. And aggressively marketing them means that they expect variable rates to drop (or stay low). A 10-year fixed rate of 4.7% that BOI are offering at the moment indicates that they don't expect variable rates to come near that within 7-10 years. Which is quite incredible considering that their variable rate 6 years ago was 5.65%.

DulchieLaois

Thanks Seamus, does that mean after 2 years, i would have to stay at 4.3% for the remainder of the mortgage even if the variable rate in the market could possibly be 3.3% ????

seamus

In reality it's a more complicated calculation than I laid out, you'd really need to ask BOI why the APR is higher. Likely they have some table that they use which tracks interest rate changes over time or something, which gives a "likely" 4.3% APR.

But the APR isn't an actual amount that you will pay or be required to pay. It's a projected calculation that the bank are legally required to display. The final APR could be higher or lower than that.

If the variable rate is 3.3% for the next 20 years, then you will have a 3.3% variable rate.

JTMan

A good guide as to whether you should fix or not is here.

dotsman

DulchieLaois wrote: »

Thanks Seamus, does that mean after 2 years, i would have to stay at 4.3% for the remainder of the mortgage even if the variable rate in the market could possibly be 3.3% ????

Once the fixed period is over, you will simply revert to the variable rate of the day (or fix again at whatever fixed rates are on offer at the time)

seamus wrote: »

In reality it's a more complicated calculation than I laid out, you'd really need to ask BOI why the APR is higher. Likely they have some table that they use which tracks interest rate changes over time or something, which gives a "likely" 4.3% APR.

For APR calculations, the variable interest rate of the day is used (as that is the only known figure). There is no attempt to predict or guess what interest rate will be over the life of a loan. The APR figure isn't decided by the banks, but by the Consumer Credit Act 1995. For a Fixed rate (such as this), the APR calculation assumes that the interest rate will be 3.8% for the first 2 years and then whatever the variable interest rate today is for the remainder.

For the the instructions as to what figures to use, see here.
For the actual calculation itself, see here.

Trish56

Perhaps you have a tracker mortgage and the bank is encouraging you to fix as they may not allow you to revert to the tracker when fixed term expires so be careful what you are signing up to.

DulchieLaois wrote: »

Yesterday, I received a letter from BOI advising me new fixed rates for 2,3,5 and 10 year period.

I am just wondering if it is worth my while looking into this practise for a set period or do people think that variable rates will come down and therefore, this is a ploy to get people fixed on their mortgage before they announced ?

Also, what does the text 3.80% for 2 years (4.3%APR) mean ?

Thank you

Bray Head

I think this BoI offer is too good to pass up, particularly the two-year rate. Do your sums and see what the SVR would want to be at the end of two years for you to be worse off.

The upfront cost would probably be the valuation though.

Bray Head

JTMan wrote: »

A good guide as to whether you should fix or not is here.

That thread makes the assumption that the SVR is lower than the fixed rates on offer.

That's not the case with BoI at the moment. SVRs are anything from 4.1 to 4.5 depending on LTV while the two-year fixed rate is 3.8.

I admit this situation is unusual but it shouldn't be ignored.

3DataModem

I got this letter - offering a 4.5% rate for ten years... hmm. Very tempting.

And I'm NOT on a tracker, but a variable BTL.

DulchieLaois

Tempting but one would imagine that the varibale rates will come down - currently i am on 4.35%, decrease to 3.8% for 2 years is nice but i am just wondering if i wait, i can get lower if variable come down soon