Fixed or variable mortgage interest rate?

Rosia

Hi, I would be interested in getting some opinions on whether to go with fixed or variable for the beginning of our mortgage. The current variable rate would be 3.5% and the fixed rate would be 3.65% for three years, 3.75% for four years or 3.8% for five years. While we would like the certainty of knowing what we will be paying for the next few years, we also don't want to pay more and possibly miss out on further cuts. Any advice would be appreciated!

Paulw

For me, when I bought, I went fixed for 3 years. It meant that I 100% knew exactly how much my repayments would be for each month for that period.

With the current interest rates, it is highly highly unlikely that rates will decrease. But, they may increase. It is very hard to tell, and it's a gamble.

If you need secure certainty, then go fixed. It gives some peace of mind.

SozBbz

Humm.... I dunno. I went for 3 years fixed at the start of my mortgage (18months+ ago), but in my case the fixed options were lower than the variable rate being offered, so it seemed like a reasonable thing to do. It is annoying however as I do have some cash now that I'd love to over pay with but I can't do that now without incurring penalties. The rate I have now (3.6%) is now quite high for someone with my LTV (approaching 50% based on what I paid, definitely more than 50% if the property was revalued based on todays market).

I think those are quite high for fixed rates IMO. Is your LTV very unfavorable?

Rosia

Pretty unfavourable! It's 86%

Rosia

Pretty unfavourable! It's 86%

jester77

I went fixed for 20 years, it's just peace of mind. Don't have to worry about interest rates or my mortgage ever changing and makes budget planning so much easier.

SozBbz

80% is a threshold amount, after whcih they should start offering you a better rate.

How many years do you think it will take you to get to that point?

SozBbz

jester77 wrote: »

I went fixed for 20 years, it's just peace of mind. Don't have to worry about interest rates or my mortgage ever changing and makes budget planning so much easier.

In Ireland? I didnt think Irish banks fixed for more than 7 years.

I get the stability/predictability argument but all the same, I plan to be able to over pay against the principle sum more and more as the years go by and therefore pay less interest in the long term.

Also, I probably won't live where I'm living forever, so maybe if I sell up in 5 years, and want to be able to borrow again, I want to have a good chunk of the current loan paid off, so it doesnt impact on me getting a bigger loan for the "forever" home.

Rosia

It would take me about 5 years to get to that point.

SozBbz

Personally I don't think rates will rise much in Ireland (but they will across Europe).

We're already significantly above EU norms because of our obvious legacy issues, so I think that the rate rises in Europe will be balanced by a return to normality and hopefully increase competition in Ireland to keep things steady.

But like PaulW said above, its all about your apatite for risk. If rates going to 5 or 6% for example (I don't believe this will happen, but just supposing) could you manage those repayments? Do you think its better to pay less now and run the risk of paying more in future. If you had a lump sum, would you use it to pay down the mortgage, as many fixed rates preclude this?

Fixing could easily end up costing more in real terms, but is the consistency worth paying for? There is no right answer, it all depends on your individual circumstances.

wordofwarning

I would go variable. There is no sign of a rate hike on the cards from the ECB(if you read the FT or bloomberg, analysts are pretty good at predicting hikes).

The fact is a new entrants are supposed to be entering the markets. It will drive down rates further. You won't be able to take advantage of this when fixed. Plus as house prices are increasing, you might be able to refinance at a lower rate and a low LTV

Askthe EA

SozBbz wrote: »

In Ireland? I didnt think Irish banks fixed for more than 7 years.

BOI certainly fix for 10. Thats the most I know of. 20 sounds like a European Mortgage (a gripe for anotherday)

AM258

OP, the fixed rates you have quoted seem very high, a lot of lenders have reduced their fixed rates recently. We are fixing for 3 years with 89% LTV at 3.2%. You should definitely shop around - have a look on bonkers.ie - will give you an idea of whats available.