To switch early and lock in a new rate now or try to ride out inflation rises?

o1s1n

At a bit of a crossroads at the moment and just wanted to see what the general consensus among folks was. (My broker thinks one thing but obviously they're fairly biased in that they want me to switch.)

I've 13 months left on my fixed rate mortgage at a very favorable 2.0% interest. Have been offered a 4 year fixed rate with BOI at 4% if I switch now.

If I switch, it means paying 38% more for the next 13 months, in the hopes that I got in early before any further interest rate increases and don't get completely ruined if they're up to astronomical levels next year when my fixed rate runs out.

Or

If I don't switch, my mortgage is 38% cheaper for the next 13 months, in the hopes that that's enough time for inflation to get under control and for rates to stabalise.

Anyone in a similar position at the moment and made a decision on this?

Erring more towards biting the bullet and just switching for the peace of mind at the moment. Will feel like some eejit though if, 13 months down the line interest rates aren't as projected.

spaceHopper

That's a big jump in payments, can you afford to take the hit now v wait and see, if you wait and rates are 6% can you afford it then? That's what you need to consider. Can you do better with a different lender.

Str8outtaWuhan

Impossible to tell the future but looking at the last time we had ecb 5+% , it won't last long and variable will be back down. The Chinese are reducing theirs.

o1s1n

https://www.boards.ie/discussion/comment/120926181#Comment_120926181

It is a big jump indeed, however it's still well within the realm of affordability.

Yeah the worry is if we start seeing 6-8% things could get a bit dicey. Could still make it work but we're be talking about cutting back a lot of the nicer things in life.

https://www.boards.ie/discussion/comment/120926213#Comment_120926213

Interesting! it's that kind of thinking that has me wondering if I'm being a bit overly cautious by switching now and giving up over a year at a very comfortable rate.

PokeHerKing

My 2 cents for what it's worth. I reckon 6-6.5% is where we'll settle over the next year.

A pause for a year at that rate before we see anymore movement one way or the other.

Str8outtaWuhan

https://www.boards.ie/discussion/comment/120926255#Comment_120926255

6+ would cripple many southern eurozone countries. They are chasing the dream of bringing down the price of the shopping basket but that inflation is permanently baked in forever. There is zero chance of recession bringing down the price of a loaf or a banana. Only Putin can do that.

KLF

TBH I think you've missed the boat on switching early, you may as well wait it out. The feeling now is that the ECB will pause on the next meeting, the German economy is spluttering and the Italians are getting increasingly angry with the ECB. With inflation slowly going in the right direction, hopefully, there won't be a need for further increases.

Allinall

If you don't switch now, and let your current fixed rate come to an end, what variable rate will you go on to? ( assuming for now that the rates stay the same).

In my experience, this long into a rate hike cycle, banks will be over cautious on their fixed rate offerings, so might be best to take the advantage of your current fixed rate and ride out the peak variable rates, in the hope they will start to drop possibly in early 2025.

o1s1n

https://www.boards.ie/discussion/comment/120926603#Comment_120926603

Interesting, thanks for the input!

https://www.boards.ie/discussion/comment/120926639#Comment_120926639

If I were to change to variable at this very instant with my current lender, the new interest rate would unfortunately be a whopping 5.75%. They've become extremely uncompetitive with their rates.

I'd be somewhat terrified throughout the next year I think to see what it would be sitting on if it's that at the moment. So reckon if I go down that route I'll need to change lender in September 2024 either way once the current fixed term runs out.

rob316

You've missed the boat OP, I'd stick for the next 13 months. Likely hood the ECB are done for the rest of the year as it takes a while for rate increases to make an impact.

DFB-D

https://www.boards.ie/discussion/2058307542/to-switch-early-and-lock-in-a-new-rate-now-or-try-to-ride-out-inflation-rises

Make a calculation but roughly 13 months at 2% on the higher balance vs the increases over 4% expected next year on a slighly lower balance.

So if rates increase to 5% for 2 years you break even if you dont switch.

However if the increase is limited to .25%, you have 8 years, etc.

I wouldn't fix at 4% anyway, but what I would do is save the 2% and what ever you can spare every month and make an additional payment at the end of your term and continue to overpay the mortgage while rates are high.

Hotblack Desiato

BOI have been screwing their variable rate customers for years (many coming off a fixed rate or tracker have too small mortgages / short terms to easily switch elsewhere so can be ridden with abandon)

We have ~10 years to go with BOI and looked into switching from a tracker (which is actually a good bit more than your fixed rate is now!) and even so, any savings in the five year fix would have been eaten up again in the rest of the term on their variable rate with no realistic possibility of switching elsewhere. They're no fools.

Stick it out, all of the good longer term fixed deals were a year or more ago. Then look at switching lender. As it stands, you are putting your costs up right away and then facing complete uncertainty in 4 years time instead of 13 months - why pay twice as much interest for the 13 months?

Bank the gain now and for the next 13 months, go onto BOI's ruinous variable rate then but look to switch elsewhere asap. Even if you have to stick with BOI for a while until it all gets sorted out you're still quids in.

JohnnyChimpo

It's pretty straightforward to switch, just plan a few months ahead and you don't need to languish on the variable rate for more than a few days