To fix or not to fix ?

qwert99

I'd be interested to see if anyone has any opinions on mortgage interest rates, I have been offered a number of rates from my lender depending on how long I fix for, I can afford the payments if I fix for 10 years - but am I paying too much for that peace of mind ?
Any opinions anyone ??

defiantshrimp

If you can afford to fix, fix the rate. If not you shouldn't be getting the mortgage. Interest rates could go up significantly but they cannot go below zero. Since they are already very low and there are inflationary pressures about it is not worth taking the risk IMO.

nesf

I'd go fo the fixed. Peace of mind and the ability to plan you outgoings on your mortgage reliably is worth it imho.

Best to talk to a professional about this kind of stuff though.

AARRRGH

It has to only be a matter of time before interest rates start rising. So fixed would sound like a wise choice.

SparkyLarks

just be careful, with a fixed rate you can't pay off inlump sums.

If you have an SSIA comming and you want to pay your morgage off you have to go variable

qwert99

Have fixed. Many thanks to all for your advice.

Nermal

The likelyhood of interest rates rising is priced into the higher interest rates offered on fixed mortgages.

The likely future movements of rates should therefore not be a factor in your decision (unless you have some information pointing to increased rates that the bank doesn't, which you probably don't). They're just just offered to entice very risk-averse people.

defiantshrimp

Nermal wrote:

The likelyhood of interest rates rising is priced into the higher interest rates offered on fixed mortgages.

The likely future movements of rates should therefore not be a factor in your decision (unless you have some information pointing to increased rates that the bank doesn't, which you probably don't). They're just just offered to entice very risk-averse people.

You're assuming the bank has some information we don't have. Which is also very likely not true. Of course the likely movement in rates should be taken into account, it is idiotic not to do so!

Simple fact, if qwert99 can afford a fixed rate and takes it, (s)he knows what (s)he has to pay regardless of the economic situation. If (s)he takes a variable and inflation spikes, rates are raised and the house price bubble bursts (a hypothetical situation but it could happen), (s)he will be left with a loan bigger than the value of the house and potentially unmeetable interest repayments.

The possible benefits of a variable mortgage are slight while the possible downside is substantial. So IMO fixed is the way to go and there is nothing wrong with being risk-averse!

Nermal

defiantshrimp wrote:

You're assuming the bank has some information we don't have. Which is also very likely not true. Of course the likely movement in rates should be taken into account, it is idiotic not to do so!

You must give me a tour some time of your department full of highly-trained analysts who spend their time predicting future rate movements.

Simply put, taking a fixed rate mortgage is betting that the bank has underestimated future interest rate rises. Betting against banks is generally not a good idea; they're much, much better at it than you are. If you win, it will be due to luck.

nesf

Nermal wrote:

Simply put, taking a fixed rate mortgage is betting that the bank has underestimated future interest rate rises. Betting against banks is generally not a good idea; they're much, much better at it than you are. If you win, it will be due to luck.

It's not so much a case of winning as not losing as badly.

defiantshrimp

nesf wrote:

It's not so much a case of winning as not losing as badly.

Exactly my point, except expressed much better!

Nermal wrote:

You must give me a tour some time of your department full of highly-trained analysts who spend their time predicting future rate movements.

I don't believe a "department full of highly-trained analysts" can predict future rates either, thus my reasoning that the banks don't know future rates any better than you or I. Banks, believe it or not, are not all-knowing god-like institutions.

RainyDay

Don't fix unless you really need the security, i.e. your lifestyle will be significantly impacted by an increase in rates. You really are betting that you know more than the bank, which is pretty unlikely.

nesf

RainyDay wrote:

Don't fix unless you really need the security, i.e. your lifestyle will be significantly impacted by an increase in rates. You really are betting that you know more than the bank, which is pretty unlikely.

I'd agree, but with today's house prices most people are already putting up a very large percentage of their wages/salaries for mortgage payments. Some are mortgaged to the hilt as is with a variable, which is not a position I'd like to be in tbh.

JTheViper

OK where to start,

The question of to fix or not to fix does not have a yes no answer at all. No matter what the situation. The answer is "that depends on your situation".

The question of winning or loosing against the banks is irrelevent as the banks do not set the intrest rates. The European Central Bank(ECB) does.

If you can afford to fix your mortgage for 10 years what you should be dooing is increasing your payments and paying off the capital so as you will have less intrest to pay if rates do rise. The state of our economy should not be questioned either. The ECB could care less if Ireland's economy is doing well as we are such a small part of the overall European economy. To forecast the future interest rates you have to look at the largest economys in Europe. France and Germany. They are not doing half as well as Ireland are. The ECB will most likely keep interest rates low for another year or 2 to stimulate the French and German economies. If you delve deep into the financial pages you will ses the recuring idea thar rates will fall by 1/4 % before the rise and they will not go through the roof as most people think. Unless the french and the germans experience a "Celtic Tiger" we are looking good for the next 3 years at least. The ECB will increase rates to slow down the European economy so that the dont have the same "ripoff" culture which has developed.

To the question of to fix or not,

What do you want to achieve in the next 5 years in relation to your house? Is it a place where you want to stay for the next 3 years. If you fix for 5( and I am taking 5 years because 10 years is a rediculous amount of time to Concrete yourself into anything. Even marraige lasts less than that now) you can not get out of paying that interest. to get out you would have to pay a redemption or breakage charge which is the interest that you woudl have had to pay anyway.

Sorry for sounding so Negative or sinical but I think everyone should have a broker. They will not charge them for this info and are so highly regulated now that it is almost impossible for people to get done over anymore. Mortgage and Insurance broker. a must have.


J

The Troll

JTheViper wrote:

OK where to start,

The question of to fix or not to fix does not have a yes no answer at all. No matter what the situation. The answer is "that depends on your situation".

The question of winning or loosing against the banks is irrelevent as the banks do not set the intrest rates. The European Central Bank(ECB) does.

Isn't the ECBs rates the basis of a tracker mortgage? I thought variable was relating to our own rates?

JTheViper

The Troll wrote:

Isn't the ECBs rates the basis of a tracker mortgage? I thought variable was relating to our own rates?

Yes. The ECB set the perameters for the variable rate too.

The Troll

JTheViper wrote:

Yes. The ECB set the perameters for the variable rate too.

So whats the difference between a tracker and a regular variable rate mortgage.

Also can you please explain the difference between the different types of tracker mortgage.

I'm in the same boat as the OP. Got approval for mortgage, so just trying to decide on variable/fixed.

Thx

JTheViper

The types depent on the Loan to Value(ltv)
Mortgage 100,000 House Value 200,000 LTV 50%
The lower the LTV the better rate you can get and the closer to the actual rate of the ECB.

The min amt you can get a tracker rate is 150000but dont quote me on that.

The ECB Does not actually control the variable rate but The banks have been getting away with charging 1.5% above the ECb until bank of Scotland came into the market and now they are only getting away with 1%. This is almost never going to change from 1%. With all the new regulation it will be very difficult for them to change this.

The difference between them is again down to what you want to achieve. If your loan is for more than 250k go with a tracker if its for more than 2 years. Otherwise i'd choose the variable. But then again that depends on the lender.

This is why a broker is essentail. The do this for a living and will be able to answer all your questions.

RainyDay

JTheViper wrote:

The min amt you can get a tracker rate is 150000but dont quote me on that.

NIB'S tracker seems to be the best rate on the market at present - 2.79% - minimum amount is €100k and max 60% ltv.

JTheViper wrote:

Sorry for sounding so Negative or sinical but I think everyone should have a broker. They will not charge them for this info and are so highly regulated now that it is almost impossible for people to get done over anymore. Mortgage and Insurance broker. a must have.

Dunno if I'd always agree with this - While it's no harm for people to deal with such advisors, I think it's important for each individual to take responsibility for their own finances. Some people are too quick to 'outsource' responsibility for these important decisions to their advisors, when they should really be considering the advice and making their own decision. They are of course very quick to blame the advisor when it all goes wrong later (e.g. the lobby group who were trying to sue the banks over the bogus non-resident accounts).

No disrespect to yourself, but the mortgage/insurance broker is basically a sales consultant - he's not an economist, he's not a tax advisor, he's not an investment advisor - he's a sales person who can recommend which of the limited range of products for which he holds an agency is best. Depending on a mortgage/insurance broker for anything beyond this would be foolhardy.