Should fixed rate mortgages still be avoided?

T

tea4one

Registered User
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Hi Folks,
In the past few years it has clearly been more favorable to opt for a variable rate mortgage as opposed to a fixed one. Variable rates, although high compared to continental values, have come down in the past year or two and appear to offer better value than fixed rates.

However, I am wondering if now might be the time to avail of "low" fixed rates as I suspect variable rates may soon start to rise again. for example:

- In Dec 2016 the German rate of inflation rose to 1.7% ([broken link removed])
- In the US we saw the Dow Jones hit 20,000 for the first time yesterday and we know that the UD Fed are keen on more interest rate increases.

Also, AIB's lowest variable rate is 3.1% but their lowest fixed rate is 3.5%. does this strike anyone else as strange?

The lowest fixed rate at BOI is 3.1% which seems like a good deal compared to AIB and especially if the chances of interest rate increases have increased.

I am actually in the process of switching from BOI (3.7% variable) to AIB (3.1% variable) but now I am suspicious that AIB are using their variable rate of 3.1% to pull in customers and if they increase variable rates in the the next year or so customers will have no option but to fix at a higher rate or switch mortgages.

Does anyone else feel that we may have bottomed out on variable interest rates in Ireland or does anyone have an opinion on the fact that the AIB fixed rates are significantly higher than their variable rates?

Thanks,
tea4one.
 
What is strange is that BoI's fixed rates are lower than their variable rates. If rates are expected to rise, then the fixed rates should be higher than the variable rates. BoI's variable rate is not just high, it's artificially high, as Richie Boucher freely admits.

If Irish mortgage rates were close to the mortgage rates in the eurozone of 1.8%, then fixing should be considered.

However, at 3.1% the rate is about 1.5% higher than it should be. The question is whether Michael McGrath's bill will bring rates down to a fair level. I think it will help.

So, I don't think that people who qualify for a 3.1% rate who must have a low LTV and clean ICB record, should fix.

Brendan
 
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Interest rates are going to rise. It is almost certain that the ECB rate will be higher at some point in the future than it is now. As tea4one says, the first signs of this are there, inflation in Germany is up.

The banks don't realise this yet and so there is an opportunity to exploit this lack of knowledge on their part to tie in a better rate fixed are than will be available in the future.

Everybody should definitely fix now. :rolleyes::rolleyes::rolleyes:
 
cremeegg

I don't know from your icons whether you are being serious or not.

Of course ECB rates will be higher at some point in the future.

But it's likely that Irish variable rates and fixed rates will fall before that happens.

So if fixed rates fall, then it would be worth considering fixing at that stage.

Brendan
 
Brendan Burgess said:
But it's likely that Irish variable rates and fixed rates will fall before that happens.
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No idea what you're basing this on but I think rates are going to rise. (Brexit & Trump) In any case I've fixed as I want certainty either way. Which is what fixed rates are about. You may lose, but you have certainty.
 
tea4one said:
However, I am wondering if now might be the time to avail of "low" fixed rates as I suspect variable rates may soon start to rise again. for example:
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If you feel that than you should fix. But if you do fix and you are incorrect, be prepared now to know that you will still be happy. Nobody can call the markets as far as I'm concerned.
 
2 disadvantages of fixing though is the inability to over pay on the capital and also the inability to switch to a different Lender so while fixing affords certainty it reduces flexibility.
 
ECB rates are expected to remain unchanged while QE continues.

Anyway, Irish banks seem to be operating independent of ECB anyway, doing what they want.

When it comes to the question of fixing or staying on variable, you need to look at your own circumstances. Mortgages are long term and you won't always get the best rate but there's no need to worry about it.

I have just recently fixed my BoI mortgage for 3 years. I have a LTV of <60%. Their variable was 3.9% and the 3 year fixed is 3.1%. I am planning on extending soon, so I know I won't be looking to pay off any of my existing mortgage in that 3 year period. The gamble is will rates go down further. ECB rates won't. Irish banks do what they want and I can't see them being forced to reduce their rates. Anything they do will be based on competition and 3.1% is a competitive enough rate in today's market.


Steven
www.bluewaterfp.ie
 
SBarrett said:
ECB rates are expected to remain unchanged while QE continues.

Anyway, Irish banks seem to be operating independent of ECB anyway, doing what they want.

When it comes to the question of fixing or staying on variable, you need to look at your own circumstances. Mortgages are long term and you won't always get the best rate but there's no need to worry about it.

I have just recently fixed my BoI mortgage for 3 years. I have a LTV of <60%. Their variable was 3.9% and the 3 year fixed is 3.1%. I am planning on extending soon, so I know I won't be looking to pay off any of my existing mortgage in that 3 year period. The gamble is will rates go down further. ECB rates won't. Irish banks do what they want and I can't see them being forced to reduce their rates. Anything they do will be based on competition and 3.1% is a competitive enough rate in today's market.


Steven
www.bluewaterfp.ie
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Hi Steven,
I tend to agree with the sentiment that a rate of 3.1% fixed for 3 years is relatively competitive. However I have decided to switch from BOI to AIB where I will also receive a rate of 3.1% but with a variable mortgage. Personally this suits me, since I plan to overpay the mortgage by 50-100 euro per month & most of this will come from the interest rate savings when I make the switch.

As you mentioned, it really does depend on personal circumstances. I can't see variable rates going much lower in Ireland so a fixed or variable rate close to 3% is probably as good as we can expect at the moment.

Thanks to everyone for their inputs. As always, time will tell......
 
FTB here interested in peoples views on split rate mortgages, recently got an 80% mortgage worth 240,000. Bank said they are happy to split 190,000 @3.1 fixed for 3 years and 50,000 @ 4.2 Variable.
This allows us to overpay for the first few years without getting gouged too much by the high interest rate since its on a low value. I feel like this is a good deal unless others see otherwise?

ninja edit: added fixed term
 
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RenegadeGoat said:
FTB here interested in peoples views on split rate mortgages, recently got an 80% mortgage worth 240,000. Bank said they are happy to split 190,000 @3.1 fixed and 50,000 @ 4.2 Variable.
This allows us to overpay for the first few years without getting gouged too much by the high interest rate since its on a low value. I feel like this is a good deal unless others see otherwise?
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I don't like this option - the fixed portion ties you to a lender who can change the variable portion on a whim.

However, if going that route, I'd probably set the variable portion to the amount you expect to overpay in 2 years. You'd be paying 1.1% extra per year on the variable portion just so you can overpay at a later date. Loads of people intend to overpay mortgages when they take them out first but life throws obstacles in the way.
 
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