# KBC new 10 year fixed rate



## RedOnion (20 Sep 2017)

Finally some decent rates on long term fixed rates.
10 year rates from 2.95% with KBC. BoI are only other 10 year fixed rate, starting at 3.8%.
No news yet on movement of other fixed rates.
10 year rate is now lower than 5 year...

http://m.independent.ie/business/pe...kbc-offering-10-year-fixed-rate-36150149.html

Separately, from analyst coverage, 70% of KBC new mortgages this year have been at fixed rates, with 5 year being most popular.


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## Brendan Burgess (20 Sep 2017)

*KBC BANK IRELAND LAUNCHES NEW MARKET LEADING 10-YEAR FIXED RATE PRODUCT AT 2.95%*

*Majority of new mortgage customers now opting for fixed rate mortgages*

*19th September 2017:*  Following on from interest rate reductions to a range of fixed interest rates in May 2017, KBC Bank Ireland today announced a new market-leading 10-year fixed mortgage offering to provide even greater value and certainty for customers over the long term.  From 2nd October 2017, customers with an LTV <60% can fix the interest rate on their mortgage for as low as 2.95% for ten years while customers with an LTV <80% can avail of a rate of 2.99%.  This comes as KBC confirmed that 70% of all customers drawing down a mortgage in the last three months opted for a fixed rate.

The new rates are available to both existing and new mortgage customers of KBC, whether they are currently on a variable rate or arrive at the end of an existing fixed term rate. The rates are inclusive of a 0.20% mortgage discount rate for customers holding a current account with KBC (and mandating their salary to that account).


KBC also has some of the best variable rates for new mortgage customers in the market, including 3.10% for customers with a maximum LTV of 80% and a one-year fixed rate of 2.90% for new and existing customers.

*Darragh Lennon, KBC Bank Ireland Director of Products said* “As Ireland’s leading challenger bank, our strategy is consistently about providing customers with long term value on their mortgage.  We are seeing strong demand from customers who want to fix their mortgage repayments and this has increased significantly this year. With the introduction of these new market leading 10 year fixed interest rates customers can get certainty about their mortgage repayments over the long term at a rate that is as low as many short term fixed rates.  Our team is ready to talk to customers about their mortgage or any of their financial needs on a 24/7 basis and are confident this new product offering will appeal to a broad range of mortgage customers”.

Any customers making the switch to KBC to save on their mortgage repayments will benefit from a* €3,000 contribution towards their costs of switching their mortgage*. The contribution is open to any customer who drawdown their mortgage by 31st December 2017.


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## Brendan Burgess (20 Sep 2017)

It would be very interesting to get a comparable rate for 10 years <60% in some other eurozone country. 

I reckon it's still about 0.5% too high. But that is not as big an overcharge as others.

Brendan


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## Codogly (20 Sep 2017)

This new 10 year fixed rate says a lot about what KBC think is likely to happen with interest rates over the next 10 years.


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## cremeegg (20 Sep 2017)

Codogly said:


> This new 10 year fixed rate says a lot about what KBC think is likely to happen with interest rates over the next 10 years.



Do we know if KBC have secured fixed rate financing themselves to support this rate over 10 years or will they need to refinance on an ongoing basis.

If they have say issued a 10 year bond to support this then it does not tell us much about their view of future rates. If on the other hand they will be refinancing on an ongoing basis then certainly it says a lot about their view of future rate movements.


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## lledlledlled (20 Sep 2017)

So for less <80% LTV the new 10 year rate at KBC is 3.15% if you don't want to have a KBC current account? 
Even with the €3,000 cashback from KBC, I think I'd prefer fix with BOI for 3 years at 3% with 2% cashback. I'd like to keep my transaction-free current account with PTSB.

As a matter of interest, do KBC allow mortgage over-payments for fixed rate customers?


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## ddmani (20 Sep 2017)

lledlledlled said:


> As a matter of interest, do KBC allow mortgage over-payments for fixed rate customers?



You're allowed to overpay up to 10% AFAIK while on fixed


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## Subotai (20 Sep 2017)

This is food for thought.  At the moment i'm on a rate of 3.00% for a <60% LTV with KBC. So the 10 year rate of 2.95% is only a marginally better interest rate for me. But then there is certainy of the repayment rates for 10 years. But the question is - will they reduce their variable rates any mroe? Or is that it for the foreseable future?


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## Fire away (20 Sep 2017)

They must be betting on rates going down more. Seems to be a price war at the moment which is good for all of us mortgage holders. What is the most they will drop can't go lower than 2.5% but question is what is the most they can rise they definitely can rise again to 3.5% 4% and the rest. Only God knows what is going with happen post brexit-and the future of the EU


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## Gordon Gekko (20 Sep 2017)

Fire away said:


> They must be betting on rates going down more. Seems to be a price war at the moment which is good for all of us mortgage holders. What is the most they will drop can't go lower than 2.5% but question is what is the most they can rise they definitely can rise again to 3.5% 4% and the rest. Only God knows what is going with happen post brexit-and the future of the EU



I am not convinced; how many people would be tipped into major trouble if rates increase too quickly?

I also don't see 2.5% as the floor. Look at the rest of Europe.


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## RedOnion (20 Sep 2017)

Codogly said:


> This new 10 year fixed rate says a lot about what KBC think is likely to happen with interest rates over the next 10 years.


Not at all. KBC will fully hedge this in the market, with swaps maturing out to 10 years based on their modelled repayments. The 10 year swap rate is about 0.88% at the moment.

All this means is KBC are willing to take a lower margin on 10 year rates, than other terms. This way they get to be a market leader without taking on a competitor too directly, and lock-in a degree of certainty for themselves especially where customers take a current account as well.


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## Fire away (21 Sep 2017)

Would have to disagree Gordon. What other EU country would let you live in a house for years without making any mortgage payments, just have to shout victim and the courts will let you live free in this country. That has be be priced into rates here so can't see it going below 2.5 unless the courts start to change which won't be happening any time soon


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## gnf_ireland (22 Sep 2017)

Brendan Burgess said:


> We are seeing strong demand from customers who want to fix their mortgage repayments and this has increased significantly this year.


As a quote from KBC, this does not surprise me. KBC have shown in the last few years that they do not always offer new and existing customers the same rates, and therefore many now treat them as an upward only variable rate option. Fixing is a better option in this case, and they should compete head to head with BOI. I do accept that KBC currently does have the existing customer offer, but there is no guarantee this will continue into the future. It is also worth noting that on the existing customer offer (at least), the customer would roll over onto new business rates when the fixed term expires. I imagine brokers are now wise to the way KBC work, and are advising customers accordingly.




Brendan Burgess said:


> It would be very interesting to get a comparable rate for 10 years <60% in some other eurozone country.
> I reckon it's still about 0.5% too high. But that is not as big an overcharge as others.


I agree it would be an interesting comparison, but probably not a valid one. We all accept that repossessing properties here is a difficult ask, as well as the practice of paying to switch rather than the mortgage holder paying an arrangement fee. We need to be conscious of this in any comparison
I agree that for a LTV<60% it is still high - by around 0.5%, but for a LTV 60-80% I would say its a pretty good deal at 2.99%. I would argue that someone on a 25% LTV is not a 0.04% risk weighting below someone on a 75% LTV.



lledlledlled said:


> I'd like to keep my transaction-free current account with PTSB.


KBC have free banking if you lodge 2500 in each month (Extra Current Account). You could simply bounce your salary though that account to PTSB and use the KBC one as a psuedo cash-save account if you wished. Depending on the size of your mortgage, that 0.2% is valuable. On a 250k mortgage over 25 years it is 325 euro a year in extra interest paid. That's a meal out once a quarter or a hotel break once a year, and much better in your pocket than KBC's.


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## gnf_ireland (22 Sep 2017)

Subotai said:


> But the question is - will they reduce their variable rates any mroe? Or is that it for the foreseable future?





Fire away said:


> Seems to be a price war at the moment which is good for all of us mortgage holders. What is the most they will drop can't go lower than 2.5% but question is what is the most they can rise they definitely can rise again to 3.5% 4% and the rest.





Gordon Gekko said:


> I also don't see 2.5% as the floor. Look at the rest of Europe.





Fire away said:


> That has be be priced into rates here so can't see it going below 2.5 unless the courts start to change which won't be happening any time soon



This is a difficult one. When the Fair Rates Mortgage campaign started, SVR's were in the above 4.5% and if you were not on a tracker, it was very difficult to get a rate below 4%. European rates were half of this, floating around the 2% mark.
There are rates of 2.6% floating around now between BOI (including cash back) and Ulster Bank, but most are floating around the 3% mark for most LTV's. Those in negative equity have to fix in reality.

I would agree that I would see 2.5% as the floor really for rates in Ireland in the short term - and happily have taken it 2 years ago. While European rates are lower, we all accept the repossession issue, the cost of going business/compliance here is higher, lack of arrangement fees never mind incentives to switch, size of the market, political interference, historical debt impairment issues etc.

I see this move by KBC as a very positive one, and hopefully there will be a reasonable take-up on it, especially at the 60-80% LTV where I do think it is good value over a 10 year time frame (taking into account international instability and historic low interest rates). I am in favour of long term fixed rates for most customers, combined with a change in behaviour for people to switch once this fixed term is up.

If someone on a 79% LTV took out this mortgage over 25 years (fixed for 10), and paid the 10% over payment permitted, at the end of the 10 year period their LTV would be less than 49%, assuming the house price did not fall. This would support them refinancing the mortgage at a 50% LTV, ideally for another 10 years.


The question is will other banks bring out similar products to compete with KBC - the answer is BOI will probably do so as they want to seriously play in the fixed space. I am not sure about AIB and Ulster Bank as they appear to be more variable focused. Who knows with PTSB... 

Another big question is what would the break fee be if you wished to break this in 1-2-5 years time. With cost of funds being quite low at the moment, I don't expect this would be a high charge unless interbank rates continue to go further negative


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## lledlledlled (23 Sep 2017)

Silly question...
If KBC allow you 10% overpayments and my current repayment is €1500 per month, I am allowed overpay by a further €150 per month. Is this correct?

For me, this would certainly be a drawback to fixing for 10yrs. 

What overpayment limits do BOI have on fixed customers?


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## RedOnion (23 Sep 2017)

All will have an amount that you can repay before they trigger a break fee calculation. This might be an actual amount per annum, or a percentage of your repayment, but all are relatively small.
However, they don't prevent you overpaying more - it just triggers a break fee calculation. However, in the current interest rate environment that might be zero. Nobody has a crystal ball, but say if rates are higher 5 years from now, and you want to repay - the probability is you wouldn't have to pay any penalties. However if rates remain the same, or fall, then you could face a penalty.


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## lledlledlled (23 Sep 2017)

If I'm going to make a 10yr commitment, I'll need more certainty regarding overpayment limits. I don't want any prospect of penalties.

I actually only plan on overpaying by €150 per month but this is slightly over 10% of my repayment. I will be instructing the lender to reduce my future repayments too so the same €150 will be further past 10% every month, presumably triggering larger penalties.

Can't see any mention on the KBC website of a 10% overpayment limit. Just a warning that paying back loans early may trigger penalties.


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## Gordon Gekko (23 Sep 2017)

Why not just pay 10%, i.e. €134 or whatever the right number is?


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## lledlledlled (23 Sep 2017)

Gordon,
I'd like to overpay by as much as I can afford. I figure this amount to be €150 at the moment but hopefully it will rise in line with expected salary increases over the 10yr period.

I was originally budgeting to save the €150 into a savings account to be used for my child's college expenses in 16yrs time, but I'm leaning towards Brendan's argument that it would be more prudent to first repay the mortgage to a 'comfortable' level, then stop overpaying and start saving aggressively for college expenses. I admittedly need to figure out what year I'm supposed to switch from overpaying the mortgage but maybe the most important thing for now is to start the overpayments. 

I can see the attraction of having the certainty that fixed rates bring, and i don't think average variable rates over 10yrs will be less than 2.99%, but I would like to be able to overpay as much as I can afford without being penalised.


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## RedOnion (23 Sep 2017)

Check with KBC if they do a split rate mortgage. Put say 75% on fixed rate and remaining on variable rate. You can pay off as much as you want on variable rate at anytime and have certainty on a large chunk for 10 years.


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## newirishman (23 Sep 2017)

lledlledlled said:


> Gordon,
> I'd like to overpay by as much as I can afford. I figure this amount to be €150 at the moment but hopefully it will rise in line with expected salary increases over the 10yr period.
> 
> I was originally budgeting to save the €150 into a savings account to be used for my child's college expenses in 16yrs time, but I'm leaning towards Brendan's argument that it would be more prudent to first repay the mortgage to a 'comfortable' level, then stop overpaying and start saving aggressively for college expenses. I admittedly need to figure out what year I'm supposed to switch from overpaying the mortgage but maybe the most important thing for now is to start the overpayments.
> ...



So you like (full) flexibility for repayments, whilst the bank should provide fixed rate over ten years. That’s just not how fixed rate contracts work, usually. The banks calculations work because repayment amounts are fixed as well, so they know how much will be outstandig at the end of the 10 year period.

If you already know how much you are able to repay monthly, set the mortgage period accordingly and fixed based on that.
If you don’t want a defined commitment that can’t change over ten years, than clearly a fixed rate contract is not for you.


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## lledlledlled (25 Sep 2017)

gnf_ireland said:


> As a quote from KBC, this does not surprise me. KBC have shown in the last few years that they do not always offer new and existing customers the same rates, and therefore many now treat them as an upward only variable rate option. Fixing is a better option in this case, and they should compete head to head with BOI. I do accept that KBC currently does have the existing customer offer, but there is no guarantee this will continue into the future. It is also worth noting that on the existing customer offer (at least), the customer would roll over onto new business rates when the fixed term expires. I imagine brokers are now wise to the way KBC work, and are advising customers accordingly.
> 
> 
> 
> ...



Thanks GNF, I didn't realise free banking was also available with KBC, with similar conditions as PTSB too by the looks of it. In that case, if i decide to switch to a KBC mortgage, I will likely move my current account there altogether.
I didn't like the sound of not being able to lodge cash but then again, I'm struggling to recall the last time I lodged cash in a bank!
It would be nice if they had a few more branches around, although they appear to have reasonable opening hours.


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## lledlledlled (25 Sep 2017)

RedOnion said:


> Check with KBC if they do a split rate mortgage. Put say 75% on fixed rate and remaining on variable rate. You can pay off as much as you want on variable rate at anytime and have certainty on a large chunk for 10 years.



Thanks RedOnion, this seems like a great suggestion. Their website seems to suggest that this option is possible, so I think I might make an appointment to thrash out the specifics of how this would work. 

I presume if 75% of my mortgage is fixed and 25% variable, each month my repayments would be split along these same %'s, i.e. 75% would go to the fixed portion of the mortgage and 25% to the variable. Then, any overpayment could go 100% against the variable portion, as this would be a (slightly) higher interest rate. 

If the SVR overtook the fixed rate (as I suspect it will at various stages in the 10yrs), hopefully I can then start allocating the overpayment (or at least up to a value of 10%) to the fixed portion. I need to check that they don't regard the two portions of the mortgage as two separate mortgages though; otherwise if I wanted to overpay against the fixed portion, I might be confined to 10% of that 'mortgage' which would be a much lower figure.


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## RedOnion (25 Sep 2017)

lledlledlled said:


> I need to check that they don't regard the two portions of the mortgage as two separate mortgages though; otherwise if I wanted to overpay against the fixed portion, I might be confined to 10% of that 'mortgage' which would be a much lower figure.



That's my understanding of how they do it - you effectively have 2 accounts.
I'm not a customer, but a quick call to them should clarify it for you.


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## lledlledlled (26 Sep 2017)

RedOnion said:


> That's my understanding of how they do it - you effectively have 2 accounts.
> I'm not a customer, but a quick call to them should clarify it for you.



I called in to KBC about this. They confirmed it would be regarded as one mortgage account, just is split across two rates (i.e. fixed and variable) according to whatever % split the customer wants.
It is also up to the customer to choose which rate the overpayment is applied to. 
So when the variable rate is higher than the fixed rate (as it is at the moment), the full overpayment can be applied to the variable rate portion. If the (currently 3.1%) variable rate drops to a level below the (2.99% for 10yrs) fixed rate, the overpayment can be applied to the fixed portion up to a limit of 10% of the total monthly due repayment, with the remainder of the overpayment going against the variable rate.

I think this is the perfect solution for me, even though I had no intention of making a 10yr commitment until this rate was announced last week. From the dealings I've had so far with KBC, the customer service seems to be way ahead of EBS also. I am a little nervous about some threads i've read about treatment of existing customers but i'm hoping it will be worth the risk.


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## RedOnion (26 Sep 2017)

Excellent, it's always best to check with the bank as they all have different systems, and slightly different ways of processing things.


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## gnf_ireland (26 Sep 2017)

lledlledlled said:


> I think this is the perfect solution for me, even though I had no intention of making a 10yr commitment until this rate was announced last week. From the dealings I've had so far with KBC, the customer service seems to be way ahead of EBS also. I am a little nervous about some threads i've read about treatment of existing customers but i'm hoping it will be worth the risk.



I actually think this is a very solid option for a lot of people and I do think the rate is pretty competitive (for Ireland) for a 10 year window. It should also not stop you from breaking the fixed term in the future, or at least getting the break fee calculated if a better offer comes up.

The question you now have is how much you want to fix versus keep variable? That will be very much a personal decision

To be fair to KBC, their customer service team is not that bad and you can normally get answers from them quickly enough.

Their treatment of existing customers has got better recently with the existing customer offer, but they have not committed to keeping this going into the future. They are also known as a bank which does not really do deals. You will read here that the likes of BOI will find lower variable rates to put certain customers on who complain/threaten to move etc. KBC does not appear to have this policy and simply always 'toe the corporate line' - so everyone gets treated the same. Some may prefer this, others may not.

On the positive, I think a reasonable priced 10 year fixed term product is a welcome addition to the mortgage options in Ireland. I look forward to the 20/25 year ones now (assuming sufficient take up in this one)


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## Evie1962 (26 Sep 2017)

We took out a fixed rate mortgage with B of I in 1993 for 10 years. The rate was 10%!! In one sense it was a good move as the SVR was about 14% at the time, if not more. In another way it was a big mistake as almost immediately rates started to fall. We were stuck like that until 2003. B of I wanted about 6k old Irish punts as a breakage fee in about 1996- we only owed about 35k. We stuck it out and moved our mortgage in 2003 to EBS. Having topped it up a bit in 2003 it's now nearly finished thank God. 
If i was advising anyone again I'd say 10 years is too long to fix- 5 would probably be better.


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## lledlledlled (26 Sep 2017)

gnf_ireland said:


> I actually think this is a very solid option for a lot of people and I do think the rate is pretty competitive (for Ireland) for a 10 year window. It should also not stop you from breaking the fixed term in the future, or at least getting the break fee calculated if a better offer comes up.
> 
> The question you now have is how much you want to fix versus keep variable? That will be very much a personal decision
> 
> ...




Assuming the break fee is still minimal, only the associated legal fees would stop me switching in the future if better deals are announced elsewhere. Especially if the cashback offers cease at some point, as these offers are a nice bonus bit of cashflow as well as covering the legal fees.

I think I am comfortable with splitting it 75% fixed, 25% variable. I suppose it comes down to my opinion/guess on whether average variable rates over the next 10yrs will be higher or lower than 2.99%. I haven't a clue if they'll be higher but I don't believe they can/will be much lower than that figure. If I keep overpaying against the variable portion of the mortgage, there is a possibility I will clear this portion earlier than the 10yrs but I can monitor this and shift some of the overpayments to the fixed portion if that's the case, unless there are significant variable rate rises in which case I will be happy to pay off the full variable portion ASAP. 

I was impressed with KBC's customer service; I was even offered a nespresso coffee when I called. Obviously this will all look like gimmicks and trickery if I end up experiencing issues the minute I sign up but I certainly think it's worth the risk, especially seeing I have found EBS customer service to be poor. 

Good to hear KBC's treatment of existing customers has improved. I have asked them by email to confirm whether, after the 10yrs is up, I roll onto the standard variable rate available to new customers at that time. It would be concerning if they could just pick a rate out of the clouds when that day comes.


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## gnf_ireland (26 Sep 2017)

lledlledlled said:


> Good to hear KBC's treatment of existing customers has improved. I have asked them by email to confirm whether, after the 10yrs is up, I roll onto the standard variable rate available to new customers at that time. It would be concerning if they could just pick a rate out of the clouds when that day comes.



If you go onto variable initially, you could avail of their Existing Customer Offer. The terms and conditions of their Existing Customer Offer is explicit in that you move to new business rate for your LTV. 

Section 25 in the below document (application pack)
_*"Unless otherwise agreed, at the expiry of your fixed term the then prevailing New Business PDH LTV Variable rate for your LTV Percentage (as determined on the Calculation Date) will be applied to your mortgage account"*_

[broken link removed]




lledlledlled said:


> I suppose it comes down to my opinion/guess on whether average variable rates over the next 10yrs will be higher or lower than 2.99%. I haven't a clue if they'll be higher but I don't believe they can/will be much lower than that figure.


Well you need to consider what the floor would be for the rates realistically? Do you believe they will hit 2.5%, 2%, below 2% ?
And how high could they go ? 4%, 5%, higher ?

10 years is a long time in the world of finance... we will probably hit another recession by then !!!


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## lledlledlled (26 Sep 2017)

gnf_ireland said:


> If you go onto variable initially, you could avail of their Existing Customer Offer. The terms and conditions of their Existing Customer Offer is explicit in that you move to new business rate for your LTV.
> 
> Section 25 in the below document (application pack)
> _*"Unless otherwise agreed, at the expiry of your fixed term the then prevailing New Business PDH LTV Variable rate for your LTV Percentage (as determined on the Calculation Date) will be applied to your mortgage account"*_
> ...



Yes but I consider the bigger risk to be the sky, not the floor. Even if average variable rates over the 10yrs are lower than 2.99%, there has to be some sort of floor unless you think the bank is going to start paying us for the pleasure of loaning money to us. 
I think it's far more likely that rates could rise above 5% than drop below zero. 
Even if they did fall below zero, i'd put it down to bad luck but i should still be able to meet my repayments at 2.99%. If they went above 5%, i'd thank my lucky stars I fixed 75% of my mortgage. 

Thanks for the link to the Terms & Conditions. That gives me a bit more comfort that I should at least get the New Business rate, whatever that is in 2027.


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## gnf_ireland (26 Sep 2017)

lledlledlled said:


> Thanks for the link to the Terms & Conditions.


Remember those are the T&C's for the Existing Customer Offer. You might want to check the T&C's to whatever you sign up to to make sure they contain the same statements


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## lledlledlled (26 Sep 2017)

Evie1962 said:


> We took out a fixed rate mortgage with B of I in 1993 for 10 years. The rate was 10%!! In one sense it was a good move as the SVR was about 14% at the time, if not more. In another way it was a big mistake as almost immediately rates started to fall. We were stuck like that until 2003. B of I wanted about 6k old Irish punts as a breakage fee in about 1996- we only owed about 35k. We stuck it out and moved our mortgage in 2003 to EBS. Having topped it up a bit in 2003 it's now nearly finished thank God.
> If i was advising anyone again I'd say 10 years is too long to fix- 5 would probably be better.



Ouch, you must have lost out on a lot of money due to the interest rates over that period. I presume they fell by 5% or so in that time.
However, I don't think it's possible for rates to fall by 5% from 2.99%. It is very possible that they might rise by 5%.
Therefore, I see the 10yr period as being an advantage over a 5yr period.


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## gnf_ireland (26 Sep 2017)

Evie1962 said:


> If i was advising anyone again I'd say 10 years is too long to fix- 5 would probably be better.



It all depends on the rate. If the rates are high, and a chance of going higher, then I would agree to fix for a shorter term. If the rates are low, or reasonable, then I would suggest fixing for longer.
If someone offered me a 25 year mortgage at 0.1%, I would bite their hand off. If someone offered me a 5 year mortgage at 10% I would decline it. 

That said, I do feel for you and I know others who got caught the very same way in the early 1990's.


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## Gordon Gekko (26 Sep 2017)

lledlledlled said:


> However, I don't think it's possible for rates to fall by 5% from 2.99%. It is very possible that they might rise by 5%



I'm struggling to understand the point you're making; is your view that rates won't fall from 2.99% to -2.01%, or that they won't fall from 2.99% to 2.84%?

The former is highly unlikely whereas the latter is eminently possible.

Similarly, are you contending that rates might increase from 2.99% to 7.99%, or that they might increase from 2.99% to 3.14%?

The former is highly unlikely, whereas the latter is eminently possible.


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## gnf_ireland (27 Sep 2017)

Gordon Gekko said:


> I'm struggling to understand the point you're making;


I think the point @lledlledlled is trying to make is personally they think that interest rates on a whole will rise over the next 10 years. Whether they are at their rock bottom or not now is unknown to all of us - including Mario Draghi probably to be fair.


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## gnf_ireland (27 Sep 2017)

The only other thing to keep in mind when fixing for 10 years is a guestimate of what the interest rate environment will be like in 10 years time. A total unknown I accept, but it is worth considering
For example, if I fix for 3 years and can then go onto new business rates, do I think new business rates will be reasonable at that stage
But if I fix for 10 years, is there a chance I will be badly burned when I exit the fixed period if we are in the middle of another recession. Hindsight in that case may have told me the optimum answer was to fix for 3 years and then fix for 10 years.

Without a crystal ball its hard to decide the best thing to do. One option is to always overpay a low fixed rate by sensible stress test amount (say 0.5 or 1%) mortgage permitting, so it cushions the shock of when you come off it. It also has the added benefit of saving money in the long term !


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## Gordon Gekko (27 Sep 2017)

gnf_ireland said:


> I think the point @lledlledlled is trying to make is personally they think that interest rates on a whole will rise over the next 10 years. Whether they are at their rock bottom or not now is unknown to all of us - including Mario Draghi probably to be fair.



Perhaps. Personally I believe that making predictions regarding Irish mortgage rates is fraught with danger. Eurozone norms are sub 2% and we're at 3-3.5%. 10 years from now the Eurozone norm could be higher but the Irish norm could be lower. I take a simple view; if the bank "wants" me to fix for 3% over 10 years, in all probability I'll do better by not fixing.


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## lledlledlled (27 Sep 2017)

Gordon Gekko said:


> I'm struggling to understand the point you're making; is your view that rates won't fall from 2.99% to -2.01%, or that they won't fall from 2.99% to 2.84%?
> 
> The former is highly unlikely whereas the latter is eminently possible.
> 
> ...



I meant the former in both cases. It was in the context of a response to a previous poster.

My 1st point was that I think it is almost impossible to argue that interest rates will fall by 5% (as they did for the poster I was responding to) to -2.01%, so I'm unlikely to lose out much by fixing at 2.99%.

My 2nd point was that it would be more likely, over the course of 10yrs that interest rates would rise to 7.99%. I agree it is not very likely, but in my opinion it is more likely than them falling to -2.01%. Do you disagree?


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## lledlledlled (27 Sep 2017)

gnf_ireland said:


> I think the point @lledlledlled is trying to make is personally they think that interest rates on a whole will rise over the next 10 years. Whether they are at their rock bottom or not now is unknown to all of us - including Mario Draghi probably to be fair.



Almost correct! I believe, on balance, that the average variable rate over the next 10yrs is more likely to be higher than 2.99% than it is to be lower than 2.99%. 

Further to this, if I end up being wrong about this, I believe the higher risk to me (and more negative consequence to my finances) is a large increase (rather than large decrease) in rates.

In short, if they go really high, i'll be delighted i fixed. If they go really low, it won't have a drastic impact on my finances. 

In order to hedge my bets, I intend leaving 25% of the mortgage on variable rate.


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## lledlledlled (27 Sep 2017)

gnf_ireland said:


> The only other thing to keep in mind when fixing for 10 years is a guestimate of what the interest rate environment will be like in 10 years time. A total unknown I accept, but it is worth considering
> For example, if I fix for 3 years and can then go onto new business rates, do I think new business rates will be reasonable at that stage
> But if I fix for 10 years, is there a chance I will be badly burned when I exit the fixed period if we are in the middle of another recession. Hindsight in that case may have told me the optimum answer was to fix for 3 years and then fix for 10 years.
> 
> Without a crystal ball its hard to decide the best thing to do. One option is to always overpay a low fixed rate by sensible stress test amount (say 0.5 or 1%) mortgage permitting, so it cushions the shock of when you come off it. It also has the added benefit of saving money in the long term !



I'm not sure I agree with this. Yes, it would be a shock to suddenly move from a lovely 'low' 2.99% up to a high variable rate (in the event they were very high at that time) but surely I'm better off having saved all that extra money having been on the lower rate? It's hardly better to be on a higher rate just because it would be less of a shock when it ends.

Regarding overpayments, I intend allocating these to whichever portion (i.e. the fixed or variable portion) is at the higher rate at the time of the overpayment.


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## Gordon Gekko (27 Sep 2017)

lledlledlled said:


> I meant the former in both cases. It was in the context of a response to a previous poster.
> 
> My 1st point was that I think it is almost impossible to argue that interest rates will fall by 5% (as they did for the poster I was responding to) to -2.01%, so I'm unlikely to lose out much by fixing at 2.99%.
> 
> My 2nd point was that it would be more likely, over the course of 10yrs that interest rates would rise to 7.99%. I agree it is not very likely, but in my opinion it is more likely than them falling to -2.01%. Do you disagree?



I wouldn't hang my hat on one being more likely than the other.

If interest rates hit 8%, the economy would collapse so that is not all likely. 

Equally, a negative rate is highly unlikely.

Both are Black Swan events.


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## Suebee (28 Sep 2017)

I was just talking to kbc re 10 year fixed. You can't overpay at all on this rate. I was going to sign up for it but this has turned me right off.


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## RedOnion (28 Sep 2017)

Suebee said:


> I was just talking to kbc re 10 year fixed. You can't overpay at all on this rate. I was going to sign up for it but this has turned me right off.


Of course you can. They're required by law to allow you to.
What exactly did they say?


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## gnf_ireland (28 Sep 2017)

Suebee said:


> I was just talking to kbc re 10 year fixed. You can't overpay at all on this rate. I was going to sign up for it but this has turned me right off.


Would you consider splitting the mortgage if you wanted to overpay ? Might be the best of both worlds..


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## newirishman (28 Sep 2017)

RedOnion said:


> Of course you can. They're required by law to allow you to.
> What exactly did they say?



They are required by law? That is very much news to me. There is as far as I am aware no law that say that a bank must allow you to overpay a fixed-rate mortgage without penalties.
But more than happy to be corrected, if you could point me to a source for this.


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## RedOnion (28 Sep 2017)

newirishman said:


> There is as far as I am aware no law that say that a bank must allow you to overpay a fixed-rate mortgage *without penalties*.


That's not what previous poster said. They said KBC don't allow overpayments at all.
Of course a bank can pass on justified break costs they have incurred, but must allow you to overpay.

Edit: in hindsight, I might have been over pedantic with my comment. It's specifics that trip people up in contracts, and I read the comment out of context of the previous replies.


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## newirishman (28 Sep 2017)

RedOnion said:


> That's not what previous poster said. They said KBC don't allow overpayments at all.
> Of course a bank can pass on justified break costs they have incurred, but must allow you to overpay.



You can't really overpay without breaking out of the fixed rate contract, which incurs penalties.



RedOnion said:


> Of course you can. They're required by law to allow you to.



So this previous statement is if not actually wrong, then at least highly misleading. There is no law that forces a bank to allow you to overpay your fixed rate mortgage.
Breaking out of a fixed rate mortgage contract is very different from overpaying. 
The bank does not have to allow you overpay your mortgage. it might allow you to break out of your contract (by repaying the amount in full, for example), but it will incur penalties usually.


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## Suebee (28 Sep 2017)

RedOnion said:


> That's not what previous poster said. They said KBC don't allow overpayments at all.
> Of course a bank can pass on justified break costs they have incurred, but must allow you to overpay.
> 
> 
> ...



Yes u are being pedantic.  I meant u can't overpay by a 10% like you can on 1,3 or 5 yr fixed! Overpaying would incur break funding fees 

I am currently on 5 year fixed they will let me out with no break funding fee to go on to 20 year .  Will even let me split it.  

We are a 1 income family so payment security  is important to us but we do want to be able to overpay the mortgage a bit. We also both on your have 1 parent left both of whom are in mid to late 70's so it is possible that we could receive an inheritance in 10 years which could allow for most of mortgage to be cleared but then again that may not be the case. 

I'm leaning towards 70% fixed and 30 % variable which I think would offer some level of protection  if rates increase.  

Would love some opinions on this. 

Thanks


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## RedOnion (28 Sep 2017)

newirishman said:


> You can't really overpay without breaking out of the fixed rate contract, which incurs penalties.
> 
> 
> 
> ...


Sorry, your understanding of part 10 of the Mortgage Credit Directive is very different to mine.


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## RedOnion (28 Sep 2017)

Suebee said:


> Yes u are being pedantic.


I apologise, it wasn't my intention. 

I'll do up a model later tonight and post to this thread that might aid discussion in relation to fixing for long periods, showing what if rates rise, fall, and the impact of break fees in either scenario.


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## Suebee (28 Sep 2017)

That would be great. I really don't understand how break fees are calculated .


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## RedOnion (28 Sep 2017)

I've tried to explain break fees over here: https://www.askaboutmoney.com/threads/understanding-fixed-rates-breakage-costs.204427/

It's not the easiest thing to understand and I might not have explained it very well, but if you've any specific questions please ask as it might also help other people to understand. It doesn't help that all the examples banks use result in a large break fee.

I'll include examples later.


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## RedOnion (28 Sep 2017)

In the interest of assisting discussion around long term fixing, I've modeled some possible scenarios to show the outcomes.
The starting inputs are a term of 20 years, with an initial sum of 100,000.  After early repayments the term remains with reduced monthly repayment.

Re break costs: KBC calculate their break costs as the difference between the rate they could have placed the funds on deposit for the entire term vs what they can place on deposit for the remaining term when you break - I've taken market SWAP rates as a proxy.  The current 10 year SWAP rate is 0.9%, which means this is the 'R1' used by KBC in determining break fees.  Take a 'black swan' event - if you fixed and 10 year market rates dropped to 0% for 10 years in the morning, the break fee would be 9% of your mortgage amount; i.e. 9,000 per 100,000.

Please let me know if any other scenarios might help and I will update table - I purposely avoided extremes.


*Scenario**Total Scheduled Repayment**Additional Lump sum**Total Interest Charge**Break Fee**Balance at year 10**Fixed Rate 2.95%*66,252023,565057,313*<80% LTV.  Assume remains at 3.1%*67,154024,833057,679*Assume LVT drops 0.25% each year for 4 years.  i.e. drops to 2.1% after year 4*63,192019,006055,814*As above, fall to year 4, but then increase 0.25% each year until end of 10 years. i.e. 3.35% in year 10*64,739021,500056,762*As above, but with 0.5% increase per annum*66,343024,031057,688*Early Repayment.  Assume no rate change.  Repay 50k after year 3, no market rate changes. Current 10 year SWaP rate is 0.9%; 7 year is 0.525%*40,04750,00014,9741,31324,928*Early Repay using current LTV rate*40,64150,00015,787025,147*Early repay.  Assume rates collpse, and 7 year SWAP drops to 0%*40,04750,00014,9743,15024,928


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## lledlledlled (28 Sep 2017)

The booklet I received with the KBC application documents contains a formula for calculating the break out fee.

The member of the mortgage team in KBC who I met this week told me that I can overpay the 10yr fixed without penalties up to 10% of the repayment amount for that month. I will need to double check this, as it would be a show stopper for me if I can't overpay.


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## Suebee (28 Sep 2017)

lledlledlled said:


> The booklet I received with the KBC application documents contains a formula for calculating the break out fee.
> 
> The member of the mortgage team in KBC who I met this week told me that I can overpay the 10yr fixed without penalties up to 10% of the repayment amount for that month. I will need to double check this, as it would be a show stopper for me if I can't overpay.



I spoke to 3 different people on this and u can only over pay up to 10% on 1,3 and 5 yr fixed the new 10 year fixed does not allow for any overpayment .

I'm still unsure what to do. I wish I had a crystal ball to see where rates will b in 5 years time


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## lledlledlled (28 Sep 2017)

Suebee said:


> I spoke to 3 different people on this and u can only over pay up to 10% on 1,3 and 5 yr fixed the new 10 year fixed does not allow for any overpayment .
> 
> I'm still unsure what to do. I wish I had a crystal ball to see where rates will b in 5 years time



If you want to overpay but also wanted an element of security for 10yrs, you could split it 50/50 between fixed and variable?


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## Suebee (28 Sep 2017)

I'm actually considering 70 % fixed and 30% variable. I'm currently on the 5 year fixed 60 to 80 %Ltv...this split would keep my payments pretty much the same now but allow some security for the future. 

Just want to do some more thinking/research to make sure I'm making the right decision


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## lledlledlled (28 Sep 2017)

Suebee said:


> I'm actually considering 70 % fixed and 30% variable. I'm currently on the 5 year fixed 60 to 80 %Ltv...this split would keep my payments pretty much the same now but allow some security for the future.
> 
> Just want to do some more thinking/research to make sure I'm making the right decision



I was thinking 75% fixed myself but if I can't overpay the fixed portion, I may go 50/50.
Either that or I might go variable with AIB. I won't be as keen on a 10yr commitment if I can't overpay.


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## RedOnion (28 Sep 2017)

Suebee said:


> I spoke to 3 different people on this and u can only over pay up to 10% on 1,3 and 5 yr fixed the new 10 year fixed does not allow for any overpayment .
> 
> I'm still unsure what to do. I wish I had a crystal ball to see where rates will b in 5 years time



I've read the terms & conditions in their mortgage application pack, and can't find any reference to being allowed to overpay by 10% on fixed rates without break fee.  They refer to a 'General Homeloans Terms and Conditions' that I'm not able to find a copy of.

As an existing customer, can you check if you have a copy, and if it references the 10%?


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