# Is Now The Time To Get A Fixed Rate Mortgage



## TheJackal (23 Jul 2009)

My thinking is as follows:

Irish Independent said on Tuesday that Permanent TSB will likely increase it's variable rate very soon despite ECB rate remaining unchanged.

http://www.independent.ie/business/...hike-in-variable-home-loan-rates-1831796.html

If they do, it will be first time ever an Irish owned bank has brought rates up without a corresponding ECB rate increase. AIB & BOI, previously too scared of a public backlash, would then follow suit after TSB take the heat & bad press for being 1st to do so.

So rates could start going up for those on variables in weeks, even though ECB will likely stay at 1% til early next year.

So let's look at what fixed rates are out there. 
Most banks offer a 5 year rate; a few also offer 10 years. 
Best I found was AIB for both.

AIB's current variable rate, LTV >80%, 35 year mortgage, is 2.68%

A 5 year fixed, LTV >80%, 35 year mortgage, is only 2.77% APR

A 10 year fixed, LTV >80%, 20 year mortgage, is 4.21% APR

So by switching from a variable (2.68%) to a 5 year fixed (2.77%) you'd only lose out on  .09%!!

Seems a brilliant offer. ECB rates will start going up & up in 12-18 months time, so you'd be laughing with the fixed rate if you get it now.

Thoughts?


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## samanthajane (23 Jul 2009)

5 months ago i contact my mortgage provider to ask what the rates were for fixing, at the time it was the same as my variable rate 3.49%

I phoned last week and the rate was now 3.99%, i'm currently paying 3.24%. 

I dont know weather to fix or not. The rates are going to go back up again it's just a case of when.


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## callybags (23 Jul 2009)

Just be careful.

Nothing is ever as good as it seems.

Have a look at all the threads here about people desparately tring to get out of fixed rates.

In nearly every case they thought it was the best option when they signed up.

My view, for what it's worth, is that the bank will always think that their fixed rates will make them more money than vairiable ones. Otherwise why would they be offering them?


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## NorfBank (23 Jul 2009)

Don't use APR when comparing fixed rates to variable. 

Using AIB as in your example. for a >80% LTV mortgage :

The best 5 year fixed rate  is 3.86%, you will pay this for 5 years.
The best variable is 2.65%.

Immediately you are paying a premium of 3.86 - 2.65 = 1.21% if you fix.

As you predict rates will go up in 12/18 months time, for this period you will be paying 1.21% extra plus you lose the ability to overpay, increase monthly repayments, switch or redeem the mortgage without penalty.

It could be a good time to fix but unfortunately not as clean cut as you have suggested. Of course AIB could raise rates in the interim but that is the great unknown. In my opinion if they raise variable rates, they will also raise fixed rates. Fixed rate do not kick in until the day of drawdown so you could have done all the work believing you will fix at the 3.86% but on the day of drawdown the fixed rate could be increased to  5.15%. Banks are there to make money.

Only fix if you need to be sure of your future monthly repayments, don't try and time the market. (as the fella says!)

[broken link removed]


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## TheJackal (24 Jul 2009)

NorfBank said:


> Don't use APR when comparing fixed rates to variable.


 
Why shouldn't one compare these products via APR?

Edit: I checked it out. 

"APRs may be higher or lower than the nominal rate, as they are calculated on the basis that the loan reverts to the standard variable rate (which may be higher or lower than the fixed rate) following the fixed rate term."

Sneaky! Makes their rate appear lower than it actually!


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## TheJackal (24 Jul 2009)

I note Permanent TSB have announced today that there Variable rate is to increase 0.5% from next Monday, Jul 27th!

So how long til AIB & BOI follow suit? Few weeks max I'd say...


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## samanthajane (24 Jul 2009)

Yeah i'm not impressed with that either. Not a customer of PTSB, AIB or BOI. But i'd bet my house that once these have made the increase KBC will follow as well!


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## NorfBank (24 Jul 2009)

TheJackal said:


> Sneaky! Makes their rate appear lower than it actually!



You seem surprised..

One bank  allowed people to come off their fixed rates for free (if they were reverting to a tracker), one bank then refused to let people out of fixed rates for any reason, one bank then allowed people out of the fixed rate if they paid their breakage penalty then one bank raised the variable rate for those people by 0.5%. Very sneaky indeed.


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## cancan (24 Jul 2009)

I am just wondering how all those people on variable rates expect to pay their mortgages when rates begin to rise.
Rates are at historic lows, yet people don't feel then need to lock in.

Being on a variable rate on a principal residence is gambling on having a roof over your family's head in years to come, and personally I think it's financially reckless.
I'd strongly advise people to look at fixing their rates while the are at historic lows.

Those on variable rates now do feel lucky, for now.
Invert the recent rate decreases into rate rises and ask yourself if you could afford your house if that had occured.
At this point it's like taking out insurance on the family home - you'll pay a bit extra short term, but it sure beats loosing your home long term.

With so many on variable rate mortgages, we really are setting ourselves up for a crash part II when rates begin to rise across europe, and ireland is still mired in a revenue shortfall.
That 400 million a week borrowing the country is now doing will catch up with us in the end.


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## jhegarty (24 Jul 2009)

cancan said:


> Being on a variable rate on a principal residence is gambling on having a roof over your family's head in years to come, and personally I think it's financially reckless.



Would you have said the same thing 18 months ago ?


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## ajapale (24 Jul 2009)

Eddie Hobbs in a wide ranging and thought provoking interview with Derek Mooney suggested that now might be the time to fix.

He speculates that we may be about to enter into an inflationary cycle and that variable rates will rocket.

In my opinion he contradicts himself when he states that you will never beat the market.

I know that there are collar and cuff trackers in the UK market which put a lower and upper bound on a tracker. Perhaps the banks may provide products along these lines?


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## NorfBank (24 Jul 2009)

ajapale said:


> I know that there are collar and cuff trackers in the UK market which put a lower and upper bound on a tracker. Perhaps the banks may provide products along these lines?



IIB introduced a capped tracker a few years back but take up was very low as the  margin was a lot higher than the margin on a ordinary tracker.

I can't see Irish banks bringing back a tracker in any form but if variable rates do increase across the board and the profit margin on mortgages also increases, maybe some new providers will enter the market offering such products.

At the moment the margins in the Irish mortgage market are so low in comparision to the UK  that we only have local providers really competing for the business.


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## cancan (24 Jul 2009)

jhegarty said:


> Would you have said the same thing 18 months ago ?


 
Were rates at historic lows 18 months ago?


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## WarrenBuffet (31 Jul 2009)

I currently have a tracker mortgage - bit of a luck really as we had to choose whether we would go fixed, variable or stay tracker in Sept 08 and so couldnt have foreseen the massive changes since then.

However i have a feeling that ECB interest rates cant go much lower - i mean has the policy of cutting interest rates really worked? Are interest rates going to go up? Will the ECB rate go up when the larger EU economies like Germany recover (a long time ahead of Ireland). Should i be considering fixing now while rates are low??!??

I know this is a million dollar question but i would be interested to hear peoples thoughts interest rates over the coming 24 months 

WB


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## dubrov (31 Jul 2009)

Is a fixed rate really that good a hedge? As a lot of people have found out recently, it may lock in your payment amounts but doesn't hedge other risks such as the broader economy. Fixed mortgage amounts in an environment of falling salaries isn't really great and a variable rate would really have been more of a hedge. If interest rates were to rise a lot, it is very likely that salaries will also rise in line.

I guess the major risk of a variable rate is that Europe takes off while Ireland dwells in recession. A fixed rate may stave this off for a while but it will eventually revert back to variable at which point you may be in trouble anyway


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## askalot (31 Jul 2009)

dubrov said:


> If interest rates were to rise a lot, it is very likely that salaries will also rise in line.



Really? 

IMHO the only things that are likely to rise in such a scenario are repossessions and unemployment.


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## dubrov (31 Jul 2009)

Do you really think that the ECB will raise rates in an environment of widespread unemployment and repossessions? 

Although their mandate is for price control, the state of the economy and prices are very interlinked.

As I already mentioned, you are still exposed to the risk that the rest of Europe recovers quickly from the recession while Ireland does not. In that scenario you would have a raising of interest rates which would lead to widespread unemplyment and repossessions in Ireland


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## Guest116 (31 Jul 2009)

Lets say it takes 2 years for Ireland to recover after the rest of Europe has, I would say that would be manageable for a lot of people. 

You wont loose your house in any case if you pay what you can (with agreement from your bank). It takes years to get to a point where you end up in court and loose your house (and that only happens where you make no effort to repay). Don't panic.

Rates are out of your control, people should focus on learning new skills, working hard and getting on with things.

I would not look to fix my rate, I currently have a tracker. You won't do better than a low margined tracker rate over the life of a mortgage versus trying to time the market with fixed rates. 

And if you leave your tracker you will not get a good rate like that again, remember that most peoples mortgages are for 25-30+ years so this talk of jumping to fixed rates is short sighted.


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## donalobrien (5 Aug 2009)

Fixed rates will rise, Sheehy of AIB said as much this morning 6th August 09. There is also the possibility of high inflation due to the stimulus packages which would lead to high interest rates. I suspect that the ECB will keep rates low for about 12 months or so but will raise them when the economies improve. So variable 2.82 today and fixed = 3.86 for 5 years. I expect the banks to raise the rate by .5 in 2009 (after Nama is set up) so this will be 3.32 by year end. The difference would be only .44 to fixed and I would expect to make this back in the first two years of the fixed. Would save money in the last 3 years and maybe by a considerable margin.


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## Chopper1971 (5 Aug 2009)

KBC (IIB) have stopped offering fixed rate mortgages for investment properties. Seems crazy. Fixing your mortgage will provide less risk if rates increase,however the bank will also have higher risk on defaults.

V frustrating, want to fix now, but the bank won't allow it.


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## Bronte (6 Aug 2009)

NorfBank said:


> one bank then refused to let people out of fixed rates for any reason,


 
I don't understand this, if you pay the penalty they have to let you out of the fixed rate?

Ajapale

What is a coller and cuff mortgage?

In relation to the fixed rate debate, fix if you want peace of mind, if you know what the penalties are for breaking it and if you think you can't handle much of a variable rate rise.


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## NorfBank (6 Aug 2009)

Bronte said:


> I don't understand this, if you pay the penalty they have to let you out of the fixed rate?




Back in February, PTSB tried to stop people coming off a fixed rate even if they paid the penalty.

Collar and cuff is where interest rate boundaries are put on a mortgage, it cannot fall below x or above y.

Say you have an ECB + 0.5% tracker, collar of 6%, cuff of 2%.

Today your interest rate will be 2% not 1.5% as on a normal tracker.
If ECB rises to 7%, the highest rate you will pay is 6%.




www.moneybackmortgages.ie


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## Timbo (7 Aug 2009)

I must admit I am tempted to get a fixed rate. By that I mean 10 years. Anything less completely defeats the purpose and could leave you coming to end of term as the policy cycle heats up and variable and short-term rates increase sigificantly.

It will all come down to your own personal views, but the type of emergency monetary policy being propogated in Europe could have potentially dramatic implications for inflation over a 5-10 time horizon if the ECB don't judge things well (and possibly even if they do). If inflation pushes up to 5% or above, you could be looking at variable rates of 8-9%, or more if inflation really takes off.

I am trying to formulate my own views at the moment on what I think the probablity of that happening is. the sub 5% 10 year rates I have seen quoted would be a nice insurance policy.


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## maggieO (7 Aug 2009)

We came off a three year fixed with NIB recently and switched to AIB, thought long and hard about whether to fix and for how long. Eventually decided to go for the three year fixed although the five year was attractive. I think its important to think of the possible situation with rates when your fixed rate ends, we thought rates could still be reasonable in three years so we could fix lowish again whereas in five years things  could be very different and rates could be very high which would be a huge financial shock. Of course its impossible to predict but thats how we gambled and hope it pays off. Last fixed rate we got was 3.69 which was brilliant when rates started to rise the last few years, at least with a fixed rate you can plan your outgoings over a cetain period.


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## Guest116 (7 Aug 2009)

Timbo said:


> It will all come down to your own personal views, but the type of emergency monetary policy being propogated in Europe could have potentially dramatic implications for inflation over a 5-10 time horizon if the ECB don't judge things well (and possibly even if they do). If inflation pushes up to 5% or above, you could be looking at variable rates of 8-9%, or more if inflation really takes off..


 
Would you think about staying with a tracker and saving money in a high interest deposit account in the meantime. If your timeframe is 5-10 years could you save a decent chunk of money and use that if you wanted to reduce your mortgage down the line. You would also hope that in 10 years time your salary would go up espiecially if inflation rises.

For me the main concern is the cost of the repayment each month, I don't really care what the interest rate is. If rates go to 8% I can use some savings to reduce the mortgage. But you dont need to gamble by taking a fixed rate today and throwing away a low margined tracker mortgage.

Actually, how does that work. Say I have 50k and want to take it off the mortgage will my mortgage term be reduced or will my repayments be reduced? How does it work? Do I have a choice?


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## NorfBank (8 Aug 2009)

aristotle25 said:


> Actually, how does that work. Say I have 50k and want to take it off the mortgage will my mortgage term be reduced or will my repayments be reduced? How does it work? Do I have a choice?



It will be up to you, paying off a lump sum will reduce the term if you keep up the same repayments or  you can reduce the repayments over the original term.



www.moneybackmortgages.ie


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## zod (10 Aug 2009)

Timbo said:


> I must admit I am tempted to get a fixed rate. By that I mean *10 years*. Anything less completely defeats the purpose and could leave you coming to end of term as the policy cycle heats up and variable and short-term rates increase sigificantly.


 
This is great advise, IMO interest rates will balloon in about 3-5 years time, but will remain low untill then. If your not fixing for a long time stay on your tracker and save money.


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