# advice requested: fixed term mortgage rates



## makus (17 Feb 2011)

Hi There
Long time reader, first time poster. I didn't want to hijack anyone else's posts regarding related topics; however your advice would be much appreciated. 

Summary: Husband and I fixed our mortgage at 2.8% for 2 years which ends in August. Repayments are manageable; we are both working, I am in a contract role and currently pregnant. My contract will end upon commencement of my Maternity leave in April but I plan to return to the workforce in late 2011-early 2012 (assuming I can get a job!). 

Our provider is currently advertising fixed rates of up to 4.39% for 5 years. Considering I will be relying on savings for the second half of this year, we are looking at our options around mortgage repayments and concerned that interest rates are only going one way, and fast. We could manage repayments of 4.39% and would have peace of mind knowing that this was the rate for 5 years. So I have the following questions: 

1. Should I contact the bank and request to move to the 5 year fixed rate now rather than waiting to see what the rates/ fixed options are like in August? It is the difference of about €400 per month extra. Is this better in our pockets or the banks?

2. Would the bank agree to this in advance of our current fixed term ending or would they insist we wait until August to discuss? We paid some money into the mortgage a few months ago and they didn’t charge us a break clause for doing so.

Many thanks in advance for your help
Makus


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## mcaul (22 Feb 2011)

there will be no penalty for breaking the 2.8% rate as its lower than current market funds rate.

4.39% for 5 years sounds reasonable.

I'd suggest a quick call to the bank for a discussion but I doubt if there will be any issue.


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## TillyD (22 Feb 2011)

We're considering doing this too. We're fixed until April 2012 at 3.1% but thinking of breaking that now to fix again for 5 years. I'm just afraid that that the interest rates will have really soared in the the next 12 months and I'll regret not fixing now.


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## makus (24 Feb 2011)

thanks for your responses. We have been in touch with the bank and are proceeding with breaking out of our current rate and fixing the new one. It was funny actually, when I met with the mortgage adviser her inital response was that it couldnt be done without incurring huge breakage costs and when I pushed her on it she consulted with a colleague who said there would only be an admin fee. They have since come back and said there is no charge at all! So its an extra couple of hundred quid a month but probably worth it for peace of mind for 5 years. 
Thanks again


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## Ruam (25 Feb 2011)

One thing to bear in mind. If you come off your current fixed rate in August what new variable rate will you go on.  Will you go on a tracker and if so if you fix again for five years will you revert back to a tracker?


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## TillyD (25 Feb 2011)

Our bank will also let us break our fixed rate now. 

The current rate is 3.15% until April 2012
We can fix now for 5 years at 5.3%
Or fix for 3 years at 4.5%

Any opinions for someone who is pretty clueless on interest rates. 

Mortgage 235000


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## Greta (25 Feb 2011)

Tilly, I think if you want to break out of your current low fixed rate in order to fix for longer for peace of mind, you should go for the 5 year fix. 3 years is too short, especially as you are fine now until April 2012, that is, for more than a year. So if you give that up now to go for a higher 3 year fix, you'd only really extend the fix period by less than 2 years, but will start paying more for it straight away. 

In my opinion, it's not worth it. Either fix for 5 years or just stay with the current fix, but save up the difference (between repayments at 5.3% and your current repayments) into a savings account, to help you later, if interest rates do increase substantially by April 2012.

Fixing for 3 years will only have you worrying again in a year or two about what will happen when your 3 year fix finishes... 

All this is IMHO, of course.


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## TillyD (28 Feb 2011)

Greta, thanks for your reply and you are right, fixing for 3 now when we are already fixed at a low rate for another year is madness. We are debating the 5 year fix or taking our chances and staying with the fix we have now and saving the difference.


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## marksa (28 Feb 2011)

mcaul said:


> there will be no penalty for breaking the 2.8% rate as its lower than current market funds rate.


 
How is 2.80% lower than the market funds rate for 7month money? 7month Euribor is about 1.44%
http://www.euribor-ebf.eu/euribor-org/euribor-rates.html
So the replacement cost is going to be somewhere between 0% and 1.36% for 7 months, depending on how AIB calculate their break cost. Some banks would calculate the break cost based on the cost of funds on original date of drawdown. The 2.80% is the customer rate, and the bank would have applied a margin over cost of funds to give the customer rate. So e.g. 2% and a margin of 0.80% would equal 2.80%. So in that case, the break cost would be calculated on 2.00% - 1.44% = 0.56% for 7 months on the residual mortgage.

By the way, I would tend to think it would be a good idea to break and refix at the lower prices that are on offer now in comparison to what they will be come August. I can't believe that AIB and BoI have not increased their fixed rates since middle of last year as interbank swap rates have increased by 1% since last September.


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## NorfBank (28 Feb 2011)

AIB should be happy to break that rate without penalty as they can immediately lend those funds out at a higher rate.


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