20 Year Fixed Term Mortgages Available

[Gordon Gekko]

Would you still love the idea if 3 to 5 years into your 20 year fixed rate the variable rate dropped below the fixed rate and stayed that way???

That’s not really the point though. For some people, if their mortgage is, say, €2,000 a month and it were to increase, they’d struggle. So buyers’ remorse would be less of an issue if they can avail of a product that gives them certainty and no sleepness nights.

 

[Cervelo]

I presume it all comes down to how you view things
If your on a fixed rate and the rates go up, well then your sitting pretty no increase in your mortgage
But if the variable rate drops below the fixed and stays that way as has happened in the past
It would start to become an issue for me to be paying more for my mortgage compared to the variable rate

I don't know if it applies today but back in day when I was buying houses and having mortgages I was always advised not to fix longer than a couple of years the reason being is that over the term of the mortgage you nearly always pay less when on a variable rate

 

[ThatNewGuy]

Would you still love the idea if 3 to 5 years into your 20 year fixed rate the variable rate dropped below the fixed rate and stayed that way???

In a "worst case" scenario where i purchased the 20 year and the very next day the variable dropped an entire percentage point lower, I would be looking at ~70k extra interest difference on the term. The further out that flip is, and the less the variable difference is, that number runs down very very quickly to being negligible. Conversely if it was to go up a couple percentage points, that interest number shoots up. So yes, for "set and forget" peace of mind, I'd be very comfortable with it

 

[RedOnion]

I don't know if it applies today but back in day when I was buying houses and having mortgages I was always advised not to fix longer than a couple of years the reason being is that over the term of the mortgage

No, it doesn't apply today.
I don't want this to sound as rude as it might, but in my opinion Anecdotal / Bar stool advice has no place in a serious conversation.

You can compare the mortgage rates to interbank curves. Then to make the above statement means the entire money market is pricing long term interest rates wrong.

Personally, if I was taking out a mortgage today, at these new rates I'd be very much leaning towards fixing for 10 years. Relative to swap curves, and other available rates, they provide value.

The only thing holding me back from saying I'd fix for 20 is I'd expect salary to increase over that time, and be able to pay mortgage faster, regardless of what interest rate would be at that point. But I'm an outlier - I repaid 2/3rds of mortgage in first 5 years.

 

[RedOnion]

In a "worst case" scenario where i purchased the 20 year and the very next day the variable dropped an entire percentage point lower, I would be looking at ~70k extra interest difference on the term

Well, in that scenario you'd break out, pay whatever tiny fee there is, and then move to the best rate.

The 20 year interbank swap rate is currently about 0.6%. So it'd need to go deeply negative for you to lose out in that doomsday scenario.

 

[peemac]

Would you still love the idea if 3 to 5 years into your 20 year fixed rate the variable rate dropped below the fixed rate and stayed that way???

The difference will always be relatively small. Lets say variable rates went to 2%, your payment would be €1520 on a 20 year term for €300k.

Yes it's about €960 more per year compared to your fixed rate (if in the unlikely event variable rates dropped to 2%), but likewise a variable rate could go to 4% (some banks charge this now) and that would add €2500 to your annual cost.

Peace of mind has a value for many people.

 

[NoRegretsCoyote]

No, it doesn't apply today.
I don't want this to sound as rude as it might, but in my opinion Anecdotal / Bar stool advice has no place in a serious conversation.

AAM is full of often useful and informative anecdotes!

Otherwise I think most posters are framing this correctly as paying a premium to be sure your borrowing costs won't rise over the long term.

"What ifs" aren't worth obsessing over either. I've paid life insurance for years but am still glad I haven't died.

 

[RedOnion]

Otherwise I think most posters are framing this correctly as paying a premium to be sure your borrowing costs won't rise over the long term.

This is where I somewhat disagree. I don't view it as an 'insurance', and I don't think it is actually a premium.

Banks and States with trillions of euros of borrowing don't assume that over the long term variable rates will be lower than fixed rates. Well, one bank did to an extent, if you remember Northern Rock? It was part of the reason behind their collapse (liquidity was a bigger part, but they were using variable rate liabilities to fund fixed rate assets).

If far smarter people than you or I, with far more at stake, won't take the risk, why should the average punter with a mortgage?

I've simplified this to avoid the complexity of an annuity, but my view:
The markets have priced in an expectation for rates over the next 20 years. There's now a mortgage available at c.2% margin over that rate. To say these rates aren't good is saying either you expect bank margins to tighten below 2%, or that the market is pricing interest rates swaps wrong, and interest rates will average below 0.6% over 20 years.

If interest rates were 4%+, I can see the argument. But in a land of negative rates, expecting them to stay for 20 years?

These are my personal views.

 

[Cervelo]

No, it doesn't apply today.
I don't want this to sound as rude as it might, but in my opinion Anecdotal / Bar stool advice has no place in a serious conversation.

Anecdotal, Yes nearly all my posts are/will be based on my experiences and what has worked for me and what has not
You might not get any value from them or think that they have no place in a "serious conversation" others might!!
But "Bar Stool", No the advise I got was from two senior boys from BOI head office and two senior advisors from KPMG
during a finance meeting I was having with BOI back in '96 which is why I said "I don't know if it still applies today..."

But here's the thing I'm just Joe Soap on the street I think a certain way, like this conversation I believed this morning that fixed rates are going to be more expensive than variable rates over the term of a mortgage or as NRC said your paying a premium for peace of mind.
After reading your post above (#28) I can now see why my thinking might not be inline with current thinking about fixed rates
I would not have known this but for my posting anecdotally in this thread and maybe it will help others who are not as knowledgeable in these areas

 

[skrooge]

No the advise I got was from two senior boys from BOI head office and two senior advisors from KPMG
during a finance meeting I was having with BOI back in '96 which is why I said "I don't know if it still applies today..."

It was good advice in the nineties. It was the run up to monetary union. Interest rates were converging across Europe. For us that meant rates were declining. As a result of this structural change fixing back then would have been expensive relative to where rates were going.

Of course that was twenty+ years ago. There are no obvious structural changes in interest rates about to take place that would warrant the same advise - from what I can see anyway.

 

[RedOnion]

Anecdotal, Yes nearly all my posts are/will be based on my experiences and what has worked for me

I did apologise in advance. I didn't use the correct words to express myself, and I didn't mean to sound dismissive. I think I've explained my thoughts better subsequently.
So apologies again for the way my post read, it wasn't what I intended at all.

 

[Gordon Gekko]

People seem to forget simple maths in the context of assessing a fixed rate product.

If I fix at 1.95% today, then for every day that it was the “right” decision, there needs to be two days of it being the “wrong” decision in for me to have buyer’s regret.

The earlier point also still stands; if someone is to the pin of their collar making their monthly repayment, the fact that the person can fix is great, and they shouldn’t have any buyer’s remorse; they’re getting downside protection.

 

[Smaug~~°w°~~]

Peace of mind can be worth paying for regardless of the duration.
Cervelo/Mr Smaug has life insurance and everyday he's alive it's wasted money

 

[cremeegg]

over the term of the mortgage you nearly always pay less when on a variable rate

This is true UNLESS the banks have mispriced their loan.

The bank gives up the flexibility to vary the interest rate, understandably they charge for that.

The borrower gets certainty over the repayment amount, understandably they pay for that certainty.

While obviously banks cannot fore tell the future, they expect a greater margin on a fixed rate loan, otherwise they would not take on the additional risk.

What has changed since the 90s is that the range of possible future variable rates is no longer symmetrical about the expected rate. If the variable rate today is 2% it might be 6% in 10 years time but is highly unlikely that it will be negative 4%.

Comparison with Tracker Mortgages

The tracker mortgages of the early 2000s were a one way bet, either the future unfolded as the banks expected and the tracker was a good product (for the borrower), a nice variation on a variable mortgage, or, as actually transpired, interest rates increased and the tracker was a great product (for the borrower).

This 20 year fixed rate mortgage has somewhat similar opportunities for borrowers. If variable rates stay the same on average over the next 20 years, borrowers will have paid no more and benefitted from the certainty. If variable rates go higher, or much higher, this product will be a wonderful opportunity for borrowers. If variable rates fall borrowers will lose out (though they will still have the certainty) but there is a limit to this downside, variable rates cannot go negative nor even close to that.

 

[NoRegretsCoyote]

@RedOnion

I think we agree to a large extent. Anyone borrowing is taking an implicit view on the path of wholesale interest rates and yield curves. It's unavoidable. You have an informed view of course. I just think that 99% of mortgage borrowers will never have the slightest understanding of what goes on behind the curtain and shouldn't even try.

This is where I somewhat disagree. I don't view it as an 'insurance', and I don't think it is actually a premium.

I don't want to be semantic. But I think for most people it is worth thinking about in terms of how much risk they are willing to take on. The question "Is this rate good value?" is unknowable for the 99%, and even the informed 1% are still speculating to a large extent. The question "is the extra cost of fixing for 10 years over 5 a price worth paying for so that my rate can't rise?" is a better framing, and that's a kind of insurance.

To say these rates aren't good is saying either you expect bank margins to tighten below 2%,

Personally I think margins will fall in Ireland a bit as the GFC aftermath has less weight in banks' internal models and banks aren't obliged to issue as much capital for Irish mortgages. But this is only semi-informed speculation on my part and I wouldn't propose anyone would choose a rate on this basis!

 

[Mocame]

How do the rates compare to the Rebuilding Ireland Home Loan (also 20 year fixed)?

 

[peemac]

How do the rates compare to the Rebuilding Ireland Home Loan (also 20 year fixed)?

Seems to be very much a similar rate.

 

[Gordon Gekko]

The issue is more complicated than that though. It’s not as simple as variable rates vs fixed rates. Fixed rates are much lower than variable rates and should continue to be for the forseeable future. They’d have to move a lot to compete with fixed rates. So the only “buyer’s remorse” that I can see is where someone signs up for an attractive fixed rate and then another provider (or that same provider) offers a better fixed rate at a later stage.

Predicting rates is challenging but I can’t see much prospect of anyone being affected by buyer’s remorse if they sign up for Avant’s 1.95% 7 year rate.

 

[DublinHead54]

Hi,

I was just looking at FI long term a bit closer after seeing that you can move your rate with you to a new house. I'm a bit confused by the example on their website pasted below. The main question I have is on the calculation of LTV on the unmortgaged amount in the example. Assuming the house value is 375k (20% deposit = 300k mortgage), would the LTV for the new mortgage calculated as 200/375 = 53% or 300/375 = 80%? I'm thinking logically it must be the 53% or else it might not have many benefits over early repayment charges.

Example: Anne & John’s expanding family

Anne and John have had a second child and they need to move out of their 2-bed house to a larger property. They are 10 years into a 20-year fixed rate with Finance Ireland and have €100,000 still to pay on their mortgage. They need a new mortgage of €300,000 to make the move.

Normally they’d have to break their fixed rate to take out a new loan and this could lead to an early repayment charge. But, with Finance Ireland, Anne and john can simply move their existing fixed rate over to their new home and avoid any fee that might have applied.

Here’s how it works. Anne and John transfer their existing fixed rate to a matching €100,000 of their new loan, for the same 10 years that’s left to run on that contract. The other €200,000 they need can be arranged with Finance Ireland at an interest rate and term of their choice.

 

[Coldwarrior]

Hi,

I was just looking at FI long term a bit closer after seeing that you can move your rate with you to a new house. I'm a bit confused by the example on their website pasted below. The main question I have is on the calculation of LTV on the unmortgaged amount in the example. Assuming the house value is 375k (20% deposit = 300k mortgage), would the LTV for the new mortgage calculated as 200/375 = 53% or 300/375 = 80%? I'm thinking logically it must be the 53% or else it might not have many benefits over early repayment charges.

Example: Anne & John’s expanding family

Anne and John have had a second child and they need to move out of their 2-bed house to a larger property. They are 10 years into a 20-year fixed rate with Finance Ireland and have €100,000 still to pay on their mortgage. They need a new mortgage of €300,000 to make the move.

Normally they’d have to break their fixed rate to take out a new loan and this could lead to an early repayment charge. But, with Finance Ireland, Anne and john can simply move their existing fixed rate over to their new home and avoid any fee that might have applied.

Here’s how it works. Anne and John transfer their existing fixed rate to a matching €100,000 of their new loan, for the same 10 years that’s left to run on that contract. The other €200,000 they need can be arranged with Finance Ireland at an interest rate and term of their choice.

I assume its 300/375, it'd be the total mortgage balance divided by the house value. I guess the catch with this is you'd have to hope FI are still offering mortgages in 10 years time or whenever you move in the future, assuming you want to borrow more. If not, you won't be able to borrow the extra amount (200k in this example) from another bank, so you'd have to incur the breakage fee and look for a 300k mortgage from a different bank.