AIB 10 Year Fixed Mortatage 4.25%

T

thespecialon

Registered User
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211
Hi all,

Just looking for opinions on me switching to the above deal as of AIB wesite today.

I am currently on an ECB tracker + .95%...Mortatage has around 132,000 outstanding and I have 23years left.I am in year 3 of my FTB status.House value around 550K.My current payment is around €580ish per month,due to drop again shortly after last ECB rate cut.

Luckily my mortatage payment are very manageable,however I am no economics expert but I cant see ECB rates staying so low for long,expecially with lots of central banks just 'printing money'...

AIB rate would cost me around €659 per month until my FTB status expires in a few years.Difference is €80 per month based on current rates + switching costs? Am I mad to give up my tracker?? Any opinions welcome?

Thanks,

T
 
I think you would be mad. The tracker rate you will be on soon is 2.45% . To move to 4.25 fixed for 10 years would be plain stupid in my opinion.
If you can afford to pay extra - just pay off some of the capital while interest rates are low.
 
You also have to consider whether or not you plan on staying in this property for the next 10 years?
If you fix the rate and then decide to sell up in the next 10 years, you will have to pay a breakage fee.
 
Well, the ECB has no intention of holding the rates at current very low levels in the long term. However given that the eurozone is in full-blown recession and that rates are likely to drop still further in the next months (1% expected by June, which would put your mortgage rate at 1.95%), you'd be paying a substantial premium for your long term fix, and probably for at least the next two years or so as there are no obvious drivers of major recovery and substantial economic growth.

Usually, if you can accept some interest rate risk, you will do better on a tracker / variable rate over the lifetime of a mortgage. You seem well positioned to take advantage of this. There's no compelling reason for you to take the long term fix: you say your payments are very manageable, and you obviously wouldn't have difficulty paying the higher rate. I'd suggest you'd be better off either putting that extra money aside in high interest savings, or overpaying now depending on how the sums work out and your personal preference.
 
I think the OP is far from mad for considering this, interest rates in iceland are 17% now after the IMF stepped in, the truth is we are in unchartered waters and nobody knows what the side effect will be from the current efforts to stimulate the world economy. But you have to think the best time to fix is when the rates are at an historic low. I am considering waiting for one more drop and then fixing.
 
Thanks for the replies guys,I relaise my tracker is great and would be very slow to move.I also inderstand it will be at least 2 years(in my opinion) before I could possible see any benefit to this fixed rate.
i suppose the only medium to long term risk is this 'hyper-inflation' i hear some people talking about..so by staying put i guess im betting against this happening to any great extent and rates climbing to 7,8 + %???
 
rory22 said:
I think the OP is far from mad for considering this, interest rates in iceland are 17% now after the IMF stepped in, the truth is we are in unchartered waters and nobody knows what the side effect will be from the current efforts to stimulate the world economy. But you have to think the best time to fix is when the rates are at an historic low. I am considering waiting for one more drop and then fixing.
Click to expand...

I'm with Rory on this - I think after the next drop I'll be looking into doing something similar. If the rates were only to rise 2 points over the next 5 years then fixing at 4% for 10 years if that's available after the next drop would look very attractive to me.
 
I suppose the other thing to consider is if we do get a serious dose of Hyper inflation it will make our current debts low i.e a pint might cost 100 euro, a standard car 100,000 and a standard house 1,000,000 euro so owing a couple of hundred thousand on a house will not be so bad!!!!
 
I've been watching the 10 year rate with interest as well.

German government bonds of similar duration are yielding approximately 2.5% to 2.75%. This suggests a 1.5% margin in the AIB 10 year fixed rate versus a 0.95% margin on your tracker.

The current ECB rate of 1.5% is simply an overnight one so we really need to consider the yield curve over the next 10 years.

I reckon that the ECB will not cut the overnight rate below 1%. At this point, if we are still in a deflationary environment, they may buy back longer term bonds. This would reduce longer term yields, having a greater impact on the 10 year yield than the current process of cutting overnight rates.

In the longer term this stimulus may lead to excessive inflation which will have to be controlled by increasing the ECB rate.

It's no secret that the ECB would favour a neutral rate of around 4%. So locking in a rate below 4.5% would be a good idea if you believe there will be a swift economic recovery. If you think things will not improve for a few more years expect the 10 year yield to drop to lower levels over the next year or so.
 
DerKaiser said:
I've been watching the 10 year rate with interest as well.

German government bonds of similar duration are yielding approximately 2.5% to 2.75%. This suggests a 1.5% margin in the AIB 10 year fixed rate versus a 0.95% margin on your tracker.

The current ECB rate of 1.5% is simply an overnight one so we really need to consider the yield curve over the next 10 years.

I reckon that the ECB will not cut the overnight rate below 1%. At this point, if we are still in a deflationary environment, they may buy back longer term bonds. This would reduce longer term yields, having a greater impact on the 10 year yield than the current process of cutting overnight rates.

In the longer term this stimulus may lead to excessive inflation which will have to be controlled by increasing the ECB rate.

It's no secret that the ECB would favour a neutral rate of around 4%. So locking in a rate below 4.5% would be a good idea if you believe there will be a swift economic recovery. If you think things will not improve for a few more years expect the 10 year yield to drop to lower levels over the next year or so.
Click to expand...

Good post although you do hinge your argument on a lot of if, buts and maybes.

In regard to the ECB leaning toward a rate of 4%, this I think is not true - they re main aim was to maintain the inflation rate around 2%. Historically ECB rates have only rose once above 4% and have remained for the most part between 2% and 3%.
 
Cayne said:
In regard to the ECB leaning toward a rate of 4%, this I think is not true - they re main aim was to maintain the inflation rate around 2%. Historically ECB rates have only rose once above 4% and have remained for the most part between 2% and 3%.
Click to expand...

Yep, 2% inflation seems to be the key alright. It's debateable what long term interest would be consistent with this.
 
DerKaiser said:
I've been watching the 10 year rate with interest as well.

German government bonds of similar duration are yielding approximately 2.5% to 2.75%. This suggests a 1.5% margin in the AIB 10 year fixed rate versus a 0.95% margin on your tracker.

The current ECB rate of 1.5% is simply an overnight one so we really need to consider the yield curve over the next 10 years.

I reckon that the ECB will not cut the overnight rate below 1%. At this point, if we are still in a deflationary environment, they may buy back longer term bonds. This would reduce longer term yields, having a greater impact on the 10 year yield than the current process of cutting overnight rates.

In the longer term this stimulus may lead to excessive inflation which will have to be controlled by increasing the ECB rate.

It's no secret that the ECB would favour a neutral rate of around 4%. So locking in a rate below 4.5% would be a good idea if you believe there will be a swift economic recovery. If you think things will not improve for a few more years expect the 10 year yield to drop to lower levels over the next year or so.
Click to expand...

Very good post. I agree with all that. I certainly wouldn't call anyone mad for thinking of locking in for 10 years at 4.25%. Think yields have more to fall as the ECB start their own QE programme but is well worth your while keeping an eye on long term rates and considering your options.
 
irishlinks said:
I think you would be mad. The tracker rate you will be on soon is 2.45% . To move to 4.25 fixed for 10 years would be plain stupid in my opinion.
If you can afford to pay extra - just pay off some of the capital while interest rates are low.
Click to expand...
Paying off capital now may not be wise if the world governments are planning to inflate their way out of debt.

Also why pay off debts on which you are paying 2.45% when you could put the money on deposit at 5%?
 
Cayne said:
Good post although you do hinge your argument on a lot of if, buts and maybes.

In regard to the ECB leaning toward a rate of 4%, this I think is not true - they re main aim was to maintain the inflation rate around 2%. Historically ECB rates have only rose once above 4% and have remained for the most part between 2% and 3%.
Click to expand...

The ECB is too young at ten years to base decisions on that sort of historical data. It is generally accepted that the ECB consider 3.5-4% as being neutral and consistant with their desire ho have inflation at around 2%. That is where they want rates to be.
 
The ECB want a stable inflation rate of 2% with equates to a ECB rate of about 4%. If ECB is 4%, standard variables will be around the 5.5-6% percent. I think the a 10 fixed of 4.25% is a very good deal, but if i had a tracker of ECB+1% i would probably stay on it, at the end of a fixed rate you will only have to fix again or go on the standard variable, that will never be better than the tracker.
 
I'm also considering locking in for 10 years on my mortgages over the the next year. Just wondering if anyone knows of a website that compares all of the 10 year fixed rate options ?

thanks
 
AIB is the lowest 10 year fix out there currently. Max LTV 92%
Next best is EBS at 4.75 max 85% LTV
 
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