Any advice on whether to fix rate-future uncertain

[Cashstrapped]

Current situation is that I have a variable mortgage with first active 3.85%, repayments circa €1,200 with around 18 years left, (100k equity at present). Currently in receipt of illness benefit and unfortunately that looks like it will continue for possibly another year. Mortgage protection due to finish in the next couple of months so wondering:


I am considering fixing the interest rate for 5 years 4.3% with First Active, reasons being:

- I am sure of how much my mortgage will be (covered by my Social Welfare Benefit & Child Benefit)

- First Active have not passed on alot of the most recent ECB reductions so is unlikely they will pass on future ones (if any)

- If rates go up then I am completely stretched and worst scenario a 1% rise in ECB rates over the next year will make my mortgage unattainable/ unrepayable for me if I am still in receipt of benefits.

- Hope to return to work within a year be it a CE Scheme etc. so that should generate a small additional amount of income to allow me to build up a rainy day fund.


Worries are:

- Fear of losing my home if I get into financial bother, the above scenario while not ideal will ensure I hold onto my home.

- If I remain on Welfare for longer than a year then I wonder how long I would be able to live week to week most likely on borrowed money to cover other bills and food.

- If I fix and then due to medical reasons cannot return to work long term and decide to sell my home I will most likely be hit with large penalty charges.

- Am I putting off the inevitable.



I won't qualify for Mortgage Interest Supplement as the interest on my mortgage is circa 400 per month, I have to pay circa €80 myself (mortgage Interest calculation) and then I receive €70 per week maintenance so this is taken into consideration and has to be used in total to cover the interest portion of my mortgage.

Don't really want to change the terms of my mortgage to stretch out over more years or I will be over 65 when repaid and given medical condition don't think that is a good idea. Any thoughts on would I be making the right move to fix?

 

[Robin Banks]

If a penalty of 0.45% will give you peace of mind for five years then go for it I say.

Interest rates will probably not rise by 1% over the next 12 months, but they will almost definitely rise by more than that over the next five years.

When variable rates do start rising, fixed rates will already have risen in anticipation so the option of locking in at 4.3% for five years will be gone.

They say nobody rings a bell at the bottom, but I would say that 4.3% is significantly below long term average five year fixed term rates so you are not getting ripped off. Best of luck and hope it works out for you.

 

[Cashstrapped]

If a penalty of 0.45% will give you peace of mind for five years then go for it I say.

Interest rates will probably not rise by 1% over the next 12 months, but they will almost definitely rise by more than that over the next five years.

When variable rates do start rising, fixed rates will already have risen in anticipation so the option of locking in at 4.3% for five years will be gone.

They say nobody rings a bell at the bottom, but I would say that 4.3% is significantly below long term average five year fixed term rates so you are not getting ripped off. Best of luck and hope it works out for you.

Thanks for the reply Robin Banks, can I ask you where you are getting the penalty of 0.45% from, is this standard, I had searched but couldn't find it, thanks.

 

[stephnyc]

cashstrapped.. I'd say Robin Banks means a penalty of changing from your current variable rate 3.85% to the 4.3% fixed (not the amount for breaking the fixed - which would be worth checking with your bank)

 

[Robin Banks]

Yep, I meant the difference between going fixed for five years vs your current variable rate is 0.45%.

AIB have five year fixed at 3.69% for owner occupiers but it might be difficult for you to switch lenders given your circumstances. But it might be worth talking to them, all they can say is no

 

[Cashstrapped]

cashstrapped.. I'd say Robin Banks means a penalty of changing from your current variable rate 3.85% to the 4.3% fixed (not the amount for breaking the fixed - which would be worth checking with your bank)

Oops, the brain is on a go slow today, thanks for the clarification, will follow up with First Active to get an idea of penalties if I have to get out of it going forward.

Robin Banks thanks had looked at AIB but not a chance of getting a mortgage with anyone else I'd say for the moment until the health has improved i'd be too much of a risk and i'd say would have no joy in getting mortgage insurance either but thanks for the reply.