EBS mortgage-should I stay on SVR or fix at 4.7%?

Scenario:

EBS mortgage, SVR = 3.23%, repayment after TRS = 877pm.

The rate is increasing to 3.83 next month. Think the repayment will increase to 930 approx. (broker said 915 or 950????)

There is an offer to fix at 4.7% for 3 years, repayment = 1080pm.


So fixing would initially cost an extra 0.87%, or 130-150 pm.

Obviously, if the EBS increase their SVR again, or if the ECB put up the base rate, the extra cost of fixing pm would fall.

Has anybody any opinion on what to do?? Stay with SVR or fix at 4.7%?

Thank you.

Do not be surprised if they also increase the fixed rates - AIB did with little publicity when they increased their variable rates back in March/April this year.

As the current 3 year swap rate is approx 1.65%, EBS's implied margin is approx 3%. This is similar to their current variable rate implied margin. On that basis I would expect that if they are increasing their variable rates, they will increase their fixed rates also to maintain margin.

Note that implied margin does not take account the overall funding cost, just the cost of interest rate hedging for the bank/bsoc. Other costs would be such as paying 3% for a variable rate deposit when ECB repo rate is 1% - implying a cost of 2.00% for the bank/bsoc on taking the deposit to fund the mortgage.

swap rates -
[broken link removed]

They have told me today that their fixed rate if I was to fix in the next few days will be 4.7. I am considering fixing tomorrow.

Its a gamble either way, but i would go for the fixed (i did a few months ago). I would suspect the banks are trying to get their SVR up to about 4.5% before the ECB makes any move, probably by mid 2011. After that its a pure guess where and when they'll go. But i dont foresee SVR's dropping and it very likely the ECB will rise at some point next year, so although 4.7% isn't a great rate, i'd guess it will start to pay off as early as 12 months time.

Have a look at the key post.

http://www.askaboutmoney.com/showthread.php?t=140994

marksa said:

As the current 3 year swap rate is approx 1.65%, EBS's implied margin is approx 3%. This is similar to their current variable rate implied margin. On that basis I would expect that if they are increasing their variable rates, they will increase their fixed rates also to maintain margin.

Note that implied margin does not take account the overall funding cost, just the cost of interest rate hedging for the bank/bsoc. Other costs would be such as paying 3% for a variable rate deposit when ECB repo rate is 1% - implying a cost of 2.00% for the bank/bsoc on taking the deposit to fund the mortgage.

swap rates -
[broken link removed]

Click to expand...

This is a slightly confusing post, most posters here want more simple English to help them make their decision. This seems slightly technical. No offence intended you clearly know your stuff.

fizzelina said:

This is a slightly confusing post, most posters here want more simple English to help them make their decision. This seems slightly technical. No offence intended you clearly know your stuff.

Click to expand...

Sorry - yes it is technical, and for those who know their way around how banks really fund fixed rate mortgages then it represents a good comparison to EBS's variable rate.

Thanks for all the advice.

An update:

Currently 3.23% = 877pm net

From Aug 2010, SVR = 3.83% = 950pm net

4.7% fix = between 1060-1070 net.

So the initial extra cost to fix is 0.87% or approx 115 pm.