ECB, Mortgage and fixing - very confused!

B

Brik

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I know there are some threads touching on this already. I have looked at the thread on 'ECB rates - where next?' and got very confused.

The story is as follows... I have 2 loan offers and have to decide on one over the other. One is a 2yr fixed and there is a contribution to legal fees; the second is a 3yr fixed. The 3yr fixed is only €18 per month more so what I am trying to work out is if I am better off with the 3yr as if there are 2 interest rate rises in the time, it would offset the initial savings of the 2yr (incl legal fees).

So it all hinges on what will happen with the ECB. The more articles I read both here and on finfacts, the more I confuse myself. I read two today that said rates would reach 4.75 next year but then there is one from BoI saying they would not go higher than 4.25. Any ideas?

The 2yr fixed was arranged by a broker (the 3yr by myself) and he is of course pushing that one, though he is saying that the rates will go to 4.25 and then drop back and thats why he want me to take the 2yr. I am not naive enough to belive that but is there some truth in what he is saying?

Sorry this is a long post but hopefully someone out there doesn't get too bored before the end and can give me some advice.

Thanks!
 
There are no guarantees as to where ECB interest rates will be in 2 or 3 years time. Plenty of opinion, but opinions change.

The yield curve is still upward sloping, but has flattened somewhat recently.

In short, if you need to know your repayments with certainty, go with a fixed rate.
 
Brik,
Its highly likely that there will be a rate rise next month and a good chance of another by the end of the year.Even in the next few months world events could impact on the rate, so predicting 2-3 years ahead is a pointless exercise.As CCoVICH says if you need certainty, fix rate is the way to go.
 
There will definitely be another rate hike in September and it's highly likely there'll be another one before the end of the year. However, the common assumption is that next year things will quieten down but I doubt a decrease is really likely to happen. You can always take the two year fixed rate and still opt to extend the fixed rate period... depending on what the situation is like.
 
As ever ... don't fix in an attempt to time the market and save money long term over a competitive tracker/variable rate. Only fix if you are hard pressed to meet the repayments or might be if rates increased by a few percent and you need to peace of mind/predictibility that fixed repayments bring you.
 
Brik

Another option would be to split the mortgage, perhaps 60% fixed and 40% variable. This, in a way, hedges your bets, and will also allow you to pay off some of the variable element, without penalty, if you have any surplus funds in the future.

SM
 
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