Fixed or variable - flawed logic????

In brief: single first time buyer buying a two bed apartment in Dublin city centre. Getting it under Affordable Home scheme so very limited in range of lenders. I'm a civil servant so job reasonably secure. Happy to stay in Dublin for the foreseeable.

Question is should I fix mortgage and if so, for how long?

I'm leaning towards a 35 year mortgage with EBS, 10years fixed at 4.6% APR. Logic is as follows:

In the UK where Bank of England rate is now 1.5% the typical rates offered by some of the high street banks are 4.3% variable - 5.7% fixed for 5 years. This suggests to me that even if the ECB drops further in the short term, the banks here will not be providing significantly lower fixed rates, we're close to the bottom of the barrell.

Fixing for 5 years is very attractive but I reckon that by then there's a reasonable chance of recovery in the bigger EU countries and the ECB rate will be raised to control Eurozone inflation.

As I see it, I'm paying a bit more now to pay potentially a lot less later.

I'd really welcome any observations as it's such a huge committment.
Thanks

If you do fix for 10 years you would want to be secure that you will stay in the apartment for 10 years, especially seen your going with EBS, their rates for breaking fixed terms are one of the highest. You can find out from EBS themselves (dont quote me, it was a while back) but i was quoted 6 months of repayments to break a fixed rate. So if you pay EUR1500 per month it would work out at EUR9000 breakage fee. Most other banks work out the fee depending on the fixed rates at the time of breaking or by the standard variable, but not EBS. Will you stay in a 2 bed that long? are you planning a family? You wont be able to pay off more on your mortgage in those 10yrs.

4.6% is a tempting rate, for such a long period, but is that their revised rate after the last ECB drop? they usually look at their fixed rates after the ECB changes, this might not have happened yet so it could change very soon, ESB will tell you when/if they are revising rates.

Thanks senna.
Kids def won't be happening so won't need a bigger place.
The breakage fee would be crippling and I know EBS are particularly tough, that's why I'm unsure about 10 years. Still tempted by the rate and security though.

Can anyone explain to me (in layman's terms) how EBS or any lender goes about calculating the amount payable if leaving a fixed term mortgage??

Go variable for a year and then fix if you absolutely need to know what you are paying each month or are on a strict budget. I wouldn't be going fixed for 10 years if I was buying.

Sienna "Most other banks work out the fee depending on the fixed rates at the time of breaking or by the standard variable, but not EBS." -

This is not true I have my mortgage with EBS and queried when I was thinking of fixing. They no longer calculate breakage fees that way. Fixed rate breakage fees are calculated in the usual way based on :

• When you fixed your mortgage and the rate you got,
• When you want to break out and the rate available to a bank at that time.
• The term remaining on the fixed rate.
• What you have left to pay on your mortgage.

Breakage fees are different for everyone because of this.
I agree though I wouldn't fix a mortgage for 10 years, you would never save money there are too many periods of ups and downs in a 10 yr period and inliley you wil be living in same apartment in 10years, but up to you...

Dear Promoter,

Here's how I prompt my customers to think about this issue ....

a) Fixing for ten years is a long time - is it likely you will stay in this property for at least that period ...
b) Explain there will likely be a penalty if one wants to break out of the product during the period ...
c) I'd try and ascertain what's driving their thought process, e.g. security of knowing what their repayments will be, or are they gambling on the fact that they think they are making a good decision or has somebody said something to them to prompt this thought ...
d) I'd paint a scenraio of rates (fixed and variable falling by say 2% from current rates) - how would they feel? would they be ones to live with the situation or be in demanding to break out of the deal they are on etc etc. If they would likely adopt the latter approach I'd query if they were really making the right decision?

After all that, I'd throw the following scenario on the table (which amazingly so many people don't consider) - i.e. hedge your bets ....

split your mortgage in to say 2, 3 or 4 component parts and allocate same based on a) your risk profile, b) comfort level with current repayment levels, and c) impact of rates rises on your situation, and end up with certain percentages of your mortgage allocated as follows ...

Variable
2/3 Year Fixed
5 Year Fixed
10 Year Fixed

Hope that helps...

Regards,

BM