Fixed or Variable

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pAnTs

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Hi Im only new to this forum and have an important decision to make before Monday. I am getting a mortgage from my local county council. The thing is I have to choose between fixed rate 4.45% or 3.25% variable rate. The fixed rate term is for 5 years and after that I automaticaly go onto the variable rate for the remainder of the term. If I pick the variable rate I can't go onto the fixed rate ever. This is the only offer that I can avail on it's either fixed for the first 5 years and then variable or variable for the entire thirty year term. I know this seems unusual because most lenders have movement but on this mortgage I definately have no other options. What are your opinions about which I should go for. I know the European thingy Bank are set to increase up to .75% in which case it would still be below the fixed rate. I have no idea what to do. HELP! :(
 
Welcome to AAM. If you use the you will find many threads dealing with the issue of fixed versus variable/tracker mortgage rates and which might be of use to you. For example .
 
Thanks for the rates club man. I have had a look through the threads and it is making it worse. One person sayes fix and then the other sayes stay on variable. I realise there you would need a crystal ball to know but as Im an arty type and have no previous experience or knowledge of anything to do with finance I wondered was there anyone willing to speculate on what the likelyhood of the ECB rates exceeding my offered fixed rate of 4.45 in the next 5 years. God I feel so blessed to have been born with an interest in drwing all this stuff is scary!!!
 
It's a very hard question to answer because in the next 5 years who knows how well the european economy will perform, hence, what way interest rates will go (although the general consensus is that they are going up). You need to consider whether it's possible that you will sell the house within 5 years, if so what is the penalty for coming out of the fixed rate. Also, if you go variable can you change to another bank over the next year or two?
 
No I won't be moving house and I can't move to another bank. Perhaps I should go for fixed then if the general concensus is that the rates are going up. Do you think???
 
I don't think it's as difficult an issue as some people think. My view, as ever, is that you should only fix if you need the peace of mind that fixed repayments give you and you would be hard pressed to meet the mortgage repayments if rates increased by a few percent. Certainly don't fix in an attempt to time the market and save money. In all likelyhood you will not save with a fixed rate but will pay a premium for it over time. If you are not hard pressed by your mortgage repayments and would not be if rates increased by a few percent then you should stick with a competitive variable/tracker rate.
 
I suppose it will even out in the end. It's just the prospect of an accountant friend saying that 8 or 9 years ago the rates were up at 9% and that scares the beejaysus out of me. Is this likely to happen in the next five years or so considering the presant climate in the world?
 
pAnTs said:
I suppose it will even out in the end.
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Not sure what you mean here but if you fix then you will most likely pay a premium over the long term so only do so (a) if you really need to and (b) not in any attempt to save money.
It's just the prospect of an accountant friend saying that 8 or 9 years ago the rates were up at 9% and that scares the beejaysus out of me.
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During the currency crisis of the late 80s (?) rates went up to c. 20% or more for a while. Some people fixed on the way up in a panic. They paid dearly for this when rates soon came back down to the low teens and eventually lower.
Is this likely to happen in the next five years or so considering the presant climate in the world?
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It's pointless trying to predict the future but if you are into that sort of thing there are several threads speculating about future interest rate behaviour in which people polish their crystal balls.
 
Pants, for what it's worth, here's my wisdom. I'm currently contemplating all these issues as well. The one thing I have figured for myself is that standard variable seems to be the worst of all the options. If you want a variable rate, go for the tracker, it almost always works out cheaper. In terms of fixed, I would only go for a short-term fixed, i.e 2 to 3 years max. I've read up on press releases made by the ECB and have read about that issue in all the forums and I think the way it looks we can expect interest rate increases once or twice this year, possibly up to a total of 0.75 % rise (please note, this is all my own personal speculation!), so with some lenders the 2 year fixed rate will work out better than the increased tracker rates, but if you fix for longer the tracker would be cheaper in the end... I hope that's not too confusing, but I wouldn't go for a 5 or 10 year fixed, they seem way more expensive than any tracker, even with the expected interest rate increases...
 
It all comes down to what you want. Personally, I wouldn't go for a 2/3 fixed, as when the period expires, you will be in the same position but the market base rates will be pushing around 3.5. to 4.5. To us that would equate to a 5 tracker or 6-6.5 fixed for another 3/5 years. Maybe higher, probably not lower.

Banks and Building Societies earn their money on knowing the market. It's very unlikely that you could out perform the banks' economists predictions of the future markets when chosing fixed. Save for bird flu implications or a major terroist attach in Europe, things will go, roughly, to their predictions.

If you can afford the very unlikely event of rates hitting 7.5 to 8.0, then a tracker would be suitable. You can take confort knowing that you can afford rates going that high, and over the long run, you would be doing better than fixed offerings.

If the opposite is the case then your best other options, would be a part fixed, part tracker. You could fixed a good chunk of your mortgage for 7-10 years, say 60% of it, and then have the other 40% varbable. This would allow you to make extra payments on your mortgage while have part of it benfitting from a lower tracker rate. The ratio of fixed to variable is a descision on whether you expect lumps sums to come your way. ie SSIA or a future inheritence.

Hope that helps.
 
Go for both if you are not sure, by taking a fixed mortage and a variable one (therefore 2 mortgages for the total sum you need).
Fixe mortgage part gives you security, i.e. you know exactly what your payments are going to be for the next 5 years,
Variable mortgage (tracker) gives you advantage if the rates stay low, but if they go up above the fix rate, your exposure is limited to 50% of the value of your mortgage

We did that few years ago... and we were covered shall the rate had gone up to 12%....It turns out that the rate went down, so ended up costing up a bit more than if we had taken a variable rate...but we bought an "insurance" policy, ensuring we could always repay.

Just a thought...
 
bacchus said:
Go for both if you are not sure, by taking a fixed mortage and a variable one (therefore 2 mortgages for the total sum you need).
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Are you sure that you mean two mortgages or simply a single split fixed and variable/tracker rate mortgage?
 
ClubMan said:
Are you sure that you mean two mortgages or simply a single split fixed and variable/tracker rate mortgage?
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Yes, 2 individual mortgages (total amount borrowed under these 2 mortgages being the same as if we had taken just one mortgage). We did that with BOI in 1999.
 
i think pants is buying from the council, which presumably means affordable housing.

to the best of my knowledge, they offer only variable or 5 year fixed at the end of which you revert back to variable.

the fixed rate is pretty poor but knowing that you will be paying the same monthly amount, which is relatively low with affordable housing, for the next 5 years is a pretty comforting thought.

If money is tight at the start, id go with the variable. Which probably will save you money over long term anyway.
 
I am getting a mortgage from my local county council. The thing is I have to choose between fixed rate 4.45% or 3.25% variable rate. The fixed rate term is for 5 years and after that I automaticaly go onto the variable rate for the remainder of the term. If I pick the variable rate I can't go onto the fixed rate ever. This is the only offer that I can avail on it's either fixed for the first 5 years and then variable or variable for the entire thirty year term. I know this seems unusual because most lenders have movement but on this mortgage I definately have no other options. What are your opinions about which I should go for. I know the European thingy Bank are set to increase up to .75% in which case it would still be below the fixed rate. I have no idea what to do. HELP! :(
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That quote is from the first post on this tread. Sounds like affordable housing to me. A lot of the posts werent relavant to his position. interesting enough all the same.
 
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