Fixed Rate or Variable Rate

F

firsthouse

Registered User
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Hi Guys,

Myself and my partner are FTB and got approved for our mortgage with AIB and are currently sale agreed on a property and awaiting the deal to go through the solicitors and surveyor and hopefully be completed.

I am just wondering which would be the best idea to go with a fixed rate or variable rate during the current economic climate.

Any advice as always is greatly appreciated!

Cheers
Firsthouse
 
Why not go 50/50 ? My own personal opinion is that the banks are stress testing to 3% because they fully intend to raise rates once the present bounce in house sales slows down, catchy monkey with the low rates and all that, just my opinion though !.
 
firsthouse said:
Was unaware you can do that...
what would be the benefits in doing that?

Thanks
Firsthouse
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You get the certainty of fixed payments on half your mortgage, but if interest rates decrease you get the reduction on the variable part of your mortgage. If rates increase you only get hit on half your mortgage.
 
You are probably not going to see any reduction in variable rates for the foreseeable future. Banks are not obliged to give a cut, even if the ECB rate is cut or remains low. The future trend of variable rates is up.

Selecting a fixed rate means:

1. You are taking a very conservative view of your repayment of the mortgage. You need to know what your repayments will be for the term exactly, and you need the piece of mind of knowing this will not go up.

and/or

2. You think you can better guess the future of mortgage interest rates better than the bank. You probably can't though, so this is generally a flawed reason.

I asked the question before, when was the last time anyone would have benefitted from selecting a fixed rate over a variable? But no one was able to give an answer. A long time back I'm sure.

Take the variable.
 
One comment about the fixed rate vs variable is that if you can draw down *before* the upcoming increases, you can actually get a fixed rate that is below what we know the variable rate will be come October.
You do need to be careful as the rate you fix at depends on what it is the day you draw down, so if they change it the night before, you get the higher rate.
 
As fixed rates are currently dearer than variable, another option is to go with the variable rate but hedge your bets. If you could theoretically afford the repayments on the 5-year fixed rate, then set up a regular savings account paying the difference into it each month. If your variable rate repayment goes down, increase the savings. If your variable rate goes up, decrease the savings. If the variable rate repayment goes over the 5-year fixed rate during the next 5 years, dip into your savings account to subsidise it. My gut feeling - and this is only speculation - is that you'll end up with money in the savings account at the end of five years.
 
The BOI 2 year fixed is actually cheaper than the variable right now, by 0.01% and the 1 year rate is 0.21%, but I'd expect that to change pretty quickly. That was point. It is rare that the fixed rates are below the variables and this is likely due to the multiple increases going on at the moment.
 
So we are in this position now with a BOI mortgage. The thing is I am swaying to the variable rate as we can comfortably afford the repayements so if the interest rates went up (within reason) we'd be ok. I have no clue when it comes to financial matters and I know nobody has a crystal ball but how probable would it be that the interest rates would dramatically increase in the next five years?
 
If you go for a fixed rate you get certainty about the monthly repayments and you pay for this.

If you can comfortably afford the repayments there is no benefit in fixing.

UNLESS you think that there is an inefficiency in the pricing of the fixed rates which you can exploit to profit at the bankers expense.

Now in a normal world I would suggest that you should not assume that you know more about banking than the bank. However the management of Irish banks are demonstrably thick, (except when it comes to their own positions) and the staff of Irish banks work for thick people, so maybe you can.
 
If Bank strongly advise you to go fixed , it will be in their interest.
If Bank strongly advise you to go variable, it will be in their interest.
...............................................................................................
Suggest ,make your decision on YOUR medium term prospects. There is a solace in fixing rates but NOT if it is a lot dearer.
 
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random10 said:
we can comfortably afford the repayements so if the interest rates went up (within reason)
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The most common advice is to fix if you need absolute certainty of what your repayments will be over a period of time, and if not, then don't. So based on your statement above, I would advise you to go with variable.

I took out a variable mortgage two years ago with BOI, and even though the rate has gone up in that time, we are still better off than if we had fixed.

If you want to be a little nerdy about it, work out the difference between the fixed and variable repayment, open a new deposit account, and lodge that difference in every month. If the variable rises over the fixed rate, then start to take the balance out of the account instead. Then, at the end of the fixed term, if there's any money left in the account (and I'm betting there would be), you'll see exactly how much you have saved.
 
LDFerguson said:
As fixed rates are currently dearer than variable, another option is to go with the variable rate but hedge your bets. If you could theoretically afford the repayments on the 5-year fixed rate, then set up a regular savings account paying the difference into it each month. If your variable rate repayment goes down, increase the savings. If your variable rate goes up, decrease the savings. If the variable rate repayment goes over the 5-year fixed rate during the next 5 years, dip into your savings account to subsidise it. My gut feeling - and this is only speculation - is that you'll end up with money in the savings account at the end of five years.
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+1
Ultimately the banks have to plan their rates so as not to lose on the fixed, they know can can avoid interest losses on the variable so I'd agree with this...
 
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