Fixing to 5.75% :(

[fuzzy10]

Long story short... owe 270k, currently on svr of 4.65% with PTSB. Afraid of the coming interest raises and considering fixing. Choice: 2yrs 5.2% and 5yrs 5.75%.

Shocking rates but cant change banks, probably 60k in negative equity!
Opinions please, need to decide this week to avoid going loco thinking about it!

 

[fuzzy10]

Rang PTSB today and was advised that I pay 100e for the privilage of fixing. A final kick in the balls...

 

[Maggs065]

Rang PTSB today and was advised that I pay 100e for the privilage of fixing. A final kick in the balls...

I fixed last year with UB - they told me the fixing fee was €150. I completely forgot to send in a cheque with my application (honestly). They never came after me for it.

 

[fuzzy10]

might try that mags!

 

[thedaras]

Im with PTSB and came out of a five year fixed very recently.
I was also over a 5.75% fixed year rate.It is IMHO way too expensive.
Having looked through the threads on AAM ,I finally decided I would go on the variable rate and put the extra money that I would have paid ,off the balance each month.

 

[robd]

If you look at long term interest rates going back through time for US and Germany (pre Euro), 6% is about average. So although 5.75% fixed and 4.65% variable seem high, it's just relative to ultra-low interest rates over the last decade. We know now that those interest rates were a complete anomily and as such when it's all over we'll return to the norm. Small comfort I know, but these are the facts. Spare a thought for the Aussies who's interest rates are currently 7%.

 

[Bronte]

I would second what thedaras says. If you can pay 5.75 now then pay that extra amount into your mortgage from now, reducing your balance and if interest rates go up you've less capital remaining so the effect will be less. Personally I don't see variable rates going near 5.75 for the next 2 years. But nobody can be sure. If you want peace of mind then fix.

 

[robd]

I would second what thedaras says. If you can pay 5.75 now then pay that extra amount into your mortgage from now, reducing your balance and if interest rates go up you've less capital remaining so the effect will be less. Personally I don't see variable rates going near 5.75 for the next 2 years. But nobody can be sure. If you want peace of mind then fix.

Don't know where you're getting that from. PTSB's variable is 4.65%. 10 year Irish government bond is 8.65% today. ECB is at 1% and they will need to start retuning to normal 4.5% at some stage, prob 2012. Bank will need to raise margin in the short term to cover funding deficit. I belive 6-7% range for all banks is an absolute certainty over the next 24 months and beyond. I expect imminent announcments of 0.5% increase with 2 x 0.25% increases in H2.

 

[deeheg]

Hi am in similar but am not fixing I dont see interest rates going up again for a bit and if they do still be similar but i lost out on the low rates so now not willing to chance it again

 

[Bronte]

Don't know where you're getting that from. PTSB's variable is 4.65%. 10 year Irish government bond is 8.65% today. ECB is at 1% and they will need to start retuning to normal 4.5% at some stage, prob 2012. Bank will need to raise margin in the short term to cover funding deficit. I belive 6-7% range for all banks is an absolute certainty over the next 24 months and beyond. I expect imminent announcments of 0.5% increase with 2 x 0.25% increases in H2.

If you're correct with an extra .5 that would bring the current variable to 5.15 still below the 2 year and 5 year fix. 6% versus 5.75 is not a big difference and the OP can do that as he seems to able to afford 5.75%. 7% is a different matter. I can't call that one and you may be right.

Banks do need to increase their margins, but I don't think the Irish people can afford it as they are so stretched and it's politically not a good idea for the PTSB which may prevent them doing the increases in H2 (I presume you meant the second half of 2011 ie June onwards).

 

[robd]

Interesting article in todays Indo re fixed rates and banks looking to abolish them.

Article is inline with my expectations of 1% increase in variable rates this year.

Also points out the swap rates are between 7pc and 11pc, ie what banks have to pay.

http://www.independent.ie/business/...te-mortgages-in-bid-to-cut-costs-2492693.html

Most people don't like to fix becase they've been caught out with it in the past due to low interest rate environment. They feel it was a bad deal and a waste of money etc. This is the very think that will burn them twice.

 

[fuzzy10]

Very interesting article...

My view point is, im currently paying 4.65% svr. "estimates that variable rates will rise by at least 1pc this year." that makes my svr at 5.65%.

It wont be long now when the ecb start raising interest rates,lets say last quarter of 2011 at 1%.

" Economists reckon European Central Bank rates could rise later this year. That would mean both variable and tracker mortgage repayments increasing."

That puts my svr at 6.65%.. a svr rate that PTSB would like to see.

So,by the end of this year 2011 of the start of 2012,PTSB svr rate will be 6.65% and the only way the ecb rates will go is UP.

Thats my opinion.

 

[sillo]

FTB here, looking at a 3.29% variable today, option to fix at 4.39% for 5 years. Seems to me to be a no-brainer, as ECB rates will surely be going up at least 1pc in that timeframe, not to mention the banks need to claw back some of that bailout money.

Is this an overly simplistic view; I know these things are not black and white but given that I can afford the 4.39% (with a little stretch admittedly), I think I would be mad not to take it?

 

[fuzzy10]

thats a good 5year rate sillo.

I seeked independent advice yesterday & he was of the same opinion about interest rate hikes.

 

[DerKaiser]

Hi All, I'll try to keep this simple!

The market in bonds provides us with expected interest rates in the future. A schedule of interest rates known as the "Swap Curve" is one of the most used by economic forecasters.

As at 31/12/2010, the Swap Curve estimates the following approx rates (rounded):

2011: 1%
2012: 1.5%
2013: 3%
2014: 3.25%
2015: 3.75%

If you have a €100k mortgage, that would mean €7.5k extra in interest payments resulting from interest rate hikes. It would be comparable to moving immediately to a fixed rate 1.5% higher than the variable rate for 5 years.

If you take it as a given that banks will increase interest rates by at least 0.5% in the absence of interest rate increases, then this implies that anyone on a variable should be happy to fix at a rate that is not more than 2% higher than their current rate over a 5 year timeframe.

This will not apply to trackers as the fixing will cause you to lose your tracker forever, which is more difficult to quantify the cost of.

To put this idea in context, however, the same comparison done at 30/09/2010 would have suggested you should only be happy to fix if the rate is 1% above your current variable rate over a 5 year timeframe.

The change has been driven by the fact that inflation is expected to return sooner than expected as a result of Europe (Germany) recovering faster than expected.

These variables change daily and are the best info to hand in the fix or not decision. It shows just how uncertain it is as to what the correct course of action is.

 

[NorfBank]

These variables change daily and are the best info to hand in the fix or not decision. It shows just how uncertain it is as to what the correct course of action is.

That is helpful Kaiser but is based on forecasts and assumptions, the curve is not always right.

When you are deciding whether to fix or not, you must look at your own personal circumstances and try and disregard external factors. It's all well and good being on a 5 year fixed rate until you need to move house 3 years in.

Add 2% to your current variable rate and see what your repayments will be. If you can afford them then it would be wise to stay on the variable rate, if you are overstretched then you should consider fixing.

Your main goal is to make sure you can continue to comfortably pay your mortgage and keep your credit record intact, a secondary objective is to save money.

[broken link removed]

 

[DerKaiser]

That is helpful Kaiser but is based on forecasts and assumptions, the curve is not always right.

Well any guess of future interest rates is a forecast. The curve will most certainly not be right, but it does take account of all known information at this point in time meaning we have nothing better to go on.

You make some good points on personal issues alright, people have to examine their own personal issues to see if their only concern is keeping the expected costs to a minimum or if they have other issues.

I decided to post this because I'm very wary that people are incorrectly extrapolating from the last few years, where interest rates seem to have remained unexpectedly low. This will not always be the case.

If someone can just about get by on a 5 year fixed rate of 1% higher than a variable rate but would suffer severely if rates rose much higher, I would strongly advise that person to secure their finances by fixing now.

Any advice telling people to remain on variable over the last few years has turn out to be good advice, but that outcome should now be disregarded as it is no indicator of the same thing happening in the future.

 

[Bronte]

If someone can just about get by on a 5 year fixed rate of 1% higher than a variable rate but would suffer severely if rates rose much higher, I would strongly advise that person to secure their finances by fixing now.

.

That's what the OP and others have to decide. Forget about markets or forecasts and look at what he can afford and base the decision on that.

 

[DerKaiser]

That's what the OP and others have to decide. Forget about markets or forecasts and look at what he can afford and base the decision on that.

Yep, just to add that anything less than a 5 year term is hardly worth fixing for as it will cost you in the very short term and any savings made after that will be too short lived

 

[sillo]

@Derkaiser and @Norfbank: Thank you both for your clearly informed opinions. You both make very valid points in a very clear way.

I think I'll go for the fixed rate. I can afford the higher rate (though it is a slight stretch) and believe that even on the off chance it ends up being bad for me then at least it (A) affords me peace of mind for 5 years and (B) protects me from whatever extra-curricular nonsense the banks get up to with their variable rates in the next while.