Should I go for 2yrs fixed or 3? need to answer bank by tomorrow

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ellamc

Registered User
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Hi everyone, I'm a long time lurker, I check in nearly everyday and would really apprecuate some advice.
We have a 35yr mortage. We had first year fixed at 2.55% and that will change to 2.7% variable rate at the end of this week.
I had made a decision to stay with variable but since then ptsb has increased variable and aib have stopped accepting switchers so I'm more convinced to fix now. The rates are:
2 years fixed : 3.15%
3 years fixed: 3.6%

With things being so uncertain I thought 2 years would be a good option. Common feeling seems to be that the variable rates will rise by 1% this year or at least by summer 2011. Does anyone think we should go for 3. I'm starting to think that my variable rate could reach 3.6% before the 3 years would be up.
I know we don't have a crystal ball but I suppose I'm looking for comments and guidance.
Thank you in advance
ellamc
 
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If you're fixing I presume you will not be selling the house between years 2 and 3?

If not then you should fix for the longer term in my opinion, but it really is flip a coin territory when deciding between 2 and 3 years fixed rate.


www.moneybackmortgages.ie
 
You should not fix to try and beat the bank. You should only be thinking of fixing if you want to know exactly how much your repayments will be for a set period of time.
 
Fixed Interest Mortgages should be considered a luxury item that you may spend extra on but give you peace of mind.

I think that 2-3 years fixed seems too short of a period to get much benefit for the extra cost.

I am probably going to change from my AIB variable (2.25%) to 5 year fixed 3.86% this week. This is an increase of 1.61%. My reasoning is as follows:

- I think that AIB will raise the variable rate by 0.50% - 1.00% over the next year or 2.
- And I think that ECB rates will rise by at least 1% over the next 2 - 3 years.

That leaves me paying the same or a little more (over 5 years) for having peace of mind. I also have no plans to sell in the next five years and if I am lucky enough to have extra cash, I will save it to pay a lump sum off the mortgage in five years time.

Of course I don't know what way interest rates will actually move, and I especially don't know about 3 to 5 years time.
As I type this I am convincing myself more and more to make the switch. Am I missing something?
 
If you are sure that you won't be moving soon and you want the certainty of knowing your repayments it would probably be wise to fix. If the variable is going to be 2.7% and you can fix for two years at 3.15% it will only take a 0.5% increase in ECB to reach that. Plus PTSB has already demonstrated it's willingness to raise rates without a move from the ECB. Other banks may follow suit.
Only you can decide if the extra cost is worth the extra 0.5% that takes you to 3.6% and 3 years fix.
It is hard to beat the bankers on interest rates but it can be done!
 
QED said:
Am I missing something?
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Just the obvious that rates may not rise as you expect or you may need to sell within the 5 years. Nobody can predict the future.

The age old advice which I agree with is do not fix to try and time the market.

If interest rate increases will not overstretch you, would you consider overpaying the mortgage now at a rate of 3.86%. You will automatically start to pay down the capital from today plus will be protected from the shock of increases in your variable rate up to 3.86%. It may be another option to think about.

www.moneybackmortgages.ie
 

Is it possible to just tell AIB I want to pay (say €200) extra per month off capital. And if/when interest rates go up, contact them to reduce the overpayment?

Do they have to accept both adjustments?
 
QED said:
Is it possible to just tell AIB I want to pay (say €200) extra per month off capital. And if/when interest rates go up, contact them to reduce the overpayment?

Do they have to accept both adjustments?
Click to expand...

It's really only one adjustment if I understand what you are saying.

Say your mortgage is now €1000pm.
You decide to overpay at €1200pm.
This extra €200 will come off the capital.

If interest rates rise and say your repayments are then €1150 per month.
AIB will take €1150 as the mortgage repayment and the extra €50 will come off the capital.

Does this make sense?
 
Norfbank, not only am I not going to sell within 5 years, I'm not even in it yet... it's a newbuild house. EW hope to be in by June.

There is an option for 5 year fixed at 4.25%

I think that the possible changes in ecb rates and banks increasing their own variable rates are too much for me. I do like to know how much I will be paying.
I'm leading towards the 3.6% 3 year. Even if I end up not saving in the long run I would save on the worry.
I am quite a saver so I like the idea of saving towards paying off a lump sum in the future. Is it better to pay extra off the capital instead?
Some people think about things in a strictly financial sense. I like to have money in the bank for rainy days. I owe nothing except the mortgage. thats why I need someone to spell it out to me which is the most financial savy way to work it.??
 
two more questions...
1. can you overpay with any rate?
2. what does PHD mean when written in brackets after a rate?
 

EW?

If you want peace of mind and will not spend the next 5 years tutting and cursing me if rates do not rise as expected then take the 5 year fixed. It is a product that gives peace of mind to those who want it, personally I am not a believer in fixing but that's just me.

BUT...as you are a saver the fixed rate may not be for you as you cannot overpay or pay back lump sums on the fixed rate without penalty.
You could do a split mortgage, put say 50% 5 year fixed (peace of mind) and 50% on a variable rate (which you can overpay to reduce the term and pay off the mortgage quicker).

The other option which would need more discipline (again I am sadly lacking here) would be to save in a high yield account and then pay the lump savings off the mortgage every year.

[broken link removed]
 
ellamc said:
two more questions...
1. can you overpay with any rate?
2. what does PHD mean when written in brackets after a rate?
Click to expand...

1)No, not on a fixed rate without incurring a penalty.
2)Primary Dwelling House (i.e your home not an investment property)
 
I do like the idea of paying off a lump at the end of each year.
I was thinking of saving the differnece between the variable as it is and the 5 yr fixed rate and paying it off as a lump sum at the end of the 3 years.
That makes me think if I stayed with variable and saved the differnce I'll have saved the difference if rates don't move and will have money in the bank to pay extra if rates do rise.
Having said that the rates would have to go up less that 1 % to reach my 3 yr fixed rate. I'm thinking our first few years in the house will be unpredictable and I wouldn't mind the mortgage to be a known expense.
 
Have you drawn down your mortgage yet? The rate you will be offered is the rate that applies at draw down - not at offer time.
 
We have drawn down about 2 thirds of it. I asked the bank about that and they said the rest will be subject to the rate we choose. If we go fixed the rate will be the same at draw down. does that make sense?
 
When you fix your rate you may give up a lot of flexibility, or at least would have to pay extra for it. For example, doing any of the following before the end of the fixed rate period may make you liable for large penalties:

- making overpayments
- needing to move (because of change in work location or family circumstances, etc), and consequently selling your house and paying off your mortgage
- switching to a different lender
- and (of course) switching back to a variable rate if this turns out to be lower than expected

5 years sounds like a long time to be sure your circumstances won't change enough for you to want to do one of these. With a variable rate, none of them should involve a penalty.

plant43 said:
You should not fix to try and beat the bank. You should only be thinking of fixing if you want to know exactly how much your repayments will be for a set period of time.
Click to expand...

Agree completely.

ellamc said:
I like to have money in the bank for rainy days.
Click to expand...

An unexpected rise in variable interest rates is one of those rainy days. Especially if you think you could save enough to pay off a significant amount of capital early. The people who benefit from fixed rates are those who have little or no savings and can't afford their repayments increasing. But they are likely to pay more in the long run.
 
Thanks so much for your advice.

As there is less than 1% between my variable rate and my 3 year fixed rate do you think my variable rate would surpass this rate as soon as this year? Cant see rates dropping in next three years?
 
I'm leaning towards fixed as a lot of economists seem to think that icreased rates are a given this year. If things go as predicted i could be well above my 3 yr fixed rate this time next year if I stay with variable.
 
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