Fixed or variable???

donegal12

Registered User
Messages
1
Hi all,

I've just been granted mortgage approval of €56k over 30 years with AIB.
Looking to purchase property for around €120k (balance coming from savings)

The big question i have is whether i should fix or not? AIB 5 yr fix is coming in at 5.35% vs standard variable for less than 50%ltv of 4.29%.

Is it likely that banks will increase their rate over the next few years to come close to the 5.35% rate or is this a bit of a crystal ball question? any help/advice greatly appreciated.
 
Fixed rates are generally offered at a premium to what the banks expect the SVR to run at over the specified fixed period. They know that some people fear interest rate rises and charge this premium to cream a little extra profit from them.

My general advice when someone asks whether to go for fixed or variable is to work out how much the Fixed Rate would cost them monthly and to go for the variable rate - but overpay to the extent that the repayments work out the same, thus reducing the term.

Of course, rates could rise but I think AIB risks excessive additional arrears were they to add 1%+ to their, already profitable, current rates. They also risk another bank coming to the Irish market when they see 50% LTV mortgages earning in excess of 5%.

Then there is competition from the likes of KBC and any potential new entrants. KBC's rate for your mortgage would be 3.85%. By going for a fixed rate, you remove the option to remortgage to the better deal of any new entrants coming to the market for 5 years.

Let's say you were taking the above mortgage over 25 years. The monthly repayment if you went for fixed would be €338.89. The monthly repayment if you went for variable would be €304.63.

However, you could take the variable rate over 21 years instead for €337.52 monthly. That's an extra 4 years mortgage-free at the end of the term.

My thoughts are that, when the ECB starts raising rates, the banks SVR's are unlikely to following them up to the same extent. The SVR's of today are completely detached from the ECB rate.

The only exception to my advice above is where someones budget is really tight and they could not withstand a rise in the SVR. However, banks aren't approving mortgages for people who couldn't afford such a rise anyway.
 
Hi Donegal12,

I completely agree with Ronaldo, a fixed rate product should only really be considered if you will experience difficulty meeting repayments with rate rises, it is a product which benefits the bank more than you as it reduces you flexibility and (generally) costs you more in the long run.

This thread might be worth reading, similar choice, similar response :)

http://www.askaboutmoney.com/showthread.php?t=182471
 
Agree with everyone here just to add what I did and advise you as well. Look at AIB's 1 year fixed for new mtg its 4.09%, just a little discount for 1st year and you can follow on on SVR going forward. Saves me 50 quid per month on 1k payment.
 
Agree with everyone here just to add what I did and advise you as well. Look at AIB's 1 year fixed for new mtg its 4.09%, just a little discount for 1st year and you can follow on on SVR going forward. Saves me 50 quid per month on 1k payment.

But AIB's 'LTV Variable' rates are lower than the standard variable rate. They're not giving a 1 year discount out of the goodness of their hearts.

Look at the actual APR of the deal. The 1 year fixed rate is higher than the variable rates if you have a 20% deposit or more.
 
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