Breaking From Fixed?.... Opinions Welcome!

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Autorotation

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Hi All....

I've just over 4 months to go on a fixed rate mortgage (4.89%) (30 Nov 2009) and have been keeping a close eye on other fixed rate mortgages for a while. With the probability that fixed rate as well as variable rate mortgages are about to increase, I rang my mortgage provider today to get an update of the breakage penalty, which they quoted as (approx) €3,500. My next payment is on 01 Aug but its hardly likely to change the penalty much as its calculated daily.

So do you think its worth paying off the 3,500 euro for long term gain on a better rate available now? Or take my chances and wait til December and see what the rates are like then, with no penalty? Just afraid I'll miss the boat on good rates for a 5 or 10 year fixed rate! Any opinions welcome!...
 
It says on the Loan Agreement T&C's that the mortgage will revert to a "variable interest rate" at the end of the fixed term. On the cover sheet it also shows 24 monthly payments at a fixed rate of 4.89% and then 396 payments, variable at 5.25%. I assume this 'variable 5.25%' is the estimate of a variable rate that they estimated at the time 2 years ago?

I think it would be great to get on to AIB's 5 year fixed now as I can't see that rate being better, but I'm sure it'll start to rise soon. Will it have risen by December though?? Am I as well to wait or over the long run would I save on the 3,500 Euro penalty if I switched now?... Its never easy!!!
 
Was just on to my Lender there, was told that if I do nothing I'm automatically going on to a tracker of ECB +1.25% at the end of the fixed period. This surprised me as there is definitely nothing in the Loan Agreement T&C's of a tracker. So its good for the moment alright but I still think now or very soon is a golden opportunity to fix for 5-10 years...
 
So around Xmas your fixed rate ends & you go to a tracker of ECB+1.25%, so 2.25%

Versus AIB's 5 year fixed of 3.86%.

Difference is 1.61%

The question is therefore, how long will it take for ECB to raise rates by more than the 1.61%.

This is hard to predict & a mattter of personal opinion.

I think rates will start to increase in Q1 2010. If increasing by .25% each time, as I'd say they will, that would require 7 monthly increases. This could take 2 years. I woudn't say much longer.

Of course, if you go for the fixed rate now, you must pay the break out fee of 3,500 (nasty!).
Or if you wait til fixed rate ends at Xmas, then AIB most likely will not still be offering the 5 year fixed at 3.86!

Due to the expensive break out fee, I'd recommend getting written guarantee from bank that you will be moved to the tracker ECB+1.25% after your current fixed rate ends. And hope for the ECB to remain reasonably low
 
Autorotation, firstly I would get it in writing from the bank that you revert to a Tracker rate, just for confirmation.

From your intial post you seem to be set on fixing again? Am I right in reading this? My initial thoughts would be are you sure that is the best thing to do, especially if you are being offered a tracker rate? You are also asking for others to speculate for you on whether or not rates will rise or fall before December, no-one can do more than guess at that.

Basically, as discussed elsewhere in this forum, fixed rate mortgages are a premium product, the bank charges you a higher rate and restricts your manouverability to take on the risk of interest rates rising over the fixed period. In general over the long term, fixed rate mortgages tend to be more expensive as a result.

If you are planning to fix immediately, I would suggest perhaps the following exercise.
- Calculate the total interest that you would pay for the fixed rate that you could get if you broke now.
- Add the €3500 breakage fee to that.
- Add 1% to the fixed rate obtainable now, calculate how much more that would cost you over its period from say December and compare that to the above figure.

That at least gives you a cost comparison.
 
Be VERY careful if u do decide to get another fixed rate. The interest rates are slowly creeping back up. Last year When we got a fixed rate we signed the loan offer at 4.95% but the day before drawdown it jumped to 5.95% and we are now caught paying an extra 300 a month than budgeted for. If u do go for it make sure it stays at the rate u have decided on and check it up to and including the day of drawdown. If the interest rates are increasing the banks will do their best to delay finalising everything to make sure u get hit with the highest possible rate, and whats worse they don't even have to tell u that it has changed, so when u pay your first monthly repayment u could get hit with a very nasty suprise ... beware!
 
JUMP AT THE TRACKER!

sorry for the caps but how you could even think of not taking the tracker? the banks have realised trackers are a loss maker for them and so are not offering them to new applicants this should tell you all you need to know.

by taking a fixed mortgage you are betting your knowledge of banking trends against the banks, now i know the banks have made a mess of things recently but hedging against them is a bad idea.
 
dereko1969 said:
JUMP AT THE TRACKER!

sorry for the caps but how you could even think of not taking the tracker? the banks have realised trackers are a loss maker for them and so are not offering them to new applicants this should tell you all you need to know.

by taking a fixed mortgage you are betting your knowledge of banking trends against the banks, no i know the banks have made a mess of things recently but hedging against them is a bad idea.
Click to expand...

Like Derek I would JUMP at the tracker as well!! Very good rate at 1.25% above ecb in todays terms.
 
I make it that if interest rates started rising 1 year from now and rose ever 3 months by about 0.25% every three months for the remaining 4 years (eventually finishing at 5%) you would break about even. This is before the breakage fee is taken into account and assumes that you could get a deposit rate equal to the ECB+1.25% rate.

The above scenario is quite unlikely so it would appear that switching would be a little foolish even if you are right about interest rates rising
 
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