To fix or not to fix first time buyer mortgage?

J

Jace2023

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Hello everyone,

I’m a first time buyer with my partner.

We’re trying to make a decision about whether to opt for a fixed rate mortgage or flexible rate.

Given interest rates are at a 15 year high, with recent interest rises in quick succession and now the talk of global recession, what would be the better option at this point:
- fix for 3 years @ 4.0%
- opt for a variable rate, right now @ 3.95%

Right now the difference in monthly repayments is negligible and the fixed rate mortgage offers additional benefits (e.g. option to overpay). But with the prospect of a recession, rates will eventually drop and we’ll be stuck with a fixed rate or face penalties to change.

Thanks in advance!
 
The economics is only one aspect and is only a factor if you think Irish lenders will pass on any rate cuts. I'd argue the lack of any serious competition in the Irish market mean those macro factors are less relevant.

Even if monetary policy were to play a significant role in banks future lending policy the likelihood is central bank rates will not be returning to the low low levels any time soon if at all. Let's not forget inflation in the euro area is significantly above the target ECB threshold of 2%. The ECB care more about getting inflation down than they do about recessions.

A key consideration for me would be nothing to do with the macro picture and more to do with your own position. How tight are your finances? There's no point playing mortgage rate roulette if a slight increase in a variable rate pushes you into arrears. You should consider a money makeover post to get a more informed decision.

In saying all that 0.05% seems a very low insurance premium for 3 years of peace of mind.
 
You probably need to clarify how big the mortgage is relative to your household net income and how much leeway you have to deal with a rate increase if you went with the variable rate.

You're basically trying to time the market and that's generally not a good idea. I'd agree with @skrooge that the 4% fixed for 3 years may be worth taking to give you certainty for the first few years of your mortgage.
 
Jace2023 said:
the fixed rate mortgage offers additional benefits (e.g. option to overpay).
Click to expand...

There is no charge ever for overpaying a variable rate mortgage.

There usually is a charge for overpaying a fixed rate mortgage. Some lenders do offer the right to overpay up to 10% without charge.

In general, if interest rates fall after you fix, there may be a penalty for overpaying or breaking out of a fixed rate.

So, if you intend to overpay then variable is better. But if an interest rate rise would cause you problems, then fix.

Brendan
 
Thanks all for your valuable inputs, it’s really appreciated.
Sorry for delay in coming back on this!
 
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