To Fix or not to Fix

[Mark Foley]

Hi All,

Looking for some advice - currently on a variable rate with BOI of 4.55% options to fix include 3.7% for three years and 3.75% for five years. The questions is do people think the variable will drop below this rate or would fixed rates get better?

All advice appreciated.

Mark

 

[cremeegg]

Why would you want to fix?

Is it because you hope that you would end up paying less ?

Or is it that you would like the certainty of knowing the monthly repayment amount for a set period of time?

If it the first, then my advice is don't fix.

Will you end up paying less over the period, maybe, maybe not, who knows, well I suggest that the bank has a better idea than you or I.

If they are offering a fix at less than the SVR this is probably because they expect it to be profitable for them.

If on the other hand you are thinking of fixing because you want the repayment certainty, well then perhaps you should go with it, however bear in mind that the bank are expecting to charge you for this service.

 

[Mark Foley]

The reason is simple is, my variable is a full percentage point more than the fixed rate. That difference about €90 a month / €1080 a year could be used to reduce the principal with an over-payment. My question is what peoples general feeling are on the variable rate question and what might happen.

 

[Brendan Burgess]

Hi Mark

The more fundamental question is why are you with BoI?

Can you switch to a cheaper lender?

If so, you should switch probably to AIB .

If you can switch, you should not fix.

If you can't switch, you should probably fix for one year, but no more than that.

Brendan

 

[Leaky1]

The reason is simple is, my variable is a full percentage point more than the fixed rate. That difference about €90 a month / €1080 a year could be used to reduce the principal with an over-payment.

Most likely you would not be allowed to make an overpayment if you opt for a fixed rate.
Of course you could save the €90 difference each month and make a lump overpayment of this at the end of the fixed period.

Edited to add:
From the Bank of Ireland website FAQ's on whether you can overpay on a fixed rate "Yes. The maximum overpayment you can make on a fixed rate mortgage is 10% of your normal monthly repayment amount or €65, whichever is greater."

 

[gnf_ireland]

Hi Mark
I have been talking through a similar issue with someone recently.

My advise is the same as Brendan's to a degree
- if you have a LTV <80% and you are in a position to switch mortgages, arrange a meeting with AIB and discuss the switching process with them.
- if you have a LTV <80% but feel you may not be in a position to switch, you need to determine what is stopping you from fixing and when/if you can get out of that situation. for example if you have high childcare costs, will these reduce at any stage. That said, I would still consider applying to the various banks to see if any will consider you for switching. The worst they can say is no
- Finally, if you are in negative equity or LTV>80%, the question then is more when you will be down at the LTV<80% to support the switching process. If this is >5 years for example, then I think you have to consider fixing for a longer period of time than 1 year. How long you decide to fix for depends on how 'trapped' you are by BOI

BoI clearly show from their rates they have no interest in working with variable customers and want everyone to fix. They offer 5 years fixed at <80%LTV at 3.45% and the same variable rate is 4.2%. They are the only bank (to my knowledge) not to reduce their variable rates in the last 15 months, when the introduced the 3.9% in January 2015.

I would also advise overpaying by the 10% as allowed on the fixed mortgage with BOI to reduce your LTV if that is the driver, if you can afford it at all. Even if its just the difference between the variable rate and the fixed rate, it will help you get out of BoI entrapment quicker. Most underestimate the benefits of overpaying.

If you want to give a little more detail on your current situation, I am sure a number here would be happy to advise