Opinions please: fixed for 3 years or 5 years?

Basically we're in the process of fixing our mortgage. We're unsure wether to go for 3 or 5 years. I do not think rates will come back down before the 5 years, not down to the 2% that we had again. We're paying tracker, at 3.6 and we can get a fixed for 5 years at 4.20, I think that's quite good... Does anybody have any views on what way might the rates go in the medium term (I know this is only a guess!)? If we do fix up and then we do trade up, so if we need to top-up our mortgage but still stay with the same institution, do they still charge us breaking fees? How much are these fees normally? I think it's about 1% of the outstanding amount?

Thanks in advance!

As ever ... do you really need to fix? If you could afford variable/tracker rate repayments if rates were to increase by a few percent then don't bother. You'll most likely pay a premium for the peace of mind that fixed rates/repayments give you. Definitely don't try to time the market in an attempt to save money on a fixed versus competitive variable/tracker. Different lenders calculate fixed rate breakage penalties differently do you'd need to check with your lender. Topping up or switching to another property may well involve breakage fees as far as I know.

Irish Banks in general will not allow you to "port" a mortgage. i.e. to take a fixed rate on one property, keep the mortgage and apply to funds to a new property. Instead they will get you to break. Few and far between will show you back the money if you are actually in the money as anyone who took out NIB's fixed mortgages earlier this year would be.

Personally, I feel its usually not worth the premium and rigidity of 5 year fixed. 2 year or 3 year usually can offer value in a rising rate environment, but its all about timing. If you are on a tracker at 3.60, then you are effectively going to be on 3.85 in 2 weeks time, as ECB have given all the necessary signals to the market for a 25bps increase.

So, if you can fix at 3.85ish, then worthwhile. Unless the global economies meltdown, then we are unlikely to see a 75bps reversal in rates back to an ECB rate of 2.0% which was as low as they went post 9/11. I think ECB mantra of inflation control at 2% leaves a floor on real interest rates at 2%.

marksa said:

Personally, I feel its usually not worth the premium and rigidity of 5 year fixed. 2 year or 3 year usually can offer value in a rising rate environment, but its all about timing. If you are on a tracker at 3.60, then you are effectively going to be on 3.85 in 2 weeks time, as ECB have given all the necessary signals to the market for a 25bps increase.

So, if you can fix at 3.85ish, then worthwhile. Unless the global economies meltdown, then we are unlikely to see a 75bps reversal in rates back to an ECB rate of 2.0% which was as low as they went post 9/11. I think ECB mantra of inflation control at 2% leaves a floor on real interest rates at 2%.

Click to expand...

I'm confuse about your use of the terms "worthwhile" and "value". It is pointless attempting to time the markets and save money over a competitive tracker/variable rate by opting for a fixed rate. In general you will lose out. The only reason to fix is if you are tight on money or would be if rates increased by a few percent.