70%-100% Increase in Mortgage rates

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peemac

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I think a tread giving real monetary figures on what increased interest rates will do to mortgages is warranted as so many people are used to 0% ECB rates and increases will be a big shock.

It is very likely that the ECB will raise rates by 2% in the next 9-12 months.

Recent mortgage pricing would suggest that a 3 year fixed rate will be about 4.75% at that point up from about 2.75% today.

That's a whopping 70% increase.


In money terms a €350,000 mortgage over 30 years would go up by €400 a month.

If the ECB was more aggressive and move to 3%, rates would average 5.75% (over 100% increase) and todays €1428 mortgage payment would increase to €2042 - a €600+ increase per month!


If you are buying a house at present or recently bought or are in a short term fixed rate, you may want to sit down and think hard about a long term fix as an extra €400-€600+ a month on top of general inflation cold be very painful
 
I look at it as a long awaited return to historic norms. There is only so much you can warn people about. Irish banks have in recent years added padding to their mortgage rates, so there is some buffer there. Providing the government can get them to play ball, making it easier to remove non mortgage (and rent) payers would keep the banks happy.

Historic Mortgage Rates:
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Another are to watch are Chinese banks increasingly having 'IT Problems', which stop customers withdrawing money. This may blowup big time.
 
My feeling is that in the next few years, the people on variables rates will be looking at those who fixed now in the same way people looked at tracker mortgages in the low interest rate era...
Hence the number of people fixing \ making use of the advice of Paul F on break fees.
 
This will be obvious to many of the regular posters here, but others may not be as familiar with the inner workings of a capital-and-interest mortgage. Your monthly repayment consists of interest and a portion of the original capital. As you progress through the mortgage term, your monthly repayment gradually shifts to paying off more capital each month and less interest. When you're in the final years of your mortgage, your monthly repayment is mostly paying off the remaining capital and not much interest. This happens regardless of whether you're on a fixed, variable or tracker variable mortgage. It's the internal split of what you're paying every month.

So interest rate increases won't have nearly as big an impact on people who are in the final years of their mortgage. Conversely they will hit people hardest who have only recently started paying a mortgage.

Liam
www.FergA.com
 
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Its all speculation but the reason the ECB is dragging its heels is the sovereign debt and the potential for Spain/Italy to fall over. They need to raise rates but they really can't do by much, perhaps 1-1.5% tops, which will be into next summer, by that stage the Fed will be cutting rates on their side to counteract the oncoming recession. I just can't see too much ecb rate hikes as they know they can't handle the knock on potential events. Again just my take, I fixed last month for 3 years which I feel is enough insurance to counteract the next few years of potential hikes.
 
LDFerguson said:
n the early years of paying a mortgage, your monthly repayment consists mostly of interest and you're paying off very little of the original capital.
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This is not the case for the interest rates we've seen in the last half-decade. At 2.5% over 25 years you are paying off 55% principal and 45% interest from day 1. At ten years in you are paying 70% principal and 30% interest.

Over 25 years you would need to be on a rate of 2.8% or more to be paying more in interest than principal at the start.
 
peemac said:
I think a tread giving real monetary figures on what increased interest rates will do to mortgages is warranted as so many people are used to 0% ECB rates and increases will be a big shock.

It is very likely that the ECB will raise rates by 2% in the next 9-12 months.

Recent mortgage pricing would suggest that a 3 year fixed rate will be about 4.75% at that point up from about 2.75% today.

That's a whopping 70% increase.


In money terms a €350,000 mortgage over 30 years would go up by €400 a month.

If the ECB was more aggressive and move to 3%, rates would average 5.75% (over 100% increase) and todays €1428 mortgage payment would increase to €2042 - a €600+ increase per month!


If you are buying a house at present or recently bought or are in a short term fixed rate, you may want to sit down and think hard about a long term fix as an extra €400-€600+ a month on top of general inflation cold be very painful
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So million dollar question is what is the magic term people will be fixing for now? 5, 7, 10, 20 years.... what's being priced in or not.....crystal ball time for many..will a 3 year fixed cover increase rates and they drop again after, will someone need to go out to 10 years to bypass the rate increases...(increases compared to now that is!!)

Going through this dilemma myself at the moment...
 
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So many people are just so used to low rates that they are going to get a shock - if ECB goes to 2.5% in the next 12 months, it will be a huge jump in their payments and they need to be looking now at fixing - not in 6 months time when fixed rates will be materially higher.

I finally convinced a colleague today of the benefits. His argument was that he'd be paying an extra €82 immediately and didn't like that. His current fixed rate is due to ends in November.
 
DublinD said:
So million dollar question is what is the magic term people will be fixing for now? 5, 7, 10, 20 years.... what's being priced in or not.....crystal ball time for many..will a 3 year fixed cover increase rates and they drop again after, will someone need to go out to 10 years to bypass the rate increases...

Going through this dilemma myself at the moment...
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My personal opinion is that if you can get a long term fixed for under 3.5%, fix for as long as possible. (Under 3% and its as good as you will ever get) Highly unlikely ECB will ever return to zero and their stated mid term aim is to be averaging 2% - and that's means approx. 4.5%-5% mortgage rates. Even at 1.5% ecb, that will be 4% rates.

Next Thursday's ECB meeting will be very interesting
 
NoRegretsCoyote said:
This is not the case for the interest rates we've seen in the last half-decade. At 2.5% over 25 years you are paying off 55% principal and 45% interest from day 1. At ten years in you are paying 70% principal and 30% interest.

Over 25 years you would need to be on a rate of 2.8% or more to be paying more in interest than principal at the start.
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Also worse for anyone on interest only for a long time, while I've no idea of the breakdown you might have a 2008 mortgage that only started being repaid in 2018.
 
NoRegretsCoyote said:
This is not the case for the interest rates we've seen in the last half-decade. At 2.5% over 25 years you are paying off 55% principal and 45% interest from day 1. At ten years in you are paying 70% principal and 30% interest.

Over 25 years you would need to be on a rate of 2.8% or more to be paying more in interest than principal at the start.
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I stand corrected. My talk of the interest making up the majority of the monthly repayment dates back to when interest rates were far higher and didn't take account of current low rates. I'll rephrase that bit of my post. Thanks.
 
I think the fixed rates available at the moment kind of predict the maximum expected interest rate rises.
 
We took out our mortgage in 2010 and fixed for 10 years at 4.85%. At the time the mortgage was for 24 years and we were paying more interest than capital. Obviously the gamble didn't pay off as it was during the second half of the foxed terms that rates fell. We fixed for 5 years last year at 2.35% and broke that in May and fixed again for the same rate for 5 years. Mortgage will almost be paid off when the next 5 years are up.

I tried telling a friend who was with KBC to look into moving and fixing their mortgage this year but they were happy to just get house revalued and move to a better loan to value rate. I'm not sure of their fixed term but they could be moving to a BOI mortgage soon (as that's where some of the KBC mortgages are going)and be caught with their higher rates. They don't seem to have any idea about what could be coming down the tracks. I'd say they are not alone. Lots of people have no idea about the impact of rising rates.
 
This will be great news to big banks who are carrying loss making ECB trackers for over a decade now.

It might not effect retail rates as much as we think. Competition is there.
 
Paul O Mahoney said:
And remember the indemnity bond you had to take out for loans over 80% ltv
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God yes I do. I always was a bit dubious about these. Given the low rates of repossession in Ireland, I wonder if there were any claims on these bonds at all? It always smelt a bit like a money-spinner to me - insurance company makes money on the bonds which will never be claimed on and the lender gets commission from the insurance company to sell them.
 
Paul O Mahoney said:
Could you imagine had they were around in the run up to 2008, claims wouldn't have been met. I tried years ago to get information on these, how many, value etc, no data....had to be a scam.
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Without wishing to drag the topic too far off course, this does make me think about how the mortgage lending industry in Ireland really hasn't covered itself in glory in my adult lifetime alone ... endowment mortgage scandal, Payment Protection Insurance mis-selling, these dodgy "indemnity bonds", the tracker mortgage scandals ... I'm sure I'm forgetting some.
 
peemac said:
So many people are just so used to low rates that they are going to get a shock - if ECB goes to 2.5% in the next 12 months, it will be a huge jump in their payments and they need to be looking now at fixing - not in 6 months time when fixed rates will be materially higher.

I finally convinced a colleague today of the benefits. His argument was that he'd be paying an extra €82 immediately and didn't like that. His current fixed rate is due to ends in November.
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Seems now with Avant pushing their rates up as per Brendan's thread that their borrowing costs have gone up, with their 10 year jumping 1% which is a significant hike..assume impact of ECB 0.5% hike and others to follow? How much more to follow? As BOI stated that the July ECB increase wouldn't be passed on...

3 years + .3%
4 years or 5 years +.5%
7 years + .7%
10 years or longer + 1%
 
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