Fix BoI for five years at 3.0% - is there any downside?

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NoRegretsCoyote

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I have approx €200k of an outstanding mortgage with BoI, 20 years left on the term. For various reasons we can't switch. No plans to move and if we need to I don't think a break fee would be material in the scheme of that decision.

I fixed at 2.9% in February 2022 for three years, so until February 2025.

Today BoI confirmed in writing that there would be no break fee and I could fix again at the following rates

TermRate
1 year2.9%
2 year2.9%
3 years3.0%
5 year3.0%
10 year3.3%

I am pretty tempted to fix for five years at 3.0%. Compared to the 2.9% I am on now I would pay approx €500 extra between now and February 2025 but with the guarantee of no further rises until October 2027. BoI would still allow the 10% overpayment without penalty that we currently benefit from.

For the record I am trying to time the market here. I think mortgage rates respond to money market rates with a lag and have surprised BoI haven't increased rates yet. AIB have just confirmed that they are increasing fixed rates for new buyers by 50bps, admittedly from a lower base.

I think there's a material risk of sustained higher policy rates over the next five years potentially taking retail mortgage rates to the 4%-5% territory. On the other hand we could have very low policy rates in 2 years time if there is a big recession and inflation disappears. But in this case I can't see BoI dropping rates any lower at all than the 2.9% they had when policy rates were at zero.

So in my case is there any downside to fixing now for five years?
 
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Fixing for 5 years at 3% looks like cheap insurance and limits the size of any potential break fee if you do decide to move – whereas if you fixed for 10 years you could face a very large break fee.

Ultimately, it's your call.

Bear in mind the following:
www.independent.ie

Bank of Ireland and PTSB ‘to match AIB’s mortgage rate hike within days’, say experts

AIB has set the ball rolling on what is expected to be a string of mortgage rate rises from the main banks.
www.independent.ie www.independent.ie
 
Can I ask an off topic question. The 10% overpayment allowable figure is that calculated at the beginning of each year and does the bank advise of what the number is?
 
Savvy said:
The 10% overpayment allowable figure is that calculated at the beginning of each year and does the bank advise of what the number is?
Click to expand...
It's just part of the monthly payment and 10% above what the normal amortising monthly payment over the remaining term is. It reduces a 30-year term to about 26 years. It's a nice feature as there's no effort involved.
 
Thanks NRC,

It seems UB are different, quote from UB and BOI below from their websites.

Ulster Bank:
  • You can make overpayments on your fixed rate mortgage. An Early Redemption Charge is due if you repay all or part of your mortgage before the end of the set fixed period, however you can make an overpayment of 10% of your outstanding fixed rate balance each year without incurring an Early Redemption Charge
BOI:
  • 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.
 
Are there any other banks that offer an overpayment option on mortgages preferably similar to Ulster banks one
 
Elderflower said:
Are there any other banks that offer an overpayment option on mortgages preferably similar to Ulster banks one
Click to expand...

See this thread:

Key Post - The policies of the different banks on overpaying a fixed-rate mortgage

Updated by @Paul F Feb 2023 From Key Post https://www.askaboutmoney.com/threads/understanding-fixed-rates-breakage-costs.204427/ Can I overpay without a penalty? A question that pops up in a few threads discussing fixed rate mortgages is whether or not you can overpay during the fixed rate...
www.askaboutmoney.com
 
NoRegretsCoyote said:
I have approx €200k of an outstanding mortgage with BoI, 20 years left on the term. For various reasons we can't switch. No plans to move and if we need to I don't think a break fee would be material in the scheme of that decision.

I fixed at 2.9% in February 2022 for three years, so until February 2025.

Today BoI confirmed in writing that there would be no break fee and I could fix again at the following rates

TermRate
1 year2.9%
2 year2.9%
3 years3.0%
5 year3.0%
10 year3.3%

I am pretty tempted to fix for five years at 3.0%. Compared to the 2.9% I am on now I would pay approx €500 extra between now and February 2025 but with the guarantee of no further rises until October 2027. BoI would still allow the 10% overpayment without penalty that we currently benefit from.

For the record I am trying to time the market here. I think mortgage rates respond to money market rates with a lag and have surprised BoI haven't increased rates yet. AIB have just confirmed that they are increasing fixed rates for new buyers by 50bps, admittedly from a lower base.

I think there's a material risk of sustained higher policy rates over the next five years potentially taking retail mortgage rates to the 4%-5% territory. On the other hand we could have very low policy rates in 2 years time if there is a big recession and inflation disappears. But in this case I can't see BoI dropping rates any lower at all than the 2.9% they had when policy rates were at zero.

So in my case is there any downside to fixing now for five years?
Click to expand...
Can I ask how long you were waiting for them to send the paperwork? I called about 2 weeks ago to re-fix but still haven’t received anything in the post.
 
bluebell11 said:
Can I ask how long you were waiting for them to send the paperwork? I called about 2 weeks ago to re-fix but still haven’t received anything in the post.
Click to expand...
Arrived I think three working days after request.

I was holding for half an hour to actually talk to someone in mortgages. A lot of people panic-fixing I think.
 
Could it result in a potentially higher future break fee? (E.g. if rates dropped lower). Are cost of their funds higher now vs when you last fixed.

Probably this is not large enough to impact decision though?
 
NoRegretsCoyote said:
Arrived I think three working days after request.

I was holding for half an hour to actually talk to someone in mortgages. A lot of people panic-fixing I think.
Click to expand...
Thanks for the info! I endured 40 mins on hold the first time I rang so I thought my delay was just a delay in processing the paperwork but it looks like it got lost in the post. I requested it online this time on Friday, hopefully it comes through before the rates increase.
 
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