Fixed rate mortgage?

B

brille

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Hi folks

New poster here, site was recommended. Anyway, I would love to know what people think about interest rates for the next few years. My fixed rate mortgage is due to expire and Ulster Bank are offering me the option of a further fixed rate of 3.99% til 2008, a flxible tracker mortgage or, if I do nothing, I will be automatically on their standard variable rate. Am worried about all the noise recently about increasing interest rates - and think maybe I should go for the fixed rate again? Or would that be crazy? (Sorry, I am rubbish at this stuff, so can you reply as if explaining to a child!)
 
Hi there, there have been two very good posts on this recently. Anyhow, the main argument to go for a fixed rate is that the ECB (European Central Bank) is likely to increase interest rates another two-three times over the next year, each time possibly by 0.25%. (please note this is pure speculation).
Currently the ECB rate is at 2.5% and banks add certain extras onto this rate depending on a variety of factors one of which is the mortgage you're taking out with them (loan to value, etc). Most of the tracker rates for mortgages of LTV 100% are available at ECB plus 1.1 or ECB plus 1.25. Which comes to 3.6 for ECB+1.1 (currently offered by ICS).
Current fixed term rates, such as 2 year fixed offered by PTSB at 3.84, are naturally higher then the currently available trackers, but if you fixed now for 3.84 and the ECB increases rates again soon (let's say by 0.25% each in June and September, bringing the ECB rate to 3, and then add the 1.1 brings the standard tracker to 4.1), then you probably end up with a better rate through the fixed then if you had gone on a tracker which will have increased above the fixed rate.
Having said all that, you can't be certain if the ECB will definitely increase rates or by what percentage, or if they do, maybe they will come down again shortly after.. Who knows, economists predict all sorts of scenarios...
But one word of advice, if you want to go fixed, the one offered to you at 3.99 for two years is not the most competitive, so shop around!
 
I have to say despite reading a lot on here about the nominal vs. APR interest rates I am still confused! We have been offered a 3 year fixed mortgage from IIB at 4.19% with an APR of 3.92% over 35 years. They will only give us the amount we need based on this three year fixed rate as opposed to a tracker or variable rate, and they are the only bank who are willing to give us the loan we need. This comes in at a cost per thousand of 6.16 over 20yrs.

If I compare the APR of 3.92% vs. some of the new tracker rates of 3.6-3.7% APR this looks like an okay deal, based on presumptions that the ECB might raise rates by .25 or .5% in 2006. However based on the nominal rate this doesn't look as good as we would still end up paying over the odds (based on a 0.5% rate increase). I know, I know that rate increases are not guaranteed, but let's play devil's advocate for a minute!

Any ideas????
 
What you should really look at at your options when coming off the fixed rate of 4.19%-are there any restrictions (as there are at the moment)?
 
When comparing mortgages forget about nominal rates, concentrate on APR or cost per thousand (for the same term) and when it comes to short term fixed or discounted rates make sure you are aware what rate you are likely to be paying in the longer term (e.g. the standard variable or best tracker rate). Don't be foolwed by one/two year discounted rates from lenders who offer some of the least competitive variable/tracker rates from year two/three onwards.
 
I rang IIB and they told me that there would be no problem after the three years going to the tracker rate (currently 1.1% above ECB). When I asked whether this rate was reserved for new business I was told that it wasn't, and that I would have no problems. I was worried they may force me on to an uncompetitive variable rate but was assured this was not the case. I was simply told this over the phone though and have nothing in writing as yet.

Regarding the APR rate of 3.92% - how is this calculated if the rate is only fixed for three years and the nominal is 4.19%? I have to say I'm still none the wiser as to the real difference between these two rates?!!
 
I heard that interest rates could rise 4 times over the next 12 months. They usually increase by .25% each time, so based on that the variable rate (with my lender) would increase to 4.75%, and even the flexible / tracker mortgage would go to 4.45%.

That is why I am thinking I should opt for 3.99% fixed (3.9% APR) til 2008? Any opinions?
 
Was in the same dilema for a long time but have made the choice to switch to NIB for their tracker mortgage. You could also try Bank of Scotland if this is what you want.

For me it meant I could pay off the mortgage when I wanted (saving money) and have no restrictions of a fixed mortgage. I think the bottom line is stay with tracker/variable if you can. Banks have done more calculations than any of us and they will not set fixed rates at values they don't believe are good for them. It's anybody's guess however!!!
 
brille said:
Any opinions?
Click to expand...
Just the usual ones - don't fix unless you need to and definitely not in an attempt to time the market and save money. If you can afford fluctuating repayments up to a couple of percent increase then stick with a competitive tracker/variable.
 
Aaargh! The thing is - unless I win the lotto - I definitely will not have any extra money to throw towards paying off mortgage. I am having a baby in July, and will be on 6 months unpaid leave (well apart from Government payment of max 265 pw) and after that we were thinking I might work part time til the baby is old enough. So definitely no extra money coming in. And could not really afford changes in my mortgage amount. And we may be re-selling house in 2 years anyway. So in those circumstances, would it not be best to go fixed?
 
If meeting your repayments is tight or would be if rates increased by a couple of percent then fix for as long as you need the reassurance of fixed repayments.
 
ClubMan said:
Just the usual ones - don't fix unless you need to and definitely not in an attempt to time the market and save money. If you can afford fluctuating repayments up to a couple of percent increase then stick with a competitive tracker/variable.
Click to expand...

could you tell me why you would advise this?

i've bought with a friend and the plan is to sell in 4 years (bought last year)

i've a boi tracker @ 1.1 over the ECB.

would your advice apply to people who are in for the long term?

would we be better off with a fixed? i mean, it's already gone up .5% in a couple of months, and i've heard on the news it's expected to go up another .25% next month, earler than expected.

the rate seems to be going one way, and fast.

i'm just curious, do you think it will go down again?
 
Hi Paperclip,

Just to add my two cents to the discussion, I think Irish banks have a nice profit built into their fixed interest rates; however it is harder to build in a large profit in trackers.
Check out the 12yr fixed interest rates available in Germany :
http://www.banken.de/drklein/baugeldvergleich.php3?jahre=2
Compare that too the 10yr fixed interest rates available in Ireland :
http://www.finfacts.com/Private/dip_rate/mrt_10yr.htm
There is .75% difference in the best rates from both countries.

In a tracker they cannot build in these big margins cause it is more transparent what their take is. (e.g. in your case 1.1% minus whatever overheads they have).

As you highlighted as lot of the fixed vs. tracker discussion you would need a crystal ball for, but this for me is a hard fact of fixed mortgages being too expensive for the risks they mitigate.

Darragh.

P.s. On saying that I went for 10 year fixed and only realised the above after the fact :)
 
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