Fixing for ten years

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robocode

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I had asked this on boards but I'm hoping to get some more advice here.

We are only one year into our mortgage (just under 90% LTV) and for our first year fixed at 3.55% with BOI. That term is about to end (this week) and we are having a hard time deciding what to do next. We definitely want to fix but can't decide between
  1. fix for 5 years at 3%
  2. fix for 10 years at 3.5%

The 3% seems very good, but to fix at ten knowing our repayments stay pretty much identical to what they are now is also appealing. You would imagine ECB rates will start to claim this year or next, but by how much and if Irish banks will follow proportionately is obviously another matter (let alone any potential effects of Brexit or the likes of Italy's fragile system on the EU).

How are other people approaching this decision?
 
Although I agree with your ideas about how future rates will move, or at least what the important issues will be, I think trying to second guess the bank on future rate movements is crazy.

If you want the security of the fixed payment go for it. If you like it enough to pay half a % extra for the 10 years go for that. Accept that this will probably cost a bit more than if you went for a variable rate, but enjoy the peace of mind.
 
The more relevant questions here are how stretched are your incomes at present and how likely are they to be stretched further in five years (kids for example)? How would you answer the question if your mortgage rate was 5% (as variable rates might be in 5 years)? Is your income likely to increase significantly over the next 5 years?
 
robocode said:
I had asked this on boards but I'm hoping to get some more advice here.

We are only one year into our mortgage (just under 90% LTV) and for our first year fixed at 3.55% with BOI. That term is about to end (this week) and we are having a hard time deciding what to do next. We definitely want to fix but can't decide between
  1. fix for 5 years at 3%
  2. fix for 10 years at 3.5%

The 3% seems very good, but to fix at ten knowing our repayments stay pretty much identical to what they are now is also appealing. You would imagine ECB rates will start to claim this year or next, but by how much and if Irish banks will follow proportionately is obviously another matter (let alone any potential effects of Brexit or the likes of Italy's fragile system on the EU).

How are other people approaching this decision?
Click to expand...
I think it's unlikely that rates will rise next year, inflation rates are struggling to reach the desired targets plus the euro despite the uncertainty in the eurozone is holding its own and may possibly strengthen further against key currencies making Euro denominated industries less competitive.
Therefore I think it's too soon to fix at the moment.
 
Thanks for the responses. @skrooge to answer your particular quesionts
  • our incomes are not stretched at all really, we have 2 young children and more than likely will have one more
  • my income will increase significantly over the next few years
We are leaning towards the 5 year fix at 3% now, as opposed to the 10 year at 3.5%
 
Given the expected improvement in income the shorter fix would appear to give you a better mix of certainty now versus future flexibility. However, as discussed in numerous threads on here the early redemption fee for either mortgage is likely to be small if you wanted to break out of the fixed mortgage at any stage in the future
 
Thanks skrooge, the early redemption fee is certainly a big factor (and only thanks to this forum was I aware of it!). I'm actually now leaning towards fixing at ten years for the peace of mind (both of us are risk averse!), and if rates start climbing I'll be happy I fixed, and if they fall further I could potentially break from the fixed rate, and refix at the lower rate.
For such a big decision it's a shame the main actors are 1) politicians 2) bankers 3) the Irish housing market....not exactly most readable/dependable cohort!
 
Letter sent, we went with 10 year fixed. Neither of us like unknowns and the rate is less than our current rate so we figured the certainty would be nice. Thanks for your input folks!
 
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