Is it now time to Switch to a 10y fixed rate?

M

Monfreid

Registered User
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Hello,
With the possible great financial crisis that might occur following all the measures taken to fight the Coronavirus, do you think that it would be wise to switch to a 10y fixed rate?
I know that 3.3% (with Boi for example) sounds expensive but if the rates increase dramatically to 5 or 6% for example or even more, you would be be very happy with your 3.3% for 10 years ...
My mortgage balance is 175K (LTV > 60%) and actual rate is 3.45% (fixed rate due to end in 1 year) and mortgage due to end in 21 years.
What are your thoughts on this?
Thank you
 
It seems like you would get a great comfort from having a fixed mortgage. You should strongly consider it.
 
Hi,
What worries me are the interest rates that people were paying in the 80’s and 90’s when the country was in a recession so that why I’m thinking they might go up again but maybe circumstances were different at the time
 
Monfreid said:
do you think that it would be wise
Click to expand...
These are my personal musings:
1. I don't ever assume we can predict interest rate movements better than the market. If we could, we'd be very wealthy. The market is currently trading at negative interest rates for being 10 years.
2. There is great security in knowing exactly how much your largest monthly expense will be over a long period.
3. Nothing is going to change dramatically in the next few weeks.

My advice:
If fixing long term, I'd be looking for a sub 3% rate. E.g Ulster Bank at 2.95%, with the flexibility to overpay by 10% of the balance each year. So you'd save 3.5% over the 10 years, compared to BOI, and have the added flexibility of overpayment without break fee.
Have a look at 7 year rates too. You might get better value there, and still give yourself a lot of insurance against rate rises.
 
Monfreid said:
Hi,
What worries me are the interest rates that people were paying in the 80’s and 90’s when the country was in a recession so that why I’m thinking they might go up again but maybe circumstances were different at the time
Click to expand...

After the 1980-1982 recession, both inflation and interest rates fell.

I am curious as to why some people think inflation rises during a negative economic shock?

That is possible, but typically it falls.

Think of 2008-2010.
 
For matters of whether to fix (or for how long) I think it's always important to stress if your mortgage repayment is a large chunk of your income or it keeps you up at night then fixing for longer makes sense. You might end up paying more but that's the price you pay for peace of mind.

For those who can afford to play the rate game:
The longer term fixed rate market is still virgin territory for many of our banks. Partly due to lack of demand (fixing is still a relevantly new phenomenon in Ireland and it's mainly focused on 3-5 year segment).

There is scope for greater competition in the 10 year fixed market. Up until recently there was only BOI and KBC offering such a product. While it's improved not all lenders offer such products. Not very scientific but bonkers returns 17 products in the 5 years fixed market compared to 8 for 10 year fixed segment.

Longer term fixes could be where teaser rates go next. Banks will have to try and differentiate themselves somehow. Focusing on niche segments of the market get the headlines without hurting their margins.

Taking a 10 year fixed right now has a feel of an early adopter about it. At the same time the market might not develop any further. How many people way up current cost vs. lifetime cost of a mortgage? Very few I imagine. Most will just focus on minimising current cost. Looking forward 5 weeks seems difficult now let alone 5 years or double.

In the short-term there seems to be very little reason to expect long term rates to rise above where they were up until recently. So 10 year fixed rates shouldn't be expected to rise any time soon

I agree with redOnion on the benefits of Ulster Banks overpayment options but if you wanted to be a bit more aggressive I'd look at a blended fix. KBC in particular seem to offer a nice array of rates. Spreading a mortgage over 1,3,5 & 10 years seems a nice mix of maturities and rates. Take advantage of the lower short-term rates for the portion of the mortgage you can pay while having the insurance on the balance that you know you can't touch for a number of years yet.
 
Monfreid said:
Hi,
What worries me are the interest rates that people were paying in the 80’s and 90’s when the country was in a recession so that why I’m thinking they might go up again but maybe circumstances were different at the time
Click to expand...
Ireland saw precisely one year of negative GDP growth in the 80s and 90s.
 
Ok, not in a recession technically but I meant when the economy wasn’t great.

When you see the interest rates (source cso)


1979 14.15%
1980 14.15%
1981 16.25%
1982 16.25%
1983 13.0%
1984 11.75%
1985 13%
1986 12.5%
1987 12.5%
1988 9.25%
1989 11.4%
1990 12.37%
1991 11.95%
1992 13.99%
1993 13.99%
1994 7.49%

What was the reason then for those high interest rates?
 
RedOnion said:
These are my personal musings:
1. I don't ever assume we can predict interest rate movements better than the market. If we could, we'd be very wealthy. The market is currently trading at negative interest rates for being 10 years.
2. There is great security in knowing exactly how much your largest monthly expense will be over a long period.
3. Nothing is going to change dramatically in the next few weeks.

My advice:
If fixing long term, I'd be looking for a sub 3% rate. E.g Ulster Bank at 2.95%, with the flexibility to overpay by 10% of the balance each year. So you'd save 3.5% over the 10 years, compared to BOI, and have the added flexibility of overpayment without break fee.
Have a look at 7 year rates too. You might get better value there, and still give yourself a lot of insurance against rate rises.
Click to expand...
Thanks for the advice, I will look into the 7 years mortgage as well. The main thing for me is the peace of mind of knowing how much I will pay per month for the next 10 years and the security of a fixed rate.
In 10 years, my eldest child will go to college so I can easily budget during that time for a college fund. I don’t plan to make any overpayment during those years as I’ve just made a big enough lump sump payment so next goal is to save for college and other things.
 
skrooge said:
In the short-term there seems to be very little reason to expect long term rates to rise above where they were up until recently. So 10 year fixed rates shouldn't be expected to rise any time soon

I agree with redOnion on the benefits of Ulster Banks overpayment options but if you wanted to be a bit more aggressive I'd look at a blended fix. KBC in particular seem to offer a nice array of rates. Spreading a mortgage over 1,3,5 & 10 years seems a nice mix of maturities and rates. Take advantage of the lower short-term rates for the portion of the mortgage you can pay while having the insurance on the balance that you know you can't touch for a number of years yet.
Click to expand...

thanks for the advice, I will look at this option of blended fix as well.
 
Monfreid said:
Ok, not in a recession technically but I meant when the economy wasn’t great.

When you see the interest rates (source cso)


1979 14.15%
1980 14.15%
1981 16.25%
1982 16.25%
1983 13.0%
1984 11.75%
1985 13%
1986 12.5%
1987 12.5%
1988 9.25%
1989 11.4%
1990 12.37%
1991 11.95%
1992 13.99%
1993 13.99%
1994 7.49%

What was the reason then for those high interest rates?
Click to expand...

Oil crises of the late 70's early 80's and the fact we were a small economy trying to peg to sterling, the only way to manage that was interest rates.
 
Ok, here we go:

the nominal int rate is made up of the real int rate plus inflation

nom = real + inf

Back in the 1980s, real rates were much higher, and inf was generally higher, especially in the early 1980.

These days real rates are low, maybe 0% - 1%.

If you want to see the real 10yr int rate, search for US Treasury TIPS rates.
 
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