KBC new 10 year fixed rate

[lledlledlled]

The only other thing to keep in mind when fixing for 10 years is a guestimate of what the interest rate environment will be like in 10 years time. A total unknown I accept, but it is worth considering
For example, if I fix for 3 years and can then go onto new business rates, do I think new business rates will be reasonable at that stage
But if I fix for 10 years, is there a chance I will be badly burned when I exit the fixed period if we are in the middle of another recession. Hindsight in that case may have told me the optimum answer was to fix for 3 years and then fix for 10 years.

Without a crystal ball its hard to decide the best thing to do. One option is to always overpay a low fixed rate by sensible stress test amount (say 0.5 or 1%) mortgage permitting, so it cushions the shock of when you come off it. It also has the added benefit of saving money in the long term !

I'm not sure I agree with this. Yes, it would be a shock to suddenly move from a lovely 'low' 2.99% up to a high variable rate (in the event they were very high at that time) but surely I'm better off having saved all that extra money having been on the lower rate? It's hardly better to be on a higher rate just because it would be less of a shock when it ends.

Regarding overpayments, I intend allocating these to whichever portion (i.e. the fixed or variable portion) is at the higher rate at the time of the overpayment.

 

[Gordon Gekko]

I meant the former in both cases. It was in the context of a response to a previous poster.

My 1st point was that I think it is almost impossible to argue that interest rates will fall by 5% (as they did for the poster I was responding to) to -2.01%, so I'm unlikely to lose out much by fixing at 2.99%.

My 2nd point was that it would be more likely, over the course of 10yrs that interest rates would rise to 7.99%. I agree it is not very likely, but in my opinion it is more likely than them falling to -2.01%. Do you disagree?

I wouldn't hang my hat on one being more likely than the other.

If interest rates hit 8%, the economy would collapse so that is not all likely.

Equally, a negative rate is highly unlikely.

Both are Black Swan events.

 

[Suebee]

I was just talking to kbc re 10 year fixed. You can't overpay at all on this rate. I was going to sign up for it but this has turned me right off.

 

[RedOnion]

I was just talking to kbc re 10 year fixed. You can't overpay at all on this rate. I was going to sign up for it but this has turned me right off.

Of course you can. They're required by law to allow you to.
What exactly did they say?

 

[gnf_ireland]

I was just talking to kbc re 10 year fixed. You can't overpay at all on this rate. I was going to sign up for it but this has turned me right off.

Would you consider splitting the mortgage if you wanted to overpay ? Might be the best of both worlds..

 

[newirishman]

Of course you can. They're required by law to allow you to.
What exactly did they say?

They are required by law? That is very much news to me. There is as far as I am aware no law that say that a bank must allow you to overpay a fixed-rate mortgage without penalties.
But more than happy to be corrected, if you could point me to a source for this.

 

[RedOnion]

There is as far as I am aware no law that say that a bank must allow you to overpay a fixed-rate mortgage without penalties.

That's not what previous poster said. They said KBC don't allow overpayments at all.
Of course a bank can pass on justified break costs they have incurred, but must allow you to overpay.

Edit: in hindsight, I might have been over pedantic with my comment. It's specifics that trip people up in contracts, and I read the comment out of context of the previous replies.

 

[newirishman]

That's not what previous poster said. They said KBC don't allow overpayments at all.
Of course a bank can pass on justified break costs they have incurred, but must allow you to overpay.

You can't really overpay without breaking out of the fixed rate contract, which incurs penalties.

Of course you can. They're required by law to allow you to.

So this previous statement is if not actually wrong, then at least highly misleading. There is no law that forces a bank to allow you to overpay your fixed rate mortgage.
Breaking out of a fixed rate mortgage contract is very different from overpaying.
The bank does not have to allow you overpay your mortgage. it might allow you to break out of your contract (by repaying the amount in full, for example), but it will incur penalties usually.

 

[Suebee]

That's not what previous poster said. They said KBC don't allow overpayments at all.
Of course a bank can pass on justified break costs they have incurred, but must allow you to overpay.



Edit: in hindsight, I might have been over pedantic with my comment. It's specifics that trip people up in contracts, and I read the comment out of context of the previous replies.

Yes u are being pedantic. I meant u can't overpay by a 10% like you can on 1,3 or 5 yr fixed! Overpaying would incur break funding fees

I am currently on 5 year fixed they will let me out with no break funding fee to go on to 20 year . Will even let me split it.

We are a 1 income family so payment security is important to us but we do want to be able to overpay the mortgage a bit. We also both on your have 1 parent left both of whom are in mid to late 70's so it is possible that we could receive an inheritance in 10 years which could allow for most of mortgage to be cleared but then again that may not be the case.

I'm leaning towards 70% fixed and 30 % variable which I think would offer some level of protection if rates increase.

Would love some opinions on this.

Thanks

 

[RedOnion]

You can't really overpay without breaking out of the fixed rate contract, which incurs penalties.



So this previous statement is if not actually wrong, then at least highly misleading. There is no law that forces a bank to allow you to overpay your fixed rate mortgage.
Breaking out of a fixed rate mortgage contract is very different from overpaying.
The bank does not have to allow you overpay your mortgage. it might allow you to break out of your contract (by repaying the amount in full, for example), but it will incur penalties usually.

Sorry, your understanding of part 10 of the Mortgage Credit Directive is very different to mine.

 

[RedOnion]

Yes u are being pedantic.

I apologise, it wasn't my intention.

I'll do up a model later tonight and post to this thread that might aid discussion in relation to fixing for long periods, showing what if rates rise, fall, and the impact of break fees in either scenario.

 

[Suebee]

That would be great. I really don't understand how break fees are calculated .

 

[RedOnion]

I've tried to explain break fees over here: https://www.askaboutmoney.com/threads/understanding-fixed-rates-breakage-costs.204427/

It's not the easiest thing to understand and I might not have explained it very well, but if you've any specific questions please ask as it might also help other people to understand. It doesn't help that all the examples banks use result in a large break fee.

I'll include examples later.

 

[RedOnion]

In the interest of assisting discussion around long term fixing, I've modeled some possible scenarios to show the outcomes.
The starting inputs are a term of 20 years, with an initial sum of 100,000. After early repayments the term remains with reduced monthly repayment.

Re break costs: KBC calculate their break costs as the difference between the rate they could have placed the funds on deposit for the entire term vs what they can place on deposit for the remaining term when you break - I've taken market SWAP rates as a proxy. The current 10 year SWAP rate is 0.9%, which means this is the 'R1' used by KBC in determining break fees. Take a 'black swan' event - if you fixed and 10 year market rates dropped to 0% for 10 years in the morning, the break fee would be 9% of your mortgage amount; i.e. 9,000 per 100,000.

Please let me know if any other scenarios might help and I will update table - I purposely avoided extremes.

Scenario	Total Scheduled Repayment	Additional Lump sum	Total Interest Charge	Break Fee	Balance at year 10
Fixed Rate 2.95%	66,252	0	23,565	0	57,313
<80% LTV. Assume remains at 3.1%	67,154	0	24,833	0	57,679
Assume LVT drops 0.25% each year for 4 years. i.e. drops to 2.1% after year 4	63,192	0	19,006	0	55,814
As above, fall to year 4, but then increase 0.25% each year until end of 10 years. i.e. 3.35% in year 10	64,739	0	21,500	0	56,762
As above, but with 0.5% increase per annum	66,343	0	24,031	0	57,688
Early Repayment. Assume no rate change. Repay 50k after year 3, no market rate changes. Current 10 year SWaP rate is 0.9%; 7 year is 0.525%	40,047	50,000	14,974	1,313	24,928
Early Repay using current LTV rate	40,641	50,000	15,787	0	25,147
Early repay. Assume rates collpse, and 7 year SWAP drops to 0%	40,047	50,000	14,974	3,150	24,928

 

[lledlledlled]

The booklet I received with the KBC application documents contains a formula for calculating the break out fee.

The member of the mortgage team in KBC who I met this week told me that I can overpay the 10yr fixed without penalties up to 10% of the repayment amount for that month. I will need to double check this, as it would be a show stopper for me if I can't overpay.

 

[Suebee]

The booklet I received with the KBC application documents contains a formula for calculating the break out fee.

The member of the mortgage team in KBC who I met this week told me that I can overpay the 10yr fixed without penalties up to 10% of the repayment amount for that month. I will need to double check this, as it would be a show stopper for me if I can't overpay.

I spoke to 3 different people on this and u can only over pay up to 10% on 1,3 and 5 yr fixed the new 10 year fixed does not allow for any overpayment .

I'm still unsure what to do. I wish I had a crystal ball to see where rates will b in 5 years time

 

[lledlledlled]

I spoke to 3 different people on this and u can only over pay up to 10% on 1,3 and 5 yr fixed the new 10 year fixed does not allow for any overpayment .

I'm still unsure what to do. I wish I had a crystal ball to see where rates will b in 5 years time

If you want to overpay but also wanted an element of security for 10yrs, you could split it 50/50 between fixed and variable?

 

[Suebee]

I'm actually considering 70 % fixed and 30% variable. I'm currently on the 5 year fixed 60 to 80 %Ltv...this split would keep my payments pretty much the same now but allow some security for the future.

Just want to do some more thinking/research to make sure I'm making the right decision

 

[lledlledlled]

I'm actually considering 70 % fixed and 30% variable. I'm currently on the 5 year fixed 60 to 80 %Ltv...this split would keep my payments pretty much the same now but allow some security for the future.

Just want to do some more thinking/research to make sure I'm making the right decision

I was thinking 75% fixed myself but if I can't overpay the fixed portion, I may go 50/50.
Either that or I might go variable with AIB. I won't be as keen on a 10yr commitment if I can't overpay.

 

[RedOnion]

I spoke to 3 different people on this and u can only over pay up to 10% on 1,3 and 5 yr fixed the new 10 year fixed does not allow for any overpayment .

I'm still unsure what to do. I wish I had a crystal ball to see where rates will b in 5 years time

I've read the terms & conditions in their mortgage application pack, and can't find any reference to being allowed to overpay by 10% on fixed rates without break fee. They refer to a 'General Homeloans Terms and Conditions' that I'm not able to find a copy of.

As an existing customer, can you check if you have a copy, and if it references the 10%?