Switch for short term gains?

[TheManWho]

Currently I am with EBS on their 3.7% variable at 80% LTV. with 250k principle. I will be in position to reduce LTV below 50% by March next year, so I am wondering what is best to do for now?

My plan in March is to reduce my LTV and switch to best 10yr rate in the market.

Below are my options. If I went with "Option 2" would should I fixed for 1,2,3,4 or 5 years? I am wondering which is likely to have the lowest breakage fee? (I know it will be a guess, but is there a safer duration to go with?)

Option 1: Do nothing

I stay EBS 3.7% variable. Then next year move to best 10yr fixed rate.

Pro: I'm not locked in to any fixed rate, so I can move in March without breakage fee.
Con: I'm losing a 100e + a month

Option 2: Move to EBS fixed rate

It is simple for me to move to EBS fixed rate of 3%. No solicitor fees etc.

Pro: I save over 100e + a month
Con: I need to pay a breakage fee when i want to move in March to best 10yr fixed rate.

Option 3: Move to another bank

I move to someone like PTSB to get the 2% cashback. Then in March I move to best 10yr fixed rate.

Pro: I get cashback
Con: Breakage fee,
Con: Hassle of changing to PTSB
Con: Possibility that the bank I want to move to in March won't take me on as I'm only with current provider for a few months (I'd want to move to BOI or KBC)
Con: I'm stuck with PTSB for say a year and miss out of best 10yr rates as they have risen by the time I can move

 

[RedOnion]

Option 2: Fix now for 1 year, and break when you want.

You'll save 0.29% of balance over 5 months.
Interbank rates need to drop by more than 0.5% for your break fee to exceed the amount you'll have saved. It'll take a crisis for that to happen.

 

[TheManWho]

Thanks! It is breakage fee solely based on interbank rates?

Is your thinking that there is greater probability of more movement in the longer term fixed rates (i.e. 2,3,4,5 years)?

 

[RedOnion]

Yes, it's a function of movement in interbank rates, and term remaining.

Say if you fixed now for 5 years, they'd be comparing that to 4 year rate when you go to break. There's already a difference between 4 & 5 year rates, plus a greater probability of a movement, and you'll be multiplying that movement by 4.5 years remaining rather than 6 or 7 months. So it's only take a movement of about 0.06% to wipe out savings.

 

[TheManWho]

Great, thanks for the explanation!