Switching costs

[Skyler White]

Our fixed term is coming to an end and BOI offered 10 Yr fixed 4.55, 5 Yr 4.25 and 2yr 4.15. I approached a broker and they were only able to get better rates from Avant, 10 , 3, 4 and 5yr fixed at 3.95%, and 3yr 3.85%.

Any thoughts on best option? And, do we have to engage a solicitor or other professional as our renewal date is in March and I'm concerned we don't have enough time to switch.

We have €200,000 remaining with 19 yrs left, our LTV is 41.8%.

Thank you!

 

[skrooge]

Firstly, just because your fixed rate is coming to an end doesn't mean you have to re-fix straight away. You'll switch to BOIs variable rate (4.15%) which is actually cheaper than many of their fixed rates, at present. So take the time to consider all your options.

Switching would require a solicitor and a valuation. These are typically fixed costs whereas the benefits of switching usually stem from lower interest payments (and some time's cashback offers).

Looking at the various maturities, switching from BOI to Avant would save you:
€2,322 in interest when comparing like with like over 3 years, or
€2,826, over 5 years or
€10362, over 10 years.

Compare those savings to the cost of switching (say less than €2k for a solicitor and say €200 for a valuation) and on the face of it switching seems worth it.

 

[skrooge]

Which is the best option in terms of fixation? That's possibly less clear cut and it really comes down to your own preferences and risk tolerances, and the outlook for interest rates.

The higher the debt burden the more sensitive your financial position will be to fluctuations in interest rates. It means you will likely have less scope to absorb an interest rate hike. In such a situation I would say fix for longer. It's also worth considering personal circumstances. Are there upcoming changes in your life that you might appreciate the certainty that a fixed rate brings.

In contrast if your debt burden is already low or say you expect a promotion in the short term (or perhaps your husband has recently invested in a rather profitable car wash business ;-) ...) or you've an ongoing expense you expect will stop soon (e.g., crèche fees) - it might make sense to fix for a shorter period and reassess your finances at that stage. Also worth noting we are very close if not at the top of the rate cycle. The ECB is expected to cut policy rates in 2024. However, I'd argue these cut(s) and the associated changes in longer term market rates may not get passed on to Irish borrowers any time soon. Our banks already have very low funding costs (our deposits) and also the Irish mortgage market is perhaps less competitive than other countries.

 

[Skyler White]

Which is the best option in terms of fixation? That's possibly less clear cut and it really comes down to your own preferences and risk tolerances, and the outlook for interest rates.

The higher the debt burden the more sensitive your financial position will be to fluctuations in interest rates. It means you will likely have less scope to absorb an interest rate hike. In such a situation I would say fix for longer. It's also worth considering personal circumstances. Are there upcoming changes in your life that you might appreciate the certainty that a fixed rate brings.

In contrast if your debt burden is already low or say you expect a promotion in the short term (or perhaps your husband has recently invested in a rather profitable car wash business ;-) ...) or you've an ongoing expense you expect will stop soon (e.g., crèche fees) - it might make sense to fix for a shorter period and reassess your finances at that stage. Also worth noting we are very close if not at the top of the rate cycle. The ECB is expected to cut policy rates in 2024. However, I'd argue these cut(s) and the associated changes in longer term market rates may not get passed on to Irish borrowers any time soon. Our banks already have very low funding costs (our deposits) and also the Irish mortgage market is perhaps less competitive than other countries.

Thanks @skrooge, that's very helpful.

It seems now that the actual monthly repayment will actually be higher with Avant due to the Term changing to 19 years (to bring older applicant up to max age of 70 - which is not me!), whereas BOI's term is 20 years. We can't really afford the extra at the moment due to new baby but we can always review the position when renewal comes up again.

 

[Setforlife]

What is your BER? Got quotes today and best rates are all the green ones if BER is b3 or better. 3.65 from Aib/haven.
Was offered switcher legal fees of 1250 plus vat plus outlay, which should be around 2k, plus valuation of say 250 with aib/haven offering 2k toward costs. PTSB green offer off 3.95 plus 2% Cashback might be of interest to you Cashback wise, but that’s green rate also.