Hi Mick
10/10!
1) You have used the interest charged rather than the actual repayment, which is correct.
2) There is no need to factor in the fact that the balance will be reducing - it won't have a material impact on the decision.
3) Ignore the APR - it is misleading for fixed rates as it assumes you will revert to the SVR and stay with the lender for the full term of the mortgage.
The main factor to consider is whether some other lender will reduce variable rates further in the short term
In effect, BoI is charging you a rate of 2.6% for two years when you factor in the cash back. I think that variable rates will fall further, but I think it's unlikely that they will fall below 2.6% for an 80% LTV mortgage.
Ulster Bank has yet to make its announcement on mortgage rates, so you should not sign up for anything until you see what they do. Of course, you can start the process of moving to Bank of Ireland and abort it, if UB comes up with a better deal.
Should you worry about what the interest rates will be after the two years fixed term is up?
I don't think so. Bank of Ireland is trying to be competitive and so I would expect them to offer you a competitive deal at that stage.
There is no reason at all to believe that KBC might be cheaper then than BoI.
You will default to an expensive rate, so it's important to make sure to review those rates when the fixed term expires.
You should ask KBC to give you a better deal
You have nothing to lose by doing so. Given the importance of the €5,000 cash back, they would have to offer you cash to stay.
Should you consider fixing for a longer term?
This is a real issue. I would expect the ECB rate and interest rates generally to be higher after two years. Should you consider fixing for 5 years at 3.8%? That would dilute the effect of the 2% cash back from 1% a year, to 0.4% a year.
I just don't know the answer to this.