To fix mortgage or not?

Discussion in 'The Fair Mortgage Rates Campaign' started by Mar1987, 3 Nov 2018.

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  1. Mar1987

    Mar1987 New Member

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    Currently in the 60-80% LTV category on variable 3.05% rate with KBC.
    We are thinking about fixing either for 5 years @2.65% or 10 years @ 3.2%.
    There is a 2.5% rate available for 1 year fixed also.
    My question is which do people think the better option is? Will fixed rates drop further??
    We have 17 years left in mortgage but hope to overpay by 10%
     
  2. skrooge

    skrooge Frequent Poster

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    Its a mugs game trying to predict the bottom, market rates will likely move before the ECB do so there is the danger that you might miss the bottom of the market. Broadly speaking though if we're not already at the bottom we cant be far off. The ECB has indicated that it will consider putting up rates in the second half of next year. Thats not to say there might be scope for banks to reduce rates between now and then but I would have thought its not a bad time to lock in. Of course there are a whole host of reasons why rates may not start to rise in 2019H2.

    As for which is better 2.65% for 5 years or 3.2% for 10 both rates are pretty good. The 10 year will be more expensive but it will give you certainty for a longer period of time. Which is better really depends on individual circumstances. First thing I would ask is are you planning on moving home in the next 5-10 years? Obviously if you're thinking of moving house in the medium term it makes no sense to pay extra for the higher rate. Secondly, how much of a rate increase could you cope with. If only a little increase would impact you significantly I would be more inclined to go with the longer term. But that will also depend on how your circumstances are likely to change between now and year 5 and again from year 5-10 i.e., Kids, creche/college fees etc. However, if the expectation is for your salaries to increase significantly in the coming years it might make the shorter fix more attractive. It's also worth considering that the way break fees are now calculated you might not face any additional expenses in the future if you choose to overpay by more than 10%.

    The above might help you decide if paying the 0.55% extra for the longer fix in years 0-5 might be more or less than the savings you'll make in years 5-10 when the 3.2% is compared to the prevailing rates at the time. You mentioned overpayments, the more aggressive your overpayments the stronger the argument for the shorter term.

    Alternatively rather than putting all your eggs in one basket you could also chose to split your mortgage between both options. For example, splitting the mortgage 50:50 would see your effective rate decline to 2.93% i.e., lower than what you're paying now but with greater certainty.
     
  3. Brendan Burgess

    Brendan Burgess Founder

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