Variable vs fixed rates

confused12

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Hi all,

I'm new to the mortgage malarkey.

I'm eyeing up a potential 300k mortgage for a house worth 500k. No decisions made yet.

All things being equal, as a 32 year old (if that matters), am I better going fixed or variable? I understand there's no way of predicting which will be cheaper in the long run - unless I've missed a trick.

With my job I do have the flexibility to work more or less, if having to adjust the mortgage rates.
 
There are various factors to consider. However, in the market at the moment, fixed rates are generally much more competitive than variable rates. So personally I don’t see a strong argument for going variable unless you want the ability to overpay your mortgage.
 
So personally I don’t see a strong argument for going variable unless you want the ability to overpay your mortgage.
And bear in mind that Ulster Bank and KBC (and others) let you make large overpayments without penalty, even if you are on a fixed rate.
 
I understand there's no way of predicting which will be cheaper in the long run
Indeed, but in the short run fixed is cheaper with most providers.

Whether you fix short or long is the question. Longer is more expensive but insures against rates rising.

I think fixing is only worth it if you have a high mortgage as a share of income and would struggle with rate increases.

If your payments are <25% of net income you should be able to deal with rate increases as they occur. So better to fix for shorter.
 
Short answer:

Right now, across the entire market, all lenders are offering lower rates for fixed than variable. More specifically, there is a 'sweet spot' in the 4 & 5 year fixed rates where they are actually lower than shorter terms. Banks are pricing their mortgages to get customers to stay for longer.

If I was trying to get a mortgage myself right now, I would be looking at 4 & 5 year fixed. Unless going with Avant, and grab their 7 year rate at 1.95% - but that comes with a caveat; I wouldn't fix for 7 years if I thought I was going to move / sell in that time frame.

Can you overpay on a fixed rate? Yes, but the amount you can overpay before a break fee being calculated varies. See here:

If you need a longer answer, just ask any specific questions you have. It might be a chance to rewrite that key post.

The key is not to be Confused! ;)
 
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Right now, across the entire market, all lenders are offering lower rates for fixed than variable. More specifically, there is a 'sweet spot' in the 4 & 5 year fixed rates where they are actually lower than shorter terms. Banks are pricing their mortgages to get customers to stay for longer.
As a comment on the state of the market, does that not indicate that 1) Competitive + Market pressures are pushing rates to the downside (though they may take time to come through) and 2) Locking customers into longer rates will reduce the switching when the rate changes materialise. Important if you are a close to different LTV bands and particularly the 60% LTV band and are eligible to move to Avant. Outlier in the market and good margin of safety given rates are unlikely to drop meaningfully below that rate at this stage. Did I read recently that 1 in 5 switch's are to Avant? This should prompt action by the main lenders but they have their legacy book to consider.

For the OP do Avant do blended rates? He will be 60% LTV but good do variable for the portion that is expected to be overpaid in the first year or two, say 20k or whatever.
 
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For the OP do Avant do blended rates?
No, or at least not currently. Their variable rate is only available as a rolloff from fixed, not fur new business.
There is some speculation that they will change rules to allow a 10% overpayment without break fee, but I haven't seen anything official on that anywhere.


I'll respond with my thoughts on the wider questions around interest rates later.
 
We have a split mortgage with AIB: 75% of the loan is fixed for 5 years, with the remaining 25% on the variable rate. Having the variable quarter allows us to pay off extra when we can/want to, while the majority being fixed at a lower rate means the potential for massive fluctuation in the overall repayments is reduced. It may not be the most mathematically sound, but we value the flexibility, and psychologically this has made sense for us and may be worth considering.
 
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It may not be the most mathematically sound, but we value the flexibility
Yes, but you have to remember that AIB has the lowest variable rates of all the banks. The maths aren't too punitive to you, but might it not make sense with another lender.
 
We have a split mortgage with AIB: 75% of the load is fixed for 5 years, with the remaining 25% on the variable rate. Having the variable quarter allows us to pay off extra when we can/want to, while the majority being fixed at a lower rate means the potential for massive fluctuation in the overall repayments is reduced. It may not be the most mathematically sound, but we value the flexibility, and psychologically this has made sense for us and may be worth considering.

Do you realistically intend to pay off 25% over 5 years? I think some might e.g. do a 75/25 split for the "flexibility" and actually only end up overpaying maybe 5%. With outsized variable rates, the blended rate may be higher than people think or they end up paying more than the break fee would have been on their overpayment. Its one of the reasons I'm less inclined to fix for 4/5 years as indicated by @RedOnion
 
As a comment on the state of the market, does that not indicate that 1) Competitive + Market pressures are pushing rates to the downside (though they may take time to come through) and 2) Locking customers into longer rates will reduce the switching when the rate changes materialise. Important if you are a close to different LTV bands and particularly the 60% LTV band and are eligible to move to Avant. Outlier in the market and good margin of safety given rates are unlikely to drop meaningfully below that rate at this stage. Did I read recently that 1 in 5 switch's are to Avant? This should prompt action by the main lenders but they have their legacy book to consider.
I promised you a view on this. Sorry, it's a bit rambling (nothing new there!!)

Just to stress, these are my personal views. I have no role in anything to do with mortgage products or pricing with any lender, and I do not have any inside information.

** This post is for entertainment purposes only **

Firstly, I won't hide from what I said a year ago, so you can read what I was saying then, and where I've been wrong.

3 material things changed since my crystal ball gazing last year:
1. AIB have completely changed their offering, following every other lender into competing on Fixed rates. They've dropped fixed rates right down to 2.1%, while leaving their LTV variable rates untouched, with the lowest at 2.75%.
2. Avant entered the market.
3. Ulster Bank, while still actively lending, announced a planned exit from the market.

All that said, my view hasn't really changed.

Avant brought in 'game changing' rates, but in reality the lowest rate is 1.95%. The same effective rate was kind of available to some customers when you factor in cashback deals - we've already discussed a few (very specific) examples on the forum where it was the same for customers to switch to KBC vs Avant, but with more flexibility to overpay. Plus, the headline rate of 1.95% is only available for LTVs below 60%.

I still believe we'll see an effective rate of 2% (or the psychological 1.95%!) as being the floor for now. We'll see the banks strip back their products so that they can offer a 'no cashback' mortgage that matches Avant's offering. PTSB & BoI have both launched such products, although the rates aren't there yet.But apart from the repackaging, and better headline rates in ads, the effective rate for a 2 to 3 year term won't change.

I still think we're more likely to see those 2% to 2.2% rates being available for 5 - 7 years, than 1 year rates dropping under 2%. AIB have already done it with the 5 year green rate, and Avant have the same price right out to 7 years at the lower LTV products. The 4 & 5 year term is where the banks are currently competing, with effectively an inverted rate curve displaying.

I think we will possibly see a 2% 10 year fixed rate in the near term, if any bank thinks there might be a market for it.

When it comes to the question 'should I fix for 2 years or 5', it depends on the lender, and the rates offered.

AIB as an example (just because it's the one I've mentioned earlier):
Take a 'typical' borrower at <80% LTV.
1 or 2 year fixed rates are 3.05%.
5 year green rate is 2.15%
LTV Variable is 2.95%

If you stay on the Variable at 2.95%, the rate would need to drop to 1.95% at the end of the 1st year for you to end up with the same effective rate. If rates didn't change for 2 years, it'd need to drop to around 1.6%
 
Do you realistically intend to pay off 25% over 5 years? I think some might e.g. do a 75/25 split for the "flexibility" and actually only end up overpaying maybe 5%. With outsized variable rates, the blended rate may be higher than people think or they end up paying more than the break fee would have been on their overpayment. Its one of the reasons I'm less inclined to fix for 4/5 years as indicated by @RedOnion
We do hope to pay off the 25% over 5 years (although maybe it was slightly aspirational!), through bonuses etc, but I take your point and if you're not going to pay off regularly and from an early stage it isn't worth it. Just pointing out that with the uncertainty of breakage fees you can find different ways to create some wiggle room if you are unsure which way to go given that the 5-year fixed rates are clearly where the most value us in terms of interest rates.
 
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