Mortgage advice needed.

hepcat

Mortgage advice - tracker or fixed?
My current fixed rate period is up, and my mortgage lender is offering 3 options:

1. Flexible mortgage which trackes European Central Bank base rate. Although the base rate may change the margin you pay is fixed. Current rate is 3.45%
2. Fixed rate of 3.99% til 2008, 4.2% til 2009 or 4.45% til 2011.
3. Standard variable ragte of 3.75% currently.

If stories about expected interest rate increases are correct, would it be wise to opt for a further fixed rate, and is 3.99% the best I can do?

Any advice most welcome!

Mutz

Sorry, just as a side question, is there a website to monitor the apr rates for each bank at the moment?

hepcat

Jeez if I was up on monitoring APR rates, I wouldn't have posted my question:D

But I don't know whether there is such a website or not.

Greenhorse

Hi there,

Check out primafinance.ie

Enter your details here http://www.primafinance.ie/PrimaFinance/LEN100.asp
and they give you all the interest rates and costs of all the lenders.

Sorry Hepcat I really cant recomend anything to you as I dont own a house in Ireland. Not sure how the ECB will be dealing with any interest rate hikes.


Rgd,

Niall

whizzbang

hepcat wrote:

Mortgage advice - tracker or fixed?
My current fixed rate period is up, and my mortgage lender is offering 3 options:

1. Flexible mortgage which trackes European Central Bank base rate. Although the base rate may change the margin you pay is fixed. Current rate is 3.45%
2. Fixed rate of 3.99% til 2008, 4.2% til 2009 or 4.45% til 2011.
3. Standard variable ragte of 3.75% currently.

If stories about expected interest rate increases are correct, would it be wise to opt for a further fixed rate, and is 3.99% the best I can do?

Any advice most welcome!

I would take 4.45 for 5 years, ECB rates are on the way up, 2% for the last 5 years until December last year, then 2.5% from Dec to March, now they have just upped them to 2.5%, they could easily go up another .5% this year. Variable rate could easily have you paying 5% plus within 18 months! Maybe more.

J

Andrew Duffy

Variable rate could easily have you paying 5% plus within 18 months! Maybe more.

... and could just as easily not. You would also have paid far more than the equivalent variable rate for each of those 18 months.

Banks make more money from fixed rate loans than from variable; only take out a long fixed term if you need to know exactly how much your mortgage payment will be every month.

whizzbang

Andrew Duffy wrote:

... and could just as easily not. You would also have paid far more than the equivalent variable rate for each of those 18 months.

Banks make more money from fixed rate loans than from variable; only take out a long fixed term if you need to know exactly how much your mortgage payment will be every month.

It all boils down to if you think interest rates are going to rise. My understanding is that they are generally expected to be 3% base rate (up form 2% for the last 5 years) by the end of this year. Unfortunatly the ECB doesn't care about Ireland when it is doing these rate changes, it is doing them for the likes of France and Germany who have started seeing inflation and their economy improiving so rates are moving up.

Have a look at the news about interest ratres, get some advice form an economist then make a choice.

The_Conductor

whizzbang wrote:

Unfortunatly the ECB doesn't care about Ireland when it is doing these rate changes, it is doing them for the likes of France and Germany who have started seeing inflation and their economy improiving so rates are moving up.

Yes the ECB does care about us. Our economy *needs* higher interest rates- we have the highest rate of inflation in the old EU15- and thats before house prices etc are brought into the picture. That France and Germany are improving is the impetus to increase rates- but our government have been pleading to increase rates for over 2 years now. We are out of sync with the economic cycles of the rest of Europe.

Re: mortgage interest rates- the rest of Europe doesn't really care about these- they do not have the same levels of home ownership as we have here, and are quite happy to continue to rent property at market rates. The concensus appears to be that ECB rates will rise by another 50 basis points by November (to 3%) and possibly by as much as another 75 or 100 basis points in 2007 (to 3.75-4.00%). Allowing for margins (I pay .75% on my tracker) that would mean mortgages *may* rise to slightly over 5%- which by Irish standards is historically low. All mortgages have been stress tested by lenders for a between a 3 and 5% range above prevalent rates- so unless people were lying on their mortgage applications- they should be able to make their repayments (albeit with a much lower disposable income). Mortgage rates of double or even triple the predictions were nothing out of the ordinary 10 or 15 years ago- the current age of cheap money is an anamoly, not an expectation that anyone can expect to last indefinitively.

The good point about rising interest rates is as people have less disposable income they will be a lot less likely to pay over the odds for property. As rates go up- landlords will be a lot less likely to meet their repayments from rental income and more likely to offload buy-to-let properties, which should also reduce property prices. All in all- a correction in prices is a reasonable expectation- by how much is pure speculation (the Economist Magazine reckon that Irish property may fall by 35-40% by the end of the decade- which sounds reasonable enough).

What has happened with house prices is an asset price bubble- related to the technology bubble of the late 1990's. When money is cheap- excess liquidity chases limited assets driving up the price of those assets. As money becomes more expensive- human nature dictates that holders of inflated assets seek to lock in the perceived value of their assets by selling their properties and converting it to the now more expensive cash. As more assets enter the market for sale, the law of supply and demand correlation shows that prices will fall (once demand has been satisfied and there is an excess present).

The only thing keeping house prices where they are at the moment is the perception of an undersupply in the marketplace. That perception is changing- and when the tide turns there will be a seismic shift in asset prices.

whizzbang

smccarrick wrote:

Yes the ECB does care about us. Our economy *needs* higher interest rates- we have the highest rate of inflation in the old EU15- and thats before house prices etc are brought into the picture. That France and Germany are improving is the impetus to increase rates- but our government have been pleading to increase rates for over 2 years now. We are out of sync with the economic cycles of the rest of Europe.

Re: mortgage interest rates- the rest of Europe doesn't really care about these- they do not have the same levels of home ownership as we have here, and are quite happy to continue to rent property at market rates. The concensus appears to be that ECB rates will rise by another 50 basis points by November (to 3%) and possibly by as much as another 75 or 100 basis points in 2007 (to 3.75-4.00%). Allowing for margins (I pay .75% on my tracker) that would mean mortgages *may* rise to slightly over 5%- which by Irish standards is historically low. All mortgages have been stress tested by lenders for a between a 3 and 5% range above prevalent rates- so unless people were lying on their mortgage applications- they should be able to make their repayments (albeit with a much lower disposable income). Mortgage rates of double or even triple the predictions were nothing out of the ordinary 10 or 15 years ago- the current age of cheap money is an anamoly, not an expectation that anyone can expect to last indefinitively.

The good point about rising interest rates is as people have less disposable income they will be a lot less likely to pay over the odds for property. As rates go up- landlords will be a lot less likely to meet their repayments from rental income and more likely to offload buy-to-let properties, which should also reduce property prices. All in all- a correction in prices is a reasonable expectation- by how much is pure speculation (the Economist Magazine reckon that Irish property may fall by 35-40% by the end of the decade- which sounds reasonable enough).

What has happened with house prices is an asset price bubble- related to the technology bubble of the late 1990's. When money is cheap- excess liquidity chases limited assets driving up the price of those assets. As money becomes more expensive- human nature dictates that holders of inflated assets seek to lock in the perceived value of their assets by selling their properties and converting it to the now more expensive cash. As more assets enter the market for sale, the law of supply and demand correlation shows that prices will fall (once demand has been satisfied and there is an excess present).

The only thing keeping house prices where they are at the moment is the perception of an undersupply in the marketplace. That perception is changing- and when the tide turns there will be a seismic shift in asset prices.

Excellent post! To add to this I understand that most european mortages are fixed rate for the full term of the mortage at very low rates < 5%?. They actually think that Ireland and the UKs approach of going for variable mortage rates is lunacy!

Unfortunatly I think you might be underestimating how many people are following the "Lie to buy" route. A lot of the people I know who have bought property have lied about their income by asking their bosses to pay them two months salary in the one month to make it look like they are getting a raise. Also theya re being told by mortage advisers to move their loans to the credit union as "The bank can't see them there" I think this could end up causing a lot of people to get very titghtly squeezed by the rates increase. Especially when you look at the huge amounts of non mortage personal debt people are picking up. This all falls back to the "Cheap money" point you made. I think people will end up looking back at this time as a time of irrational excess on bahalf of the Irish. Its a pity but I think a lot of people are setting themselves up for unmanagable debt in the near future.

This is also why I forsee a house price decliune as all the second home "interest only" mortage holders will cash out of their investments and the market will be flooded with property. Even the banks are selling their property for lease back! When the banks think its a good time to sell, its probably a good time to sell!

darkbeatz

smccarrick wrote:

Yes the ECB does care about us. Our economy *needs* higher interest rates- we have the highest rate of inflation in the old EU15- and thats before house prices etc are brought into the picture. That France and Germany are improving is the impetus to increase rates- but our government have been pleading to increase rates for over 2 years now. We are out of sync with the economic cycles of the rest of Europe.

Re: mortgage interest rates- the rest of Europe doesn't really care about these- they do not have the same levels of home ownership as we have here, and are quite happy to continue to rent property at market rates. The concensus appears to be that ECB rates will rise by another 50 basis points by November (to 3%) and possibly by as much as another 75 or 100 basis points in 2007 (to 3.75-4.00%). Allowing for margins (I pay .75% on my tracker) that would mean mortgages *may* rise to slightly over 5%- which by Irish standards is historically low. All mortgages have been stress tested by lenders for a between a 3 and 5% range above prevalent rates- so unless people were lying on their mortgage applications- they should be able to make their repayments (albeit with a much lower disposable income). Mortgage rates of double or even triple the predictions were nothing out of the ordinary 10 or 15 years ago- the current age of cheap money is an anamoly, not an expectation that anyone can expect to last indefinitively.

The good point about rising interest rates is as people have less disposable income they will be a lot less likely to pay over the odds for property. As rates go up- landlords will be a lot less likely to meet their repayments from rental income and more likely to offload buy-to-let properties, which should also reduce property prices. All in all- a correction in prices is a reasonable expectation- by how much is pure speculation (the Economist Magazine reckon that Irish property may fall by 35-40% by the end of the decade- which sounds reasonable enough).

What has happened with house prices is an asset price bubble- related to the technology bubble of the late 1990's. When money is cheap- excess liquidity chases limited assets driving up the price of those assets. As money becomes more expensive- human nature dictates that holders of inflated assets seek to lock in the perceived value of their assets by selling their properties and converting it to the now more expensive cash. As more assets enter the market for sale, the law of supply and demand correlation shows that prices will fall (once demand has been satisfied and there is an excess present).

The only thing keeping house prices where they are at the moment is the perception of an undersupply in the marketplace. That perception is changing- and when the tide turns there will be a seismic shift in asset prices.

excellent post indeed and well explained.

Victor

whizzbang wrote:

It all boils down to if you think interest rates are going to rise.

And "can you outguess the best banking minds in the world?"

smccarrick wrote:

Yes the ECB does care about us.

On a policy basis, yes. However, given we only make up 1.5% of the Eurozone, our concerns are given a similar weighting.

noeleenred

This website shows you what banks are offering what mortgages.

http://www.mortgages.ie/rates_new.cfm?