Time to fix mortgage? Economic point of view

radioactiveman

Hi!
Ok this looks like a finance type question but I am interested in an economic point of view since this is the real nub of the issue.

My hunch is that when things take off again there could be high inflation due to increasing energy/oil costs, which will drive up interest rates.

If oil was at 100$ a barrel due to actual increased demand from China and India (which I think it is rather than speculation which is CFDs and not actual buying), then if demand actually increases beyond the 100$ level say 5 years from now, we could see rates rise significantly.

The question is how much would they go up in this situation?

And whether it would still be worth it to fix, because before rates go above the fixed rate obviously you will have paid well. Now (in deflationary times) seems to be the time to make that decision.

thanks!

Saabdub

I was wondering the same thing (see here) http://www.boards.ie/vbulletin/showthread.php?p=60142445#post60142445
One view is that interest rates won't start going up until late 2010. When I get a chance I'm going to do a spreadsheet comparing the costs of fixing now for 5 years with a gradual rise in rates from next summer.

eamonnm79

Saabdub wrote: »

I was wondering the same thing (see here) http://www.boards.ie/vbulletin/showthread.php?p=60142445#post60142445
One view is that interest rates won't start going up until late 2010. When I get a chance I'm going to do a spreadsheet comparing the costs of fixing now for 5 years with a gradual rise in rates from next summer.

dont forgrt to find out the switching costs with your bank. Also another good reason oil prices could rise is that supply is shrinking.

Hasschu

The relationship of the price of oil to interest rates is a rather complicated issue. Interest rates are historically low now and it would be safe to say they will revert to the mean which will be higher. The relationship of the cost of long term money and short term money also varies over time. Around 1981-82 short term money reached 19% in some parts of the developed world while longer term money 5-30 years could be had for as low as 11%. Watch government bond yields for 5 yr 10 yr and 20 yr and track them to see how they compare with prime short term rates. Remember that governments will go from anxiety and panic to get the economy moving to fear of overstimulating the economy and causing runaway inflation. The turnaround will be sudden and unexpected by most people, economists included. I look at how much risk I have on the interest rate upside and can I afford it. If I can handle 3 times today's variable rate I would risk staying on variable rates until the market started to move against me. If I see difficulty in handling higher variable rates I would switch in the next couple of months. The world is uncertain but some things you can control. The room for downward movement is much less than the room for interest rates to move up. I am not in the banking business but I have had some experience over a numbr of economic cycles.

zod

big economies are printing money ... ergo inflation

I'm fixing now and for 10 years (aib)

newman10

zod wrote: »

big economies are printing money ... ergo inflation

I'm fixing now and for 10 years (aib)

What Rate ????

nesf

newman10 wrote: »

What Rate ????

AIB's 10 year fixed rate is 5.21%.

Details here: http://www.aib.ie/personal/mortgages/New-Mortgage-Interest-Rates

seamus

Coming up as 4.41% here.

Which is better than the rate I'm on now (but I get to get out of it in January)

MoominPapa

AIB are way better than BOI - 4.75 over 5 years - no 10 year offer

nesf

seamus wrote: »

Coming up as 4.41% here.

Which is better than the rate I'm on now (but I get to get out of it in January)

Bah sorry, was looking at the wrong selection of rates. I blame the time of night!