Fixed vs Variable

kdouglas

Buying a house with my partner and due to close in the next week or two.

Up until now we've been thinking variable rate all the way (2.67% with EBS), but now we're hearing alot more about now is a good time to fix.

Looking at our options, 3.67% 3 Year Fixed would be our best choice.

I know that the interest rate is expected to rise in the coming year, but finding it hard to get any rough idea of how much by and when.

I'm hearing/reading predictions of a 3% rise, but realistically, it's not going to be an overnight change, it could take 3 years for that much of a rise. Or am I being optimistic here?

I am of the understanding that interest rate changes, when they occur, are more of the order of 0.25-0.5% at a time.
So based on this, I'm expecting the worst case scenario to be 0.5% every 6 months for the next 3 years. At that, a variable rate would cost us about 2.5k more in those 3 years over fixing now. However, in other calculations, of maybe 0.5% in a few months and 0.5% the following year, we end up paying several thousand less over those 3 years on variable compared to 3 year fixed.


Anyone have any thoughts on this? And preferably links to any sites/articles/research that can help us make an informed decision?

ParkRunner

I was in the same dilemma myself recently and decided to split. Both the ECB and the banks will be raising rates next year, it's practically a certainty at this stage, but how fast and how far they go up is anyone's guess really.

Splitting your mortgage might be the best way to go, with part of it left at the variable rate and part at the fixed rate for 3 years, if that is the term you want to go for. You will still have the benefit of the low variable rate for the time being on the variable part of the mortgage but you can be assured by the fact that you have locked in a portion of the mortgage for 3 years at a definite rate..my 2 cents.

Senna

Just regarding EBS, the interest rates advertised on their website is for new customer only, if you take out the mortgage and decide to fix a few weeks later you will be given a different higher rate. Also, as a new customer you can opt for 50% fixed 50% variable, but you cannot once you start your mortgage (used to do it before, not anymore).

As for interest rates, the ECB as much as said, rates wont rise in 2010. If the economies of the larger European countries continue at a stable growth, i would expect an ECB rate of 4.5% by 2013/4. But there are too many variables to predict more than a year away, inflation of only 3% could see rates hit 5% very quickly, the ECB drops rates very quickly and can raise them just as quickly (oil prices are likely to rise and make this a reality). Banks margins will rise well before 2011, IMO .5-1% by the middle of 2010.

kdouglas

Thanks for the input lads.

We spoke to EBS yesterday and decided to go with the 3 year fixed rate. Looking at the current interest rate and the history of rates, the rate can only go up and for the first three years of our mortgage we'd prefer to know exactly what we're going to be paying.

Gurgle

kdouglas wrote: »

We spoke to EBS yesterday and decided to go with the 3 year fixed rate. Looking at the current interest rate and the history of rates, the rate can only go up and for the first three years of our mortgage we'd prefer to know exactly what we're going to be paying.

Hope you had a look at their current variable rates - the special 'introductory discounted rate' isn't always an indication of who is giving the best mortgage deal.