Have fixed rate letter from BOI in my hand, should I fix?

Keea

Hi,

Just wondering what opinions are after today's news by AIB. I have a 30 year mortgage with BOI. Currently on variable rate of 2.6% paying 954 euro monthly. Asked them to post me out fixed rate options last week. Have the letter here. Been offered 2 year fixed rate of 3.15% - repayment 1025 euro monthly. 3 year fixed rate 3.6% - 1083 euro monthly. 5 year fixed rate 4.25%. 1171 euro monthly. Am thinking of fixing it for 2 years. Any opinions? Do you think BOI will follow AIB in putting up rates soon?

irlrobins

I think BOI will be quick to follow AIB alright, tomorrow's announcement about Nama might give a clue as to how soon. But interests rates are certain to rise by this summer. I'd fix for 2 years at a minimum, but if you gamble on the interest rates rising by more than 1% from your current rate in the near future, than perhaps fixing for 3 years would suit. But it's harder to predict what will happen in the next 3 years.

TheInquisitor

I would fix it since interest rates are now on the way up. By how much is the gamble. 2 years anyway. Wouldnt go 5

Senna

The 5yr at 4.25% is quite a good offer to an existing customer. I cant see how rates wont be above 4% within 2 years, so of all the rates, i'd expect the longer terms to pay off best.
Its a gamble, if i was offered those and had no intention of moving house within 5 years, i'd jump on it now.

Agent J

Rates are only going one way. This almost certainly a dead cert.

Your only question is by how much and how fast.

Current is 2.6% Add 0.5 to that immediatly( They will follow AIB within the next few months).

Thats to 3.1 which is the 2 year fixed

Will it go up a further 1.15% in 5 years?

ECB will surely go up at least 0.5 within the next year or 18 months at the outside.

So thats 0.65% left within 3.5 years.

Personal opinion of someone on a internet forum? . Id fix for 5 assuming its within your price range. Primarily for peace of mind.

Coyote

The thing to remember with fixing a rate is that the bank have loads of people whose job it is to work out what the chances of a rate rise in a time period.
(this is a example don't take the figures literally) lets say your rate is 2.5% and you fix at 3% for 2 years(24 months).
the first 8 months you pay 3% but rates are at 2.5% your paying 0.5% above variable rate = it costs more.
month 9 to 16 rates are 3% your paying the same as everyone else =no lose no savings.
month 17 to 24 rates go to 3.5% and your paying 3% then your paying less for the last 8 months.

but over 24 months you will have payed the same as everyone who was on a variable rate. yes you can save money if you time it better than the people at the bank who do it for a living, or if something strange happens like the credit crunch happens. but most of the time a fixed rate will just give you peace of mind that you know what your repayments will be, and banks charge for that.

after all that times are weird and the banks rates are lower than they should be given the cost of borrowing the money for them. and getting you to pay a little bit over the variable rate now might be worth more to them in the short term than losing a small amount over the full term of the fixed rate. as they get more cash in today and only lose a small bit 2/5 years in the future and now is when they need the cash most.

seamus

Agent J wrote: »

Will it go up a further 1.15% in 5 years?

If I asked someone back in March 2005 where they thought interest rates would be in March 2010, they would almost certainly have said "up", especially given the inflation figures at the time.

And they did go up, until the world's economy crashed.

My point here is not that interest rates won't be higher in 5 years time (as they almost certainly will) but that 5 years is a surprisingly long time to forecast these things. Most of us could say with certainty that interest rates will be 1% higher within the next 18 months. But will it be 1.65% higher in the next 5 years? Five years leaves time for rates to actually go back down as well as up.

Coyote's point also needs to be considered. Having a fixed rate which is lower than std variable is no use to you if it only becomes lower in the last few months of your fixed rate. You need to "win" on the gamble for a significant amount of your fixed period and not just part of it.

I do think the OP has a good offer on his hands though. There is a .5% rise imminent with BOI. Which means that if he fixes for 2 years, he's only barely paying more than the standard variable, but is protected from further rate rises for two years.
The three year is also a pretty good offer as there's a reasonable chance that rates will rise by 1% within 18 months.

After that I think there's more of a gamble in it and you could go either way with the 5-year fixed, but it's not a bad rate. Even if you pick the 5-year fixed and lose out, you're not paying through the nose and you have peace of mind for 5 years.

Keea

Thanks for all your replies.
I'm veering towards the middle option and fixing for 3 years at 3.6%. I'm just thinking into the future....when I come off that rate, there could be a big jump to another fixed rate or variable rate but I can't think like that for now. Does anyone have any feelings on how far variable rates will go up. If BOI add 1.5% to their variable rate over a period of time and the ECB start raising rates, it could be over 5%!

seamus

Keea wrote: »

Thanks for all your replies.
I'm veering towards the middle option and fixing for 3 years at 3.6%. I'm just thinking into the future....when I come off that rate, there could be a big jump to another fixed rate or variable rate but I can't think like that for now. Does anyone have any feelings on how far variable rates will go up. If BOI add 1.5% to their variable rate over a period of time and the ECB start raising rates, it could be over 5%!

You can see historic ECB rates here:
http://www.ecb.int/stats/monetary/rates/html/index.en.html

The highest the ECB rate has ever been is 4.75%. Now granted, that's over a relatively short period of measurement, but worst case scenario is that 4.75% + .75%, or 5.5%.

That would be standard rates of 6.5% - 8%.

In reality you'll only see such high rates if the eurozone is experiencing high inflation and even then, they'll only be maintained for short periods (one quarter or less), going by historical data.

The average ECB rate though is 3.15%, so you can expect the rate to tend towards that in the medium-long term, which translates to standard variable rates of 4.5%-5.5%

Keea

Thanks Seamus, that's interesting. I suppose I would like the peace of mind each month that my repayment is staying the same, especially in the current environment where all the talk is of rates going up...and up....and up... I'll make a decision in next day or two because my fixed rate offer expires next Tuesday - 6th April !

ArraMusha

I'd also go 2 at least.

Another thing to consider is if you intent to sell-up in the future there can be tough exit fees to get out of a fixed rate. Depends on your circumstances and the term and conditions.

Keea

Have no intention of selling up anyway but I know circumstances can change. I just wonder if I fix, when the fixed rate is up, if I dont take another fixed rate, do I automatically go onto the bank's variable rate at that time. Better ring the bank and ask I suppose.

seamus

Keea wrote: »

Have no intention of selling up anyway but I know circumstances can change. I just wonder if I fix, when the fixed rate is up, if I dont take another fixed rate, do I automatically go onto the bank's variable rate at that time. Better ring the bank and ask I suppose.

You will go back onto whatever terms you're on at the moment, presumably a standard variable rate. So you are bumped onto whatever the variable rate is at that time, be it up or down from your fixed rate.
If you have a tracker at present, you will go back onto a tracker rate.

Relevant info here:
http://www.newstalk.ie/news/news-headlines/boi-warns-its-mortgage-rates-will-rise/

BOI will raise standard variables rate shortly. AIB and PTSB raised theirs by 0.5%, so no reason to expect BOI to do anything less.

Keea

Hi,
I've just about made up my mind to go for the 2 year fixed rate at 3.15%. Before I commit, just wondering about something else. I am at present on a discounted variable rate with BOI at 2.6% (discounted because its a new mortgage as of last year......yes, I know I should have fixed back then !!). Anyhow the standard variable rate with BOI is 2.7%. Do you think when BOI does raise rates that it will raise the margins by the same amount on both these variable rates. ie: maybe they will raise the standard variable for existing customers by 0.5% but only raise the variable rate for new customers by 0.3% and if so, does that mean my variable rate would only go up by 0.3% because I'm on the new customer variable rate (and not the existing variable rate). Confusing I know. What are opinions?

Freddie59

Just saw this thread now. We saw interest rates of 14%+ in the 80s. Nothing's impossible. This country's in the toilet. We've been conned by the Government, along with their hangers-on. Fixed is the WTG.