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New Mortgage question

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  • 21-09-2011 3:50pm
    #1
    springhill464
    Closed Accounts Posts: 2 ✭


    Hi guys
    I'm applying for a first time mortgage. I an unsure which option to choose from, fixed rate for 2 or 5 years? Can someone please advise which is the best option at the moment.

    5 Year Fixed Rate 3.70% APR 5.0%
    2 Year fixed Rate 3.10% APR 5.5%

    Many thanks


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    #2
    ResearchWill
    Closed Accounts Posts: 4,111 ✭✭✭ResearchWill


    springhill464 wrote: »
    Hi guys
    I'm applying for a first time mortgage. I an unsure which option to choose from, fixed rate for 2 or 5 years? Can someone please advise which is the best option at the moment.

    5 Year Fixed Rate 3.70% APR 5.0%
    2 Year fixed Rate 3.10% APR 5.5%

    Many thanks

    Are you sure those APR rates are correct, I usually thought APR for a higher interest rate would be higher.

    If what you say above is correct and you can fix for 2 years at 5.5% APR or 5 years at 5% APR I would go for 5 years. On the other hand if it is the other way around as I suspect the question is, are you happy to pay the extra to have certainty for 5 years instead of 2.


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    #3
    springhill464
    Closed Accounts Posts: 2 ✭springhill464


    Hi
    Just double checked and the APR rate is 5.0% for 5 years and 5.5% for 2yrs


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    #4
    ResearchWill
    Closed Accounts Posts: 4,111 ✭✭✭ResearchWill


    springhill464 wrote: »
    Hi
    Just double checked and the APR rate is 5.0% for 5 years and 5.5% for 2yrs

    Then I would fix for 5 years.


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    #5
    f9710145
    Registered Users Posts: 52 ✭✭f9710145


    I presume these are both with PTSB, in which case you need to have an LTV of 50% or less.

    The difference in APR is to do with the variable rate of the lender. With x years fixed you get the stated rate for x years and then revert to the variable rate. So the APR is calculated over the full term of the mortgage, with the variable bit coming from the current variable rate.

    So for the 3.7 one you get 5 yrs at 3.7 and then the remaining years at a high variable rate (currently about 5.6% I think) which averages at 5.0

    The 3.1 one gets you 2 years at 3.1% and the rest at the variable rate again.

    The higher APR is because if the variable rate remains the same as it is now you get (assuming 20yr term) 2yrs at 3.1 and 18yrs at 5.6. With the 5yr fixed you get 5yrs at 3.7 but only 15yrs at 5.6, so the average is lower.

    Of course the flaw in looking at apr with fixed mortgages is that you don't know what way the variable will go over the term. It's widely accepted that it won't be going south for quite a while but in 10yrs time who knows. In this case since both rates are with the same lender the 5 yr fixed would make more sense as the variable will be the same whichever one you choose. If they were with different lenders it could be very different as it would depend on how the variable rates fluctuated over the term.

    Hope that makes sense.


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    #6
    D3PO
    Registered Users Posts: 7,879 ✭✭✭D3PO


    f9710145 wrote: »
    I It's widely accepted that it won't be going south for quite a while .


    widely accepted by who ? Every indication is that ECB base rate will drop again Q1 next year once Trichet leaves his position.

    which honestly in the context of your post has really no bearing anyway as rates are so low that over the medium to long term they are clearly going to rise to a normal level from the current historic lows.


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    #7
    ResearchWill
    Closed Accounts Posts: 4,111 ✭✭✭ResearchWill


    D3PO wrote: »
    widely accepted by who ? Every indication is that ECB base rate will drop again Q1 next year once Trichet leaves his position.

    which honestly in the context of your post has really no bearing anyway as rates are so low that over the medium to long term they are clearly going to rise to a normal level from the current historic lows.

    From everything I have read, I agree with you D3PO, all indications are at least one drop coming, with no indication of rises for at least a year if not more. But of course that may not effect the rates charged by banks, as they need every piece of margin to make profit.


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    #8
    f9710145
    Registered Users Posts: 52 ✭✭f9710145


    Well, by going south I meant a significant drop, also not sure if lenders will decrease the rates just cos the ecb does, but hopefully they will. Variable rates are still lower than they were 10 years ago when I started out so I didn't think they were expected to drop significantly again, but I stand corrected. However in the context of the original poster's question it's irrelevant anyway as both rates are with the same lender so whatever the rate is, be it high or low, it'll be the same rate.


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