Fixed Rate Options

jester77

I'm currently in the process of buying a house. I am undecided between 2 options:

1) 10 year fixed with an effective rate of 2.8%
OR
2) 20 year fixed with an effective rate of 3.3%

The difference in monthly payments between the 2 would be €160.

Would I be better going with shorter fixed rate and putting the €160 against the capital or securing the rate for 20 years and paying more interest.

With option 1 I would be at the mercy of the rates when the 10 years are over. With option 2 I can cancel anytime between year 11 and year 20 to avail of any better rates that may happen during that period and lock it in for a further 10-20 years from the date I cancel.

StillWaters

Are you in Ireland? I didn't think the banks offered fixed rates over that long a period. Those rates look too good to be true.

D3PO

StillWaters wrote: »

Are you in Ireland? I didn't think the banks offered fixed rates over that long a period. Those rates look too good to be true.

agree with this.

jester77

Not Ireland, this is in Germany.

D3PO

for me id bite their arm off for twenty years at 3.3% thats insanely low.

StillWaters

Wow, thats very reassuring that the German banks are predicting these historically low interest rates to continue.

Me, I'd go for the 10 year and put the surplus off the capital.

kennyb3

Just a point to remember that those figures are effectively averages. So it might be an average of around 1 - 1.5% predicted for the first 5 years (until the Eurozone recovers), plus an average of 4.5 - 5% for the second 5 years.

So with our margins here in Ireland, that could really mean being 7% after 5 years. That would screw a whole lot of people.

So personally i'd be careful of what this means for Ireland.

D3PO

StillWaters wrote: »

Wow, thats very reassuring that the German banks are predicting these historically low interest rates to continue.

Me, I'd go for the 10 year and put the surplus off the capital.

Normally part of your fixed rate contract is that you cannot pay surplus off the capital without penalty.

jester77

D3PO wrote: »

Normally part of your fixed rate contract is that you cannot pay surplus off the capital without penalty.

I can pay up to 5% a year off the capital, either monthly or as a lumpsum at the end of the year.

I also forgot to mention that the 3.3% rate for the 20 year rate is for the first 10 years, there after it will increase to 3.8%. There is a special rate that I can avail of for 10 years due to the house meeting required energy efficiency standards.

I'm thinking that the 20 fixed gives me a lot of flexibility as I can take advantage of the rates any time between year 11 and 20, whereas with the 10 year rate I am stuck with whatever the rates are at that time in finishes.

D3PO

jester77 wrote: »

I also forgot to mention that the 3.3% rate for the 20 year rate is for the first 10 years, there after it will increase to 3.8%. .

then the rate isnt 3.3% for 20 years. just saying

still a fantastic rate and with the concessions allowed aswell its still the choice id make

roro2

Yeah the 20-year sounds attractive but I'm not sure if people in Ireland know enough about the German mortgage market to give a comprehensive answer. The T&Cs on the fixed rates are totally different than here - ability to pay off capital, etc. What about if wanted to move house during the period - presumably you can transfer the fixed rate without penalty, etc? But on the face of it, you're paying an extra 0.5% in years 1-10 to have your interest rate capped at 3.8% in years 11-20, which sounds like a decent offer. You'd also need to consider the term of the mortgage, i.e. what the remaining principal in year 10 will be. If the term is 20 years for example, the principal will be much lower and you should be better able to withstand higher rates in years 11-20.

Chris_5339762

Given that most Irish banks are 5.5%+ for 3 year fixed terms, and they wont offer any more than that, I'd jump on a 20 year fixed. Even if it ended up costing you slightly more than a variable, its the security that it (probably) wont go up in that time that would be fantastic.

murphaph

@Jester I'd give starshollow (independent mortgage broker) on toytowngermany.com a shout and see what he says. He's got a great reputation for independent advice on mortgages, including using the KfW (I presume that's where your "special rate" for energy efficiency is coming from: In Germany you can part finance energy efficient properties with extra low interest loans from a state run bank, the KfW).

I'm gonna be in this boat within the next couple of years too and the German mortgage market can be confusing with all the options, including splitting the mortgage across more than one bank!

You could part finance at the fixed 20 year deal and part finance with a tracker etc. Many combinations. I'd contact a broker. If not the above named gentleman then at least the Interhyp.de crowd.

jester77

murphaph wrote: »

@Jester I'd give starshollow (independent mortgage broker) on toytowngermany.com a shout and see what he says. He's got a great reputation for independent advice on mortgages, including using the KfW (I presume that's where your "special rate" for energy efficiency is coming from: In Germany you can part finance energy efficient properties with extra low interest loans from a state run bank, the KfW).

I'm gonna be in this boat within the next couple of years too and the German mortgage market can be confusing with all the options, including splitting the mortgage across more than one bank!

You could part finance at the fixed 20 year deal and part finance with a tracker etc. Many combinations. I'd contact a broker. If not the above named gentleman then at least the Interhyp.de crowd.

Yeah, there is 2 different KFW packages in there that run for 10 years, one is at 1% and the other around 2.5% .

I was already with Interhyp and they were not so good, the guy just threw a few packages together and that was about it. I've met up with a few others and they were similar.

I had a great meeting on Monday evening with an independent broker that was recommended to me. I was with him for 4 and a half hours and he went through everything from A-Z and showed graphs of historical rates in Germany. He explained how the interest rates work based on how much capital you bring to the table. The previous guys just took everything I was bringing and created their packages on that. He ended up recommending me not to put in 10k of what I have as it was only going to save me €24 a month.

He was very German and very risk adverse so he was recommending the 20 year fixed. I'd like to pay off more capital up front but I could end up paying more interest in the long run if interest rates shoot up in 10 years.