Which rate to choose.

minnnie

I know no one can tell what will happen in the future regarding rates but i would like to know what others would do in this situation.

We are in the middle of a house build. 38k left to complete. Mortgage approved of 55k.

We need to decide if we want to fix it or go variable. This is what i am unsure of. The difference seems to small that for the sake of 20 euro per month i am inclined to go for the fixed rate.

This is what it is on 55k assuming we took the whole lot. We did not ask for 55k. We do not need it but we have left it at that in case something crops up in the final stages that we do but i would hope not.
2 year fixed - Rate of 4.61% - Repayments Monthly EUR351
Variable <=50% LTV - Rate 3.95% - Repayments Monthly EUR332

On the other hand we can afford to let the interest rates go up a bit without it causing us financial problems. Currently with rent we pay out 1000 per month. There are no outstanding loans.

We will want to pay extra on the mortgage but also for the first while we would like a breather from the 1000 per month and live a little while with out young children before the oldest starts school, it has been a tight few years of constant saving. Would also like to spend some of the left over income to put into an extra's on the interior of the house. I am thinking if we do go fixed that we continue saving a few hundred and leave it in savings to put off the mortgage once we get out of fixed.

Which would you choose? Fixed or variable.

Thank you.

roro2

Variable. Based on:

minnnie wrote: »

On the other hand we can afford to let the interest rates go up a bit without it causing us financial problems. Currently with rent we pay out 1000 per month...

We will want to pay extra on the mortgage...

I am thinking if we do go fixed that we continue saving a few hundred and leave it in savings to put off the mortgage once we get out of fixed.

It doesn't make sense to want to overpay a mortgage but take a fixed rate - the net savings rate you'd get would be less than half the mortgage interest rate you'd be paying. With that much surplus cash and small repayments, you do not need to pay extra for the the certainty of a fixed repayment.

Even without speculating about future interest rates, that 2-year fixed rate is exceptionally poor value when you can access the low-LTV 3.95% rate. Any ECB-led interest rate increases are only a possibility towards the end of the 2 years and, even allowing for EBS/AIB to increase their variable rates without ECB increases, it is highly unlikely that the average variable rate you will pay over 2 years will be close to the 4.61%.

I can't see any reason for you to take a fixed rate, particularly a short-term fixed rate.

minnnie

If take the fixed rate we would not be overpaying until out of the fixed. We would be putting it aside.
Bear in mind our entire savings are almost gone bust from building the house without a mortgage to this stage. That needs to be built back up also.

minnnie

My other thinking is this and i don't know if this is a good idea seeing as i know ZERO about interest rates.

I say in my head that i don't think interest rates could go over 8% in two years. I do not know of course, i am thinking surely they wouldn't?

The monthly repayments if interest rates went to 8% would be EUR460
Take the variable but in my mind 'pretend' the rates are 8% and pay the EUR460 from the beginning.
If the rates go up we won't feel it as we will be used to paying that from day one by 'pretending that's what the current rate/repayment is'.
If they stay the same it would would save near 10k on the mortgage and paid off 7 years earlier?

Stupid thinking to go with?

halkar

Personally I would go with variable. 500€ is better in your pocket than banks. I don't think the interest rates are going anywhere north next few years.