Fixed interest rate 'offer' from the bank.

podge018

Received a letter from our mortgage provider re. fixing the interest rate on our mortgage account.

Current interest rate 4.20% - Typical APR 4.28% - Repayment €931.09

Various options offered:

Fix for 5 years - 4.19% - Typical APR 5.05% - Repayment €930.06
Fix for 3 years - 4.15% - Typical APR 4.74% - Repayment €925.93
Fix for 2 years - 4.10% - Typical APR 4.63% - Repayment €920.79

I'm pretty clueless on this sort of thing. Can anybody explain how the Typical APR increases so dramatically with a reduction in the interest rate.

What's the outlook for interest rates over the next few years?

I reckon if they're offering me this it can't be for my benefit anyway.

loyatemu

which bank? and what is your loan-to-value ratio (roughly)?

generally with fixed rates, your taking a bet against the bank. I'd generally assume the bank know more about this stuff than I do, so I'd be reluctant to fix, and certainly not for 5 years.

podge018

Bank - KBC.

LTV - 75%-ish

matrim

Those rates seem high compared to the rates offered on the KBC website

MarkAnthony

The APR has to include Fees etc, so I suspect that's why the APR increases over the shorter terms. I'm open to correction I tend to ignore APR.

I'm not sure fixed rates are a good idea at the moment, variables tend to be a lower rate and there's pressure to reduce them in Ireland. I suspect fixed rate holders will be ignored if this ever happens as they chose to fix that rate.

Michael D Not Higgins

matrim wrote: »

Those rates seem high compared to the rates offered on the KBC website

KBC have lower rates for new customers. The ones quoted by the OP are for existing customers.

the groutch

podge018 wrote: »

I reckon if they're offering me this it can't be for my benefit anyway.

that's it in a nutshell.
most banks have their variable rate below 4% already, and KBC will likely have to do the same to remain competitive.
all it takes is one rate drop and you'll be losing money for the rest of the fixed period.

loyatemu

APR is meaningless with fixed rates.

Have you considered switching? - you could get 3.7% variable or 3.35% fixed for 3 years from Ulster Bank, with the bank covering your legal fees.

MarkAnthony

My rate with KBC is sub 4% as a new (last year) punter with the current account, for comparison.

farrerg

Don't think fixing is a good idea at present, ECB still in easing mode so rates are unlikely to go up anytime soon and as other poster said, banks here have been under pressure to reduce rates

you should say you'll switch if they don't give you the same rates as on offer to new customers.
I think a 3 year fix with UB is 3.35%, big difference there

SarahMollie

Those seem high for fixed rates.

I fixed with BOI last year at 3.6% (LTV 55%) for 3 years because;

-I wanted some certainty in the first few years of my mortgage
-The 3 year rate was the better than 1,2,4,5 years so BOI must have considered it the sweet spot.

I'm planning on staying with BOI for the first 5 years as I don't want to pay back the 2% offer, but after that I'll be looking out for the best value. I probably won't fix again unless I get a very good offer.

I'd shop around if I were you.

beauf

podge018 wrote: »

...I reckon if they're offering me this it can't be for my benefit anyway.

Those aren't the best rates available. Shop around.

Some would suggest rates will fall further. That said they haven't yet. Its really a calculated gamble.

I don't think you'll be losing that much if you fix for a year, if there is a drop. Fixing is really to try and beat the variable rate. Or you want surety of repayment.

Fian

loyatemu wrote: »

which bank? and what is your loan-to-value ratio (roughly)?

generally with fixed rates, your taking a bet against the bank. I'd generally assume the bank know more about this stuff than I do, so I'd be reluctant to fix, and certainly not for 5 years.

Fixing is not really a bet against the bank. It allows the bank to securitise the income over the fixed period and also allows them to fund their loans (collectively) in the bond market without any risk of a cost of carry - they don't have to worry that they might borrow money only to find that their existing loans are paid back/refinanced so that they are sitting on idle money.

There are benefits for the bank in persuading you to fix your rate. this does not mean that this is a disadvantage for you - it is not necessarily a zero sum game. A benefit for the bank does not always mean a loss for the customer.

The bank can share some of the benefits with the customer to incentivise them to fix so that both the bank and the customer can be better off. Incentives are pretty limited at the moment since the benefits to the banks are not huge in the current markets.

Don't fix if you might be in a position to make prepayments or may want to move your mortgage/home/sell during the fixed period. And it is not likely that interest rates will rise in the near term, so no strong reason to "fix while you can." for myself i am remaining on a variable rate.

beauf

or if the fixed rate is cheaper then the variable.

MarkAnthony

beauf wrote: »

or if the fixed rate is cheaper then the variable.

Which kinda indicates where the market is going. I'd never seen a cheaper fixed than variable until recently.

newacc2015

IMO if the bank are going to push a fixed rate. Then they might be considering cutting the variable rate in the next few months or cut their fixed rate. There is a new company going to be offering mortgages when they get approvals who are promising to offer the cheapest rate.

There is no risk of the ECB hitting hikes. So I see no point fixing to avoid a non-existant interest rate hike

SeanPuddin_

You must remember that when you leave a fixed rate term you are put on SVR or fix again. Usually LTV rates only apply for new customers.

To expand on that. Ask what rates are available to someone leaving a fixed term today. Then do the maths. If the LTV discounted rates are unavailable to new customers you'll either change to SVR or pick a new fixed rate.

I did the number on Ulster Banks 3.35% fixed ages ago and found I'd be paying 12k more over the lifetime of the mortgage due to being stuck on SVR. They don't explain this to you unless you ask I found.

D_D

Just wondering if I can get your opinions on the following offer from the bank:

Currently have a LTV of 49% (according to BOI), got the mortgage 3 years ago and have been on a variable rate of 4.3%. This hasn't changed in the 3 years I have been on it, up or down. I rang BOI about getting a better rate and when the woman looked at my account, she said 'I see you have a LTV of 49% now so I can issue you better rates, just choose one and send the forms back in'.

According to the letter, they have offered me only fixed rates. These are:

1 year fixed - 3.40%
2 year fixed - 3.35%
3 year fixed - 3.45%
4 year fixed - 3.45%
5 year fixed - 4.20%

The two year fixed is the one I'm looking at. But my queries are:

1) Is it odd that the fixed rates are much lower than my variable rate which has never changed in 3 years?
2) If I choose the fix rate, what are the consequences after two years? Can I choose to go back onto a variable rate? I like the idea of overpaying once I am in a better standing financially in two years time.

Cheers!

matrim

D_D wrote: »

Just wondering if I can get your opinions on the following offer from the bank:

Currently have a LTV of 49% (according to BOI), got the mortgage 3 years ago and have been on a variable rate of 4.3%. This hasn't changed in the 3 years I have been on it, up or down. I rang BOI about getting a better rate and when the woman looked at my account, she said 'I see you have a LTV of 49% now so I can issue you better rates, just choose one and send the forms back in'.

According to the letter, they have offered me only fixed rates. These are:

1 year fixed - 3.40%
2 year fixed - 3.35%
3 year fixed - 3.45%
4 year fixed - 3.45%
5 year fixed - 4.20%

The two year fixed is the one I'm looking at. But my queries are:

1) Is it odd that the fixed rates are much lower than my variable rate which has never changed in 3 years?
2) If I choose the fix rate, what are the consequences after two years? Can I choose to go back onto a variable rate? I like the idea of overpaying once I am in a better standing financially in two years time.

Cheers!

Why not look at other banks? A quick glance at Ulster shows you may be able to get 3.5% variable or 3.25% on a 2 year fixed.

D_D

matrim wrote: »

Why not look at other banks? A quick glance at Ulster shows you may be able to get 3.5% variable or 3.25% on a 2 year fixed.

I don't think I am ready and willing to go through the hassle of switching mortgages and banks just yet. Maybe in the future, but for the minute the difference between 3.35% and 3.25% is equivalent to €6 per month.

SarahMollie

Well I suppose the new low fixed rate is because you now own more than 50% of your house so you're in a lower risk bracket.

And yes, once you finish the 2 year term, it reverts to variable unless you choose to fix again.

I've done something similar (fix for 3 years, started about 6 months ago) as this is the start of my mortgage and I wanted certainty at the outset, but I'm currently overpaying by 10% as allowed by BOI during my fixed period and hope to have a lump sum to knock off once my fixed period ends. Then I'll look again at all the options.

D_D

SarahMollie wrote: »

Well I suppose the new low fixed rate is because you now own more than 50% of your house so you're in a lower risk bracket.

And yes, once you finish the 2 year term, it reverts to variable unless you choose to fix again.

I've done something similar (fix for 3 years, started about 6 months ago) as this is the start of my mortgage and I wanted certainty at the outset, but I'm currently overpaying by 10% as allowed by BOI during my fixed period and hope to have a lump sum to knock off once my fixed period ends. Then I'll look again at all the options.

That's interesting that you're overpaying by 10% on your fixed rate mortgage. If I reduce down from 4.3% variable to 3.35% fixed, and overpay by 10%, I will be paying just under what I am paying now except I will be overpaying.

I might give them a call to see if I can overpay by 10% if I choose to fix.

Thanks.

SarahMollie

D_D wrote: »

That's interesting that you're overpaying by 10% on your fixed rate mortgage. If I reduce down from 4.3% variable to 3.35% fixed, and overpay by 10%, I will be paying just under what I am paying now except I will be overpaying.

I might give them a call to see if I can overpay by 10% if I choose to fix.

Thanks.

Yeah definitely do that.

they sent me some "did you know" pamphlet with my first interest statement and it told me about over paying in your fixed term. I rang up and gave the instruction, it was really easy, and they just sent me out confirmation in the post afterwards.

iainBB

Be very careful of fixing right now. Ulster bank for example are offering low fixed rate for 1,3, or 5 years but after that the have a very high var rate that you will default back on I think its 4.5

If your circumstances change ie. new job, reduce income, kids you will find it difficult to switch again and be stuck with the high var rate after the fixed period until the end of the mortgage term.

there is a discussion on it here also:
http://www.boards.ie/vbulletin/showthread.php?t=2057588040

D_D

iainBB wrote: »

Be very careful of fixing right now. Ulster bank for example are offering low fixed rate for 1,3, or 5 years but after that the have a very high var rate that you will default back on I think its 4.5

If your circumstances change ie. new job, reduce income, kids you will find it difficult to switch again and be stuck with the high var rate after the fixed period until the end of the mortgage term.

there is a discussion on it here also:
http://www.boards.ie/vbulletin/showthread.php?t=2057588040

Just read that thread, thanks.

So reading between the lines, fixing for two years for a short gain may end up costing me more in the long run if I am put on a higher variable rate at the end of the two years.

But with BOI, I am currently on the variable rate of 4.3%. As it is expected that the rates will reduce for the foreseeable future, do BOI pass these rate reductions onto their customers? In my first three years, I've seen no reduction (granted, no increase either).

Does anyone know what standard variable rate is currently once people are out of a fixed rate term?

SarahMollie

D_D wrote: »

Just read that thread, thanks.

So reading between the lines, fixing for two years for a short gain may end up costing me more in the long run if I am put on a higher variable rate at the end of the two years.

But with BOI, I am currently on the variable rate of 4.3%. As it is expected that the rates will reduce for the foreseeable future, do BOI pass these rate reductions onto their customers? In my first three years, I've seen no reduction (granted, no increase either).

Does anyone know what standard variable rate is currently once people are out of a fixed rate term?

This doesnt make sense to me. I've always been told that I will be on whatever the variable rate is at the time, once my fixed period is over.

It doesnt make sense for the banks to put customers exiting fixed periods punitive variables as customers have the option to move their mortgages to another lender if their rates are better.

I'd put the question straight to BOI, but I don't believe the assertion above.

Also, there isnt just one Variable Rate. There are multiple rates depending on your LTV.

D_D

SarahMollie wrote: »

This doesnt make sense to me. I've always been told that I will be on whatever the variable rate is at the time, once my fixed period is over.

It doesnt make sense for the banks to put customers exiting fixed periods punitive variables as customers have the option to move their mortgages to another lender if their rates are better.

I'd put the question straight to BOI, but I don't believe the assertion above.

Also, there isnt just one Variable Rate. There are multiple rates depending on your LTV.

Well that's what im confused about. I am currently on the standard variable rate, with an offer to go below that rate for the next two years. After two years, I'll just go back onto the standard variable rate available at that time, which looks to only reduce over the next while?

Am I missing something, or is there a list of variable rates somewhere that are completely different to the rates available at the minute?

beauf

On the one hand bank might want to lock people into a fixed rate, so they can't switch to another bank if one comes along with much lower rates in the next two years. Why the longer fixed rated aren't as good I don't know. Unless its simply the rate the bank got on the funds itself. Maybe it only has a cheap rate for 2~3yrs. Maybe they want to get maximum from the variable rate for those that don't switch. Theres a lot of ifs and maybes.

iainBB

beauf wrote: »

There is a lot of ifs and maybes.

There is a lot to consider here. and your circumstances need to be taken into account. fixing may suit you but not others.

I am at LTV of below 60% have 24 years left in mortgage rate of 3.9% var . .

got an offer of 3.25% fixed from bank we are going to wait for a few months to see what lower rates comes out and make a long term decisions then.
We have kids now and different income so much harder to move mortgage around then it was when we started.

D_D

beauf wrote: »

On the one hand bank might want to lock people into a fixed rate, so they can't switch to another bank if one comes along with much lower rates in the next two years. Why the longer fixed rated aren't as good I don't know. Unless its simply the rate the bank got on the funds itself. Maybe it only has a cheap rate for 2~3yrs. Maybe they want to get maximum from the variable rate for those that don't switch. Theres a lot of ifs and maybes.

I just rang through to the mortgage department. They confirmed that after two years of fixing, I will be able to go onto the variable rate associated with my LTV rate at that time. So if this foreseen to only drop, worst case is I go back to the rate I am currently on.

The other thing in my favour is that I am currently on the variable rate associated with an LTV >60% and <80%. I technically should be on the variable rate associated with <60%. So in two years time, after the period of fixing the rate, the variable rate could be </= 3.9%, the variable rate associated to a LTV <60%.

I think I'll go for it.

iainBB

D_D wrote: »

I just rang through to the mortgage department. They confirmed that after two years of fixing, I will be able to go onto the variable rate associated with my LTV rate at that time. So if this foreseen to only drop, worst case is I go back to the rate I am currently on.

The other thing in my favour is that I am currently on the variable rate associated with an LTV >60% and <80%. I technically should be on the variable rate associated with <60%. So in two years time, after the period of fixing the rate, the variable rate could be </= 3.9%, the variable rate associated to a LTV <60%.

I think I'll go for it.

Hold on a few months mate. There is no rush any time soon when you dealing with 30 year investment a a few months won't make much of a difference.