This December, my wife and I will be five years into a €230,000 30-year mortgage with the Bank of Ireland. Currently, we are 11 months away from a fixed two-year period, at a rate of 2.9 percent. Our monthly installments are €959, not including mortgage protection, etc.
Since you bought the house, the loan-to-value rate has changed from about 68 percent to 45 percent. We were second time buyers. I’m in my early 40s, my wife is almost 30, and we both have full-time, permanent jobs.
Since it seems that interest rates are likely to rise in the next few years, if we were to contact the bank before the end of the two-year fixed period, is it possible to negotiate a longer term at their current rates? Is improving the loan-to-value ratio of any benefit to us in this regard?
If not, how long before the end of the fixed two-year period must we contact a broker, with a view to changing mortgage providers?
The timing of the recent interest rate hike has been unfortunate for those who have been stuck in a fixed interest rate. The nature of fixed rates is that the bank will usually charge a termination fee to end such an agreement early. Some exceptions have been made recently, notably by KBC in relation to those who have approached them seeking to break fixed rates ahead of the transfer of most of their mortgage business to the Bank of Ireland.
With fixed rates accounting for the bulk of new arrangements in recent years, it’s a problem many homeowners have found themselves in. Clearly, it’s not an immediate problem as those owners will pay based on the very attractive rates they set. within. And many who have subscribed to such rates in recent times may well see the current volatility as the European Central Bank and others seek to fight rising inflation.
The governor of the French central bank, speaking to our economics correspondent in recent days, suggested that inflation could peak in the first half of the year, but that it could be two or three years before the inflation rate of EU back down to 2 percent target So if you have a 10-year fixed rate, things may have settled down by the time your current fixed-rate agreement ends.
At the rate of two years, obviously everything is a bit more immediate and it seems inevitable that you will be left with some more difficult options.
The choice seems strange. At this time last year, interest rates were already starting to rise sharply and most of the advice I was seeing in the market was to lock in a longer term than you could have had until now. That was helped by new products from several lenders that allowed people in Ireland to lock in mortgage rates for up to 30 years. A two-year fix was certainly a strange decision.
Having said that, there is nothing to stop you from asking your bank if it would be possible to break your current fixed rate agreement to stay with them for a longer period. I’d be surprised if they didn’t charge a break fee, but if you don’t ask, you’ll never know. And asking does not commit you to any particular action.
Bank of Ireland, of course, is one of the banks that has yet to raise its fixed rates. It is unlikely to last, but as long as it lasts, it means there is something of value to be had.
Even with a interrupt fee, it’s worth looking at the numbers yourself or with an adviser as to whether it makes sense to pay the interrupt fee to lock in a rate that already predates the ECB’s rate hike process starting in July. Rates have risen two percentage points since then.
AIB has already increased its rates by half a point, but more are definitely to come.
If you decide not to activate the interruption fee and instead consider switching the loan to another provider, you’re right that it will take some time. The information from the banks is that it currently takes around two months to organize a change once you decide to move. So you would need your broker to check maybe three months from now. Of course, switching to a different rate at your current bank can be done in a flash.
loan to value
And if you’re seriously thinking of switching if you can’t persuade your bank to agree on the rest fee, there’s no harm in telling them: it might sharpen minds.
In terms of your enhanced loan-to-value, a recent rate check suggested to me that it would not make a material difference to you. In fact, if anything, counterintuitively, it seems to be working against you.
It’s true that the most favorable rates tend to be available to those who borrow below 80 percent of the property’s value, and even more so below 60 percent. However, looking briefly at bonkers.ie, it appears that better rates are offered for loans of less than 60 per cent of property value, from around 2.6 per cent for a two-year green loan to 2.7 per cent. one hundred to five years. . If you don’t meet the green criteria, the rate appears to be 3 percent over any period from three to 10 years.
For loans between 61 and 80 percent of the value of the property, the green rates are around 2.2-2.25 percent and the ordinary ones between 2.5 and 2.55 percent.
That suggests there isn’t a lot of savings out there for you.