Are 5 year fixed mortgage rates attractive?

EBS, permanent tsb, ICS, AIB and KBC have all increased their variable mortgage interest rates in recent weeks.  Variable rates at the moment are anywhere between 3.00% to 4.65% depending on the ratio of the mortgage amount to the value of the related property (LTV%).

Figures from the European Mortgage Federation state that 84% of mortgage issued in Ireland in the 3rd and 4th quarter of 2009 were variable. This seems astounding. 

Irish banks are increasing their variable rates because:-

1. they can

2. to compensate for the higher costs of bank borrowing compared with the larger European banks

3. to subsidise the losses the banks are making on tracker rate mortgages linked with ECB.

Below is a list of some 5 year fixed (new business – homeloan) rates rates available today:

ICS     4.94%
AIB     4.39%
Haven    4.25%
KBC    4.50%
PTSB<50LTV         3.70%

Good Financial Housekeeping suggests that consumers give some thought to 5 year fixed rates. Irish banks have increased their rates substantially without any change in the ECB rate. Although the ECB rate may not rise before early 2012 (according to some), add 2% now to your variable rate and then look again at the 5 year fixed rates above. Of course nothing is ever certain and rates of course may not rise that much. This exercise will however help to test your attitude to risk. In the past fixed rates have provided an insurance against rate increases, but often the variable rate turns out to be better value over a longer term. But nobody knows this at the time. The fear of substantial payment increases on large mortgages possibly secured on homes in negative equity is not for the fainthearted.

As usual, Good Financial Housekeeping suggests that mortgage holders seek independent advice from experienced professionals to help make appropriate decisions in relation to fixed rates.

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