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With talk of a looming recession, should I opt for a four-year or seven-year fixed rate when I switch mortgage providers?

Our property finance expert answers your questions


Sinead Ryan

Sinead Ryan

Sinead Ryan

Our mortgage is on a fixed rate until December 31, 2022 with a bank now exiting the market. As multiple rate hikes are on the table, I enquired with the lender to see what is the break fee if I exit to switch to a better rate (currently it’s 2.3pc). To my surprise my lender is willing to let me go. I grabbed the opportunity to make a quick move. The question I am now confronted with is should I opt for a much lower rate from a non-bank lender for a four-year period or opt for a seven-year period — it is the same rate. With talk of a recession ahead of us, say three years down the line, then my worry is that rates might go down again and in the process I might lose an even better low rate than the one which is on the market today.

Sinead replies: My crystal ball is currently undergoing maintenance, and your question is one which is causing similar angst among most mortgage holders, including this writer who is in a similar position. I don’t know is the short, if frustrating answer.

But the longer reply is nobody else does either — I am in this business long enough to understand that forecasting market movements is a mug’s game. The only decision you can make is one based on the information you have today, and your personal circumstances.

So, at the risk of steering you down further rabbit holes, my general take on fixing is it is a good thing, but not for too long.

Four years is typically long enough to shore up the benefit to be gained by the fix itself, but not so long that if life intervenes, as it so often does, you’re locked into something you cannot extract yourself from without considerable expense.

By the way, I am less surprised than you at the openness of your lender not to apply a break fee.

Most of them are happy enough, at least for now, to permit movement around and paying debt down, but it is definitely worth asking as a first step.

It is rare enough that an interest rate reduction is worth a break charge, but generally speaking if the lender has got most of its profit back from the original rate, than they’re happy enough to let you go, and be seen to be doing you a ‘favour’.

You have run your numbers, and that is all you can do. Yes, you may kick yourself a little in four years’ time, but it’s little enough that you can’t then reapply, with a better loan-to-value ratio than you have now, for whatever market exists toward the end of 2026.

For an alternative view, mortgage broker Joey Sheehan says that he’s advising as a ‘no brainer’ locking in rates for up to 25 years from 2.5pc–2.95pc. “These rates are a no brainer when compared over the long term if your LTV [loan to value ratio] is sufficiently low”.

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He adds: “house prices are continuing to rise, though most market commentators believe this growth will slow as the year progresses.

“But right now, many mortgage holders have plenty of equity in their homes and should be availing this to secure a lower rate”.

My suggestion is not to over-think it, and go with what gives you a feeling of security.

If you can afford your repayments, have no plans to sell, move or pay down the debt, then by all means lock in for seven years. But my sense of it is that four is good enough.

My wife and I each have children from a previous marriage and are making our wills. We each have a 50pc share as tenants in common in our home. We wish to give each other a life interest in our home and leave the half share and any other assets owned individually to our respective children. We would like the children of the first deceased of us to benefit from the rest of their inheritance, not withstanding that our house will hopefully be not available for many years. In taking out probate to gain access to the rest of the estate, will that immediately trigger a potential tax liability for them on our home and, if so, when will that tax become payable? 

Sinead replies: You are to be congratulated for your forethought. ‘Blended’ families are challenging enough without them falling out over inheritances and it seems like you and you wife wish to ensure that your individual offspring are all taken care of, as indeed each other. The wills are the single most important step you can take in this regard, and your solicitor will be well versed in the intricacies of your family situation, which is increasingly common these days.

Barry Cahill, director of Taxback.com, reassures on the tax point: “The legislation only taxes benefits as they fall into possession of the beneficiary and does not tax future interest in property.

“If the children of the deceased partner do not have the present right to enjoy the property, due to the surviving spouse having a life interest in it, then they don’t become beneficially entitled in possession until the surviving spouse passes away. Based on the above, no tax should be due on the death of one of both partners in respect of their home in which they both have a life interest”.

Email your questions to siryan@independent.ie

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