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The money doctor: Fixed-rate mortgages

Q I have a standard variable rate (SVR) AIB Bank mortgage and have been offered a fixed rate. I am not sure if I should leave it on the variable rate or which fixed rate to opt for -- three, four or five year. Can you help please?

Catherine, Greystones

A The recent increase on AIB's standard variable rate of 0.34pc to 2.95pc caused a few jitters, though in comparison to some of its competitors' rates (Permanent TSB's 4.15pc for example) the increase was not too painful.

Bear in mind that of €27bn in mortgage lending, 60pc are tracker mortgages -- withdrawn since November 2008 -- and 10pc fixed rates, leaving the SVR as the only rate the bank can increase.

AIB's chief executive Colm Doherty has flagged that there may be further rises over the next few months, hence your dilemma.

The answer as to whether you should fix or not will depend on your particular situation and your attitude to risk.

If you have good job security and like the idea of having steady repayments for the next three years then their three-year fixed at 3.65pc is a relatively easy decision to make.

Even their 4.25pc five-year fixed rate is attractive compared to that Permanent TSB SVR rate.

By opting for these rates now though, you will miss out on the current cheaper AIB SVR rate until such time as the next increases take effect.

But you have security of repayment. For those on higher SVRs, it may make sense now to fix -- Bank of Scotland Ireland's current SVR is 5.9pc.


Q I have a credit card debt of €5,000 but am emigrating to Australia later this month.

My intention is to come back in about 10 years. What will happen if I don't pay this card debt ?

Richard, Naas

A Disregarding the morality aspect of your intention, you will find it extremely difficult to obtain credit from any lender on your return.

The Irish Credit Bureau in Clonskeagh, Dublin 14, is made up of more than 95 financial institutional members who record every credit transaction and take note of every missed or late payment and judgments of their customers. For one missed payment, it stays on the record for five years, but with judgments, the record is there for life.

All lenders, who now include the bigger credit unions, check with the ICB when they receive loan or credit card applications. So in your case your credit card company will inevitably place a judgment against you and that will be there waiting for you on your return.

For anyone who wants to check their own credit history, you can send €6 to ICB Newstead, Clonskeagh, D14 giving details of your address(es) and date of birth. It takes about three to four days for the response. Last word? Face up to your responsibilities.

John Lowe, is a Fellow of the Institute of Bankers, founder and managing director of Money Doctor, which is regulated by the Financial Regulator, and author of the best-selling The Money Doctor Finance Annual 2010 and 50 Ways to Wealth (both Gill & Macmillan). He is available for seminars and consultations: email seminars@money doctor.ie or consultation@moneydoctor.ie or call 01 278 5555