I have a mortgage with variable interest rate

gurucat

My mortgage is euribor + 0.33
Do you recomend me to transform it to a FIX INTEREST RATE instead of VARIABLE INTEREST RATE?
Will the interest rates go up or down after the peak oil? The economy will slow down, the prices will grow, what about the euribor?
Thanks! Wink

TreeFarmer · Heavy Crude Joined: Jun 26, 2007 Posts: 347

Just as a general statement, why would you want to pay an unknown amount for something? That is what you are doing with a variable rate, you don't know what you'll end up paying for one of the most expensive things you'll ever buy.

Personally I consider having a variable rate loan the same thing as signing a blank check.

Get a fixed. You can get one now with decent credit for under 6% I believe. Also, get a 15 year one while you are at it, 30 years will cost you too much interest.

TF

Cashmere · Light Sweet Crude Joined: Mar 27, 2008 Posts: 1971

In the old days I would have disagreed withe TreeFarmer and I would have noted that refinancing is simple and virtually automatic, so the threat of paying an exorbitant amount in the event interest rates shot up would be minimal.

I am no longer able to give that advice.

In today's, and tomorrow's, brutal credit environment, it's possible that you would not be able to get a fixed rate loan.

So consider this possibility:

Your ARM is starting to ratchet up because long term rates are going through the roof.

You go in to refi into a fixed and no bank will take you.

Then you're screwed royally.

If it was me, I'd get out of the ARM ASAP, assuming that I still could.

You want my prediction?

Interest rates will be at 10% within two to three years, and the sky is the limit as to how high they might go.
_________________
Massive Human Dieoff must occur as a result of Peak Oil. Many more than half will die. It will occur everywhere, including where you live. If you fail to recognize this, then your odds of living move toward the "going to die" group.

Ferretlover

Pops

smallpoxgirl · Moderator Joined: Nov 08, 2004 Posts: 6278

gurucat

In Spain and France there's a strike of transporters because of the price of car fuel, also taxi drivers, prices of houses are going down, and supermarkets start to be empty these days.

I became aware of the PEAK OIL, and I started thinking how to keep my economy healthy and how to prepare for the PEAK OIL.

Please help if you know about OIL PRICES, INTEREST RATES and ECONOMY...

Euribor is the inter-bank-interest-rate used in Europe.

It's the interest rate applied between banks, and it's related to the European Central Bank rate. So when the ECB increases the interest rate to the private banks, they also automatically increase the inter-bank-interest-rates. I don't know how you call it in the US.

I think it's called LIBOR in the UK (London Inter Bank Official Rate), EURIBOR means (Europe Inter Bank Official Interest Rate).

Every 6 months my bank updates the rate to the EURIBOR of the day, so this means that the rate is fix for months, and then it's updated.

I'm paying my home and now I have to return many thousands of Euros in a period of 30 years, so this is a Long Term debt.

Today I can choose to fix it for 3 years, so this would assure a fix interest rate for 2008, 2009 and 2010.

If I transform it into fix for 3 years it will be 5,90 % during 3 years.

If I keep it variable, it will stay a little but below, but it will be updated every 6 months.

Voices in the EU say the EURIBOR has to go down as it has been growing a lot.

Look at the US, it's much lower.

My question is about your forecasts for 2008, 2009 and until the summer of 2010.

What to do with my mortgage and my home? Fix the rate for 3 years? Sell my apartment and share a rental apartment with someone?

I'll start preparing the peak oil and would like to start with my main asset: my home, and my main problem: my mortgage or debt with the bank Smile

My home is worth around 30% more than the mortgage so if I sell it I will make money which I can use for buying other assets.

The peak oil problem I know since I was a kid, but I never researched as I did this week, and now I'm concerned.

YOUTUBE is full of videos and everybody agrees on it. Everybody forecasts it for now.

When the prices go up, the euribor will go up to control the prices down, so I'll have a problem, and all families in my country will face the same problem, as in my country almost every family as a long term debt for their main asset: their home.

What will the banks do with so many homes if we would be unable to pay the debts back? It's sense-less to bring to justice millions of persons.

Thanks!

gurucat

What happened with families long term debts during the first and second oil crisis?

Thanks

idomar

Gurucat, where do you live?

It is a tricky situation to be in, and by no means take what I say as gospel. The thing about EURIBOR and LIBOR is that at the moment they are not the 'Interest rate' set by the ECB or BOE. This is the rate at which the banks will lend to each other and depending upon how bad their own balance sheets are will depend upon the LIBOR/EURIBOR rate.

The ECB may drop their base rate but this may not be reflected in any payments that you make to the bank on your mortgage.

I have a few steps that I go through when I was advising people for money, and where I had insurance against things going wrong and people wanting to sue me. (Never happened but you never know)

1. How long are you planning on staying in your current house?

2. Are your circumstances likely to change in the near term, job, baby retirement etc etc, where your income will be affected positively or negatively.

once you analyse your own situation rationally, it is much easier to come to the correct decision. Then move onto the financial factors

3.Can you afford an increase in payments if rates go UP, if yes how much leeway do you have, 1% increase in payments, 10% etc etc

Then work out what the break even point is on the variable vs fixed.

Think about all the factors, do your homework, dont listen too much to the nutters on youtube, some are ok, most are morons. Finally seek professional advice if you need it, it is better to spend a couple of hundred Euros or pounds getting advice than to make a wrong decsion that could cost a hell of a lot more

WatchfulEye · Tar Sands Joined: Jun 07, 2007 Posts: 54

It's worth just clarifying that there are some significant differences to the way that mortgages are offered in Europe to the US.

European mortgages have traditionally been variable rate - following the Euribor/Libor or their predecessor +/- whatever markup the bank felt that it wanted that month. A 'long term fixed rate' mortgage means something like fixed payments for 3 years, then the interest rate would adjust and from month to month. While it is possible to get a 25 or 30 year fixed rate, these products are not generally advertised, and you'll generally only be able to get one through a broker, because so few lenders offer them.

The problem in Europe at the moment is that the ECB has been making noises about raising interest rates aggressively over the next few months to years. The interest rate trading market (i.e. mortgage banks, investment banks, etc.) expects Euribor to rise by at least 0.5% over the next 12 months, and this rate has been priced into fixed rates (which is why the 3 year fixed is a whole 1% over Euribor).

If you want to change your mortgage - remember it's your decision. If you change now, you'll be paying an extra 0.67% immediately. Euribor is highly likely to rise by another 0.5% in the next few months, but whether it will go much higher is unclear.

You need to work out how much you could afford it to rise. Could you afford a rise to, say, 8%?

You also need to consider how much it would cost to change your mortgage? If it costs €3000 to change, then how much does that cost? If your mortgage is €100000, then for 3 years, then that's equivalent to an extra 1% on the interest rate.

The other thing you need to consider is what happens after the fixed rate period. What's happened in the UK, is that lots of 'fixed rate mortgages' were sold, that switched to ARM after 2 years. The adjustable rate would be very high (typical 'standard variable rates' are about 7.3%). A lot of people assumed that they would be able to refinance after the fixed rate expired. They've had a big shock recently, because suddenly they can't refinance. The banks are wanting 30% equity in order to refinance, and are asking for arrangement fees of up to 3% of the loan amount (payable up-front, not added to the loan). If the rate after the fixed term is punitive, consider what happens if you can't refinance.

Remember the Euribor is not the US libor. The European central bank is taking a somewhat harder line on € inflation than the US is taking on $ inflation. While the US looks like it's heading for inflationary crisis and soaring interest rates, the outlook in the Eurozone isn't quite as bad.

cowuvula · Heavy Crude Joined: Apr 15, 2008 Posts: 174

Sell the house for whatever you can get for it.
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Be ready...

alokin · Intermediate Crude Joined: Aug 24, 2007 Posts: 872

I think it is a bit too quick to tell sell the house. Because the house - as long as you are able to pay the mortgage - is somewhere you can live, somewhere where you can grow your vegetables you chicken or make a small business. If you are renting you are much more restricted and you may be thrown out at any time.

We have got a flexible mortgage as well (Australia). This is really pain full. Every dollar for the bank hurts.

But I fear if we would try to refinance that we would make a bad business over time.

The only idea I have lending personally someone and pay a decent interest, but surely less than you would for the bank.

gurucat

My bank allows me to fix it at 5,90 % during 3 years. After that period it would become Euribor + 0.33 as it's now.

Now I'm paying Euribor 5.429 + 0.33 = 5.76€, and it's updated every 6 months.

Wink