PERSONAL FINANCE:Your queries answered

Q

My wife and I are both retired, with a significant investment in Irish Permanent shares. If Irish Life & Permanent is split in two – which is what everyone says is likely to happen – what happens to Irish Permanent shareholders? Will our shares – which we own for quite a while now – become worthless in a split scenario?

– MR A P, Galway

A

There’s no reason why the shares should become worthless simply by virtue of the company being split – should that eventually happen. We have been this way before. Remember Eircom?

If the company is split, your shareholding also splits. The Revenue will assign a value to each portion of your shareholding. For instance, it might decide that the life business accounts for 60 per cent of the value of the shares and the banking operation the balance of 40 per cent. Obviously the figures above are purely for illustrative purposes. I have no idea how any eventual split would be viewed by Revenue.

The only scenario where the shares would become worthless would be if the institution becomes insolvent – like Anglo Irish Bank – and there is no suggestion that that will happen.

Of course, as those original holders of Telecom Éireann shares know, the fact that the shareholding is split can have adverse effects. The nature of the deal with Vodafone at that time means all Eircom shareholders are still in the red on that side of the split in the former State monopoly.

How best can I choose a fixed-rate?

Q

At the moment, I have a variable rate mortgage with National Irish Bank, which is charging an interest rate of 3.5 per cent. I am thinking of changing to a fixed rate mortgage. I have been offered a number of rates:

Two-year fixed at 3.7 per cent;

Three-year fixed 3.9 per cent;

Five-year fixed at 4.4 per cent;

10-year fixed at 4.99 per cent.

Can you give me any information that may help me to make my mind up? Do you think the ECB will raise interest rates soon?

– Mr F M, Email

A

A mortgage is likely to be the largest single financial exposure any of us has, making the correct decision all the more important.

The truth, however, is that there is no certainty on interest rate movements. A year ago, the assumption was that the European Central Bank would raise rates in 2010. The financial crisis ensured that that did not happen and, entering this year, the general view was that rates would rise no sooner than in the fourth quarter and more likely not until 2012 – and that when they did so, they would increase slowly. However, just this week, a strong inflation figure for the euro zone was enough to have some analysts forecasting an earlier move. That still seems unlikely.

Aside from the craziness of the bubble years, bank actuaries rarely get their sums wrong and banks tend to gain slightly from fixed rates. However, in volatile times, a fixed rate does offer you the security of knowing your mortgage payments into the future. If this security is important to you, fix, although I would stay away from betting on rates 10-years out.

This column is a reader service and is not intended to replace professional advice. No personal correspondence will be entered into.

Please send your queries to Dominic Coyle, Q&A, The Irish Times, 24-28 Tara Street, Dublin 2. E-mail: dcoyle@ irishtimes.com