Mortgage Interest Dilemma!!!

R

Rocky1500

Guest
Hi, my wife and I just started building a house (first time buyers 2 young kids) and are currently drawing down a €300,000 mortgage to pay for the build etc. My question is that I'm not sure whether to stick with the current var. rate with the EBS of 2.5% or to fix for 10 years at 4.5%?? Doing the maths its going to cost ~€400 pm extra to fix. Prob with fixing is I'm loosing flexibility of paying of early (if I can) and obviously the extra cost if rates dont change too much. I was thinking an alternative would be too take this extra 400 and save it ?? that way if rates did go up significantly I could use this to help. I'm just wondering if anyone could give advice on whether this would be a good idea and if so what kind of savings interest rate would make sense? I see EBS are offering 4.5% on a Family savings account... Thanks..
 
It does not sound like you need to fix so I would suggest not fixing and either overpaying or saving the additional €400pm (probably the former if you intend the savings to cover the mortgage in future - you will save quite a bit of interest over the long term, basically you will be repaying capital now instead of repaying extra interest if the rates rise). As it is a variable rate rather than a tracker it is at the bank's discretion what the rate will be set to and when a rise may occur. Generally it will follow the market but not always.
 
You could split the mortgage, put say 50% fixed and 50% variable. Then you can pay down the variable part as you wish and yet still get the security of the fixed part.

Otherwise you can start overpaying the mortgage immediately at €400 per month taking advantage of current low rates but shielding yourself from the shock of higher repayments in the future.

If you are thinking of putting it on deposit, make sure you are disciplined and pay the savings off the mortgage. With two young kids there are unforeseen expenses that may see you dip into savings for non mortgage reasons.

Only fix if interest rate increases will overstretch you, don't try and time the market.

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wohoo 1000 posts - it's the little things that make you happiest!
 
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Had to make a similar decision with an EBS mortgage this week. Decided to fix for 5 years at 3.99%.

We had also considered fixing 90% and having 10% variable to leave us the option of paying off early if we had chance.

2.5 variable is a good rate, but (also have 2 kids) we felt personally that the security of fixed payments were better than always having to keep an eye on where interest rates were going. The way we looked at it is a 1% increase on the variable would bring us up near the fixed rate anyway, so why not.

There are websites that list previous interest rates from the past 20 or 30 years. Rates as high as 7 and 8% happened a few times before. I dont have the links but hopefully someone else might. Stress test yourself on those just in case. Could be food for thought.

Best of luck with making the decision anyway - it's not an easy one!
 
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