30 v 20 year mortage Term.

[LS400]

Very few I would say,

Life just gets in the way. I would only aim for the shortest possible time.

When you have to knuckle down as Leper did when the banks would not move on his 20 year loan, he did it. If there was an easier way out, he would have taken it, and cost him more in the long run.

 

[DK123]

Definately long term 30 years minimum because inflation will reduce and erode the repayments as the years go by.

Hi again all.I still think nobody is considering that old monster called inflation which we can use to our advantage in buying houses.Can any of our "experts" comment?.I bought my first house in 1976.the morgage was 7k. If for example i had taken a 50 year morgage [exaggerated to clarify my point]the repayments today eroded by inflation would be around 8 euros per week and the house which cost 10,000 then is worth 150,000 today. and i would not have cramped my lifestyle by overpaying etc.

 

[RedOnion]

Hi again all.I still think nobody is considering that old monster called inflation which we can use to our advantage in buying houses.Can any of our "experts" comment?.I bought my first house in 1976.the morgage was 7k. If for example i had taken a 50 year morgage [exaggerated to clarify my point]the repayments today eroded by inflation would be around 8 euros per week and the house which cost 10,000 then is worth 150,000 today. and i would not have cramped my lifestyle by overpaying etc.

Yes, if course it makes sense. Because house price inflation since 1976 will be repeated for the next 30 years, and will always be higher than mortgage interest rates.....

To be honest, it's the kind of nonsense you often here repeated, but doesn't stand up to any challenge.

 

[EasilyAmused]

50 year morgage

Why not do a total David Drumm on it and choose a 500 year mortgage?
Then you’d stop paying when your 15% into the term.

 

[EasilyAmused]

Hi again all.I still think nobody is considering that old monster called inflation

What is inflation at the moment?
We had negative inflation only a few year ago.
We’d monstrous inflation in the 80ies.

 

[DK123]

What is inflation at the moment?
We had negative inflation only a few year ago.
We’d monstrous inflation in the 80ies.

I think its about 2 percent at the moment but im sure it will raise its ugly head further in the future.

 

[EasilyAmused]

The EU under German influence want it hovering around the 2% all the time.

 

[DK123]

Yes, if course it makes sense. Because house price inflation since 1976 will be related for the next 30 years, and will always be higher than mortgage interest rates.....

To be honest, it's the kind of nonsense you often here repeated, but doesn't stand up to any challenge.

Hi, With regard to inflation i believe strongly in the saying."i we look back at the past we can see glimmers of the future"Of course this is only in my humble opinion and i know that no one can predict the future.

 

[RedOnion]

Hi, With regard to inflation i believe strongly in the saying."i we look back at the past we can see glimmers of the future"Of course this is only in my humble opinion and i know that no one can predict the future.

Of course. But interest rates will stay at or below 2%, regardless of inflation?

The importance of looking at interest rate & inflation together:
To put number on it. My parents got their mortgage around 1975 / 76. It was fixed rate for the full term. I believe it was around 14%.
Lets assume 8k Euro.

Over 20 years, repayments EUR 99.48 per month. Total repayments 23,875
Over 30 years, repayments EUR 94.79. Total repayments 34,124
Extra interest: 10,248 (more than the original cost of the house).

 

[Protocol]

What is inflation at the moment?

CPI is down 0.4% during last year.

Mild deflation.

Consumer Price Index February 2021 - CSO - Central Statistics Office

www.cso.ie

 

[nad]

I've being interested in the replies and opinions to this, as i said in opening post initially i would have went for the shorter term but after reading through this thread I do believe that there is merit in opting for the longer term.
But the I could see something like SBarrett brings up coming in to play very easily unless one is very disciplined.

The reason for this is lethargy and life. We'll overpay and get it paid off in 20 years but we have to furnish the place, so we'll start after that. Then you forget. Then kids come along with the cost of childcare. It's easier not to overpay so your lifestyle doesn't suffer. And so it goes on.


You can always split the difference and go for 25


Steven
www.bluewaterfp.ie

 

[RedOnion]

But the I could see something like SBarrett brings up coming in to play very easily unless one is very disciplined.

This is exactly it. It takes discipline.
@SBarrett is of course correct, and it's similar to any of his advice on trying to start savings: automate it. In any of the banks I've worked with, a percentage of mortgage customers have standing orders set up to pay a set amount each month which is in excess of the minimum. A percentage pay off additional lump sums every year. But the majority don't.

The other thing is, regardless of the term you go for, you should keep it reviewed as your circumstances change. I'm always surprised by the number of people who have enough savings to discharge their mortgage in full 10 years from the end, but don't, because it's a set amount that goes out of their account. It's similar to people who start a job, and pay in the minimum pension contributions and only start thinking about it when they're 60!

Every year, I'd recommend sitting down as part of a financial review, and reassessing your pension contributions, and mortgage repayments. They are the 2 items that have the greatest impact on your lifetime wealth, but tend to get less attention than savings of 100 per year on electricity!

 

[Gordon Gekko]

Hi, With regard to inflation i believe strongly in the saying."i we look back at the past we can see glimmers of the future"Of course this is only in my humble opinion and i know that no one can predict the future.

That sort of proverb tends to be the last resort of someone who is completely out of their depth in a debate. It’s a form of “dropping the mike” and walking away.

Comparisons between Ireland pre-Euro and post-Euro are fundamentally flawed.

It’s like looking at what happened to property prices in the period around the turn of the millenium and saying “I’ve a feeling in my waters that it’s going to happen again now”. No it’s not. Interest rates collapsed closer to European levels.

 

[NoRegretsCoyote]

I have a 30 year term with BoI.

I pay 10% extra without penalty every month.

It takes nearly 5 years off a 30 year term and as it's a default now I don't think about it.

I think Ulster allow the same flexibility.

 

[RedOnion]

I think Ulster allow the same flexibility.

For completeness, by law every lender must provide flexibility to overpay, but may charge a break fee for early payment during a fixed rate period.

Those that allow overpayment without breakfee:
BOI: allow regular overpayment of the higher of 10% of normal repayment amount, or 65 euro. Not lump sums.
Ulster Bank: 10% of the fixed balance each year, by regular payment or lump sum.
KBC: cumulative 10% of the fixed balance during the fixed term.
Finance Ireland: 20% of the balance in 12 month period, by lump sum only.
Avant: 1% of the fixed balance per year.

And those that don't allow overpayment without calculating break fee:
AIB
EBS
PTSB - however, with PTSB if you make an overpayment, but don't tell them to either reduce term or amount, my understanding is that no break fee is triggered. This is a 'process' so I wouldn't place reliance on it.

Interestingly, as the topic is about longer or shorter terms, most of the lenders will allow you to contractually shorten the term without triggering a break fee calculation. So you end up overpaying every month, but you're signing up to that permanently.

 

[Nowronganswer]

For completeness, by law every lender must provide flexibility to overpay, but may charge a break fee for early payment during a fixed rate period.

Those that allow overpayment without breakfee:
BOI: allow regular overpayment of the higher of 10% of normal repayment amount, or 65 euro. Not lump sums.
Ulster Bank: 10% of the fixed balance each year, by regular payment or lump sum.
KBC: cumulative 10% of the fixed balance during the fixed term.
Finance Ireland: 20% of the balance in 12 month period, by lump sum only.
Avant: 1% of the fixed balance per year.

Any info in Aib , ptsb. Thanks.

 

[RedOnion]

Any info in Aib , ptsb.

I've edited the post to include all the active lenders.

 

[Nowronganswer]

For completeness, by law every lender must provide flexibility to overpay, but may charge a break fee for early payment during a fixed rate period.

Those that allow overpayment without breakfee:
BOI: allow regular overpayment of the higher of 10% of normal repayment amount, or 65 euro. Not lump sums.
Ulster Bank: 10% of the fixed balance each year, by regular payment or lump sum.
KBC: cumulative 10% of the fixed balance during the fixed term.
Finance Ireland: 20% of the balance in 12 month period, by lump sum only.
Avant: 1% of the fixed balance per year.

And those that don't allow overpayment without calculating break fee:
AIB
EBS
PTSB - however, with PTSB if you make an overpayment, but don't tell them to either reduce term or amount, my understanding is that no break fee is triggered. This is a 'process' so I wouldn't place reliance on it.

Interestingly, as the topic is about longer or shorter terms, most of the lenders will allow you to contractually shorten the term without triggering a break fee calculation. So you end up overpaying every month, but you're signing up to that permanently.

Iv started overpaying with ptsb by 300 per month. If i run into difficulty i will cancel it. I was always in the mind set of shorter term but having being been on here for the the last week or so i have being educated for the better and i will use the over paymeny to reduce the monthly repayment amount when the time comes.
I will let you know down the line how it fairs out re break fees if any. In the mean time i need to chase up weeather im entitled to the 2.8% rate that i was not offered.

 

[cremeegg]

Some knowledgeable posters have a tendency to shout down anything that does not match their 'knowledge'

Inflation as measured by reference to consumer prices has run at very low levels for may years now, largely as pointed out because of our Euro membership.

However wage inflation can be a different matter. Wage inflation in Ireland from Q4 2019 to Q4 2020 was 4.8% see here https://www.cso.ie/en/statistics/earnings/earningsandlabourcosts/

At the individual level many people have increased earnings as they age due to promotions etc.

This points to the idea that the burden of repayment falls as the years go by.

The possibility exists that inflation as measured by consumer prices will not be as low over the next 20/30 years as it has been over the last 20. This would increase nominal wages but not nominal mortgage balances. That would make deferred payments less of a burden.

So I suggest that wage inflation, and possible price inflation are reasons to consider extending a mortgage term as long as possible.

 

[RedOnion]

At the individual level many people have increased earnings as they age due to promotions etc.

Oh yes, I forgot that most people take out mortgages when they're early in their career, and many borrowers expect their salary to double every few years.

The possibility exists that inflation as measured by consumer prices will not be as low over the next 20/30 years as it has been over the last 20. This would increase nominal wages but not nominal mortgage balances.

Absolutely. There's possibilities of all kinds of things.
But runaway inflation, without increased interest rates? Very unlikely.

Of course you're correct, it's really wage increases that matter, not CPI rates. From a purely mathematical perspective, if you believe that the rate of your net, after tax, pay increases will outpace the interest rate in your mortgage, over the term, then of course taking the longest term possible is the absolutely correct answer, "because inflation will reduce and erode the repayments". But that's a fairly big assumption to make, especially if it's on a feeling that history repeats itself, rather than any real expectation..