Mortgage rate fixed 2.7% or acc payments on 3.3%

[Missy]

Hi All

I was all for moving the mortgage from BOI standard variable 3.75 (due entirely to inertia) to Bank of Scotland Ireland on their switcher product at 2.7 % for 2 years LTV< 75%. Called to BOI to talk it over and we were immediately offered 3.3 on their tracker. Currently have 2.5 years down on a 30 year mortgage. We are settled in to the house now with the big furnishing/garden expenses over us and the wedding paid for. We have no other loans and SSIA maxed and not due to mature for another 12 months. We have no other loans.

We spoke to the BOI mortgage advisor and he told us that at 3.3% if we were to over pay our mortgage by 300+/- a month we could have the balance cleared in 15 years. Interest is calculated nightly on the balance owed.

My question is are we better off at 3.3 overpaying as much as we can comfortably afford, (or reducing the term and upping the payments) than fixed on a 2.7 for 2 years.

Also, is there a better use for our money than over paying the mortgage. Maybe I have the old fashioned idea that all debts are bad and want to get out from under the mortgage.

I am not good at maths, so if anyone can help me work this out I'd appreciate it. Is it obvious that the lower interest rate is better?

 

[Sarah W]

Bank of Scotland's deal is not a fixed rate - it's a discount of 0.55% off the tracker rate of ECB + 1% or 3.25% currently. So not only are you saving 1.1% of the mortgage over the two years you've got a permanent (well, as long as you keep the house/mortgage) of 0.05% rate reduction over BoI. Why wouldn't you move? The BoS deal is a variable so you can overpay but do check their T&C - I think there is a minimum overpayment of €500.

Sarah

www.rea.ie

 

[ClubMan]

To work out the maths see Karl Jeacle's mortgage calculator. To get an idea of possible alternative uses for your money see the AAM and IFSRA guides to savings and investments linked from the key topics threads in the Savings & Investments forum. What is right for you depends on your specific, individual circumstances, plans etc. In general many people recommend getting the mortgage down to a manageable level (which some roughly define as a couple of times annual earnings) and then concentrate on other issues (e.g. pension savings, other short/medium/long term savings/investments etc.). I am assuming that you are already with the most competitive lender for your circumstances but, if not, a switch should be considered and the costs/benefits analysed. Obviously anybody with higher than mortgage rate debts should be prioritising these for attention. Similarly anybody not maximising their SSIA should do so if possible. In my opinion people should only fix their mortgage rate if they really need to (i.e. might be stuck if rates/repayments went up by a few %) and definitely not in any attempt to second guess the institutions, time the markets and save money. In most cases it will cost more for the peace of mind that a fixed rate brings compared to a competitive tracker/variable.

 

[irishpancake]

Sarah, should that not be

a permanent (well, as long as you keep the house/mortgage) of 0.5% rate reduction over BoI.

So sorry Sarah, i see where the permanent 0.05% reduction comes from, after the two-year discount period.

Apologies!!