Break fixed rate or wait another 22 months

Monfreid

Registered User
Messages
18
Hello,

This is my situation:
  • 25 years mortgage, a bit less than 22 years remaining to full term (july 2041)
  • Current repayment: 1208.10 eur / month
  • Balance: 222K
  • Rate: 3.45% - fixed for another 22 months
  • Bank: BOI
  • LTV < 50%
  • Current repayment: 1208 eur / month
The current break out fee is 1600 eur. I have a 40K lump sum that I want to use against the mortgage. I can do an over payment without braking my fixed rate for 300 eur.

My plan is to pay 40K and then have a split rate mortgage with 35K on a variable rate and the balance on a fixed rate.

Should I pay the 40K now at a cost of 300 eur and wait for the fixed rate period to end in 22 months or should I break the fixed rate now for 1600 eur and get on with my plan of a split rate mortgage? The plan is to pay off the 35K asap, ideally within 3 years.

I'm interested in the 10 years fixed rate @ 3.3% for the security it provides. Even if 3.3% sounds a bit high now, it might be a very good rate in 5 years time if interest rates go up as they eventually will.

What are your thoughts on this?

Thank you
 
Last edited:

2bmortgagefree

New Member
Messages
8
Hi Monfried

I'm in similar position to you. I'm in a fixed rate mortgage for another 3 + years. Mortgage is 112k. I have €50k to put towards it. My interest rate is 3.25%.

Like you I would have a break fee of circa 1600.

The way I'm looking at it is, if I pay 50k off the mortgage, it means I won't have to pay
1625 interest per annum on it plus im getting closer to mortgage freedom.

50,000/100=500*3.25=1625 per annum interest saved

So over the 3 years I would save 1625*3=4875

I would suggest you download Dr Karl's mortgage calculator app, crunch the numbers.

The option of a split mortgage is good, that way you can pay off a bit each time you get a pay increase or a bonus.

Would recommend you review /pay down any high interest credit card debt first, have a good emergency fund, have a proper pension plan and then fire any spare cash at your mortgage.

Best of luck.
 

Brendan Burgess

Founder
Messages
38,140
  • 25 years mortgage, a bit less than 22 years remaining to full term (july 2041)
  • Current repayment: 1208.10 eur / month
  • Balance: 222K
  • Rate: 3.45% - fixed for another 22 months
  • Bank: BOI
  • LTV < 50%
  • Current repayment: 1208 eur / month
You need to split the decision down into two parts.

Decision 1
First of all should you break out of the fixed rate and pay the penalty?

How much interest will you pay over the remaining 22 months under each scenario? ( Don't look at repayments as the capital repayment element varies with the interest rate.)

If you break out, you can fix for two years (the closest to 22 months) at 2.9%

So you will save €222k @ (3.45% -2.9%) x 22/12 = €2,200

As the break fee is €1,600, it's probably worth it.

Decision 2
Having broken out, should you fix for 10 years or switch to another lender?

With an LTV of <50%, you should probably switch to KBC or Ulster Bank and pay 2.4% instead of 2.9%.

If you want to fix for ten years, then switch to KBC. Get a rate of 3.05% and the €3,000 switcher fee will cover your legal costs and break fee.

I can't predict the future
But given your low LTV and your ability to save money, you should not fix for a long term. The cheapest rates are available for short term fixes and this is what you should do. Pay the €40k off your mortgage and fix for one year.

At the end of the year, if you have further savings, then pay that off again without penalty and consider fixing again.

Brendan
 

Monfreid

Registered User
Messages
18
The way I'm looking at it is, if I pay 50k off the mortgage, it means I won't have to pay
yes, good way to think about it, in my case, it would be 1380 eur/year if I stay with the current rate of 3.45% so 2760 eur of interest saved over 2 years (2460 eur if you remove the 300 eur fee)

Would recommend you review /pay down any high interest credit card debt first, have a good emergency fund, have a proper pension plan and then fire any spare cash at your mortgage.
I don't have any debt other than my mortgage, I have an emergency that is 5 months worth of expenses and have a pension with my employer so the plan is to go full steam ahead for the next 10 years and get rid of that mortgage.
 

Monfreid

Registered User
Messages
18
I can't predict the future
But given your low LTV and your ability to save money, you should not fix for a long term. The cheapest rates are available for short term fixes and this is what you should do. Pay the €40k off your mortgage and fix for one year.

At the end of the year, if you have further savings, then pay that off again without penalty and consider fixing again.
You're right, that's also what I think would be ideal to do that but I'm concerned that the interest rates will go up and I will have missed an opportunity to have a low rate of 3,3% in a few years.

If the best option is to fix for only 1 year at the time, would it better just to go with AIB variable rate at 2.75% so that you can overpay as much as you can every month?
 

Monfreid

Registered User
Messages
18
Let's say you break your fixed rate and you remain on the variable rate with the same bank for some time.
Would you have to pay fees as well if you want to switch later on?
 

Brendan Burgess

Founder
Messages
38,140
If the best option is to fix for only 1 year at the time, would it better just to go with AIB variable rate at 2.75% so that you can overpay as much as you can every month?
There isn't that much difference in fixing with KBC for one or two years and just refixing every time and the rate is lower.

Brendan
 
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