2 year fixed - Rate of 4.61% - Repayments Monthly EUR351
Variable <=50% LTV - Rate 3.95% - Repayments Monthly EUR332
Variable seems to be the way to go according to all i have read but with such low repayments and the small difference a decrease of rates would make my partner is leaning towards fixing them and saving the remainder to put off it after two years of fixed.
The LTV of 3.95 is for one year and onto the SVR then.
Okay, maybe the simplest way to look at this is by doing the maths (
or letting Karl Jeacle's calculator do it!)
Am I reading this correctly, the options are:
1) 55,000 @ 4.61% for 2 years
2) 55,000 @ 3.95% for 1 year - then onto a higher rate?
For the sake of seeing past the end of year 1, I am going to use an SVR of 4.61%
Right - the cost (i.e. the interest paid) on the first option works out at
Year 1: €2,499.56 (Balance outstanding: €53,284.78)
Year 2: €2,418.80 (Balance outstanding: €51,488.80)
Total cost for two years: €4918.36
Balance at end of year 2: €51,488.80
For option two (a little harder as we don't have a definite rate for your second year! ) in order to give as fair a comparison as possible I am going to take the Fixed Rate interest rate as your rate for your second year (their current SVR would probably be lower though and you may experience rate variation).
Year 1: €2139.38 (Balance outstanding: €53,157.27)
Year 2: €2413.01 (Balance outstanding: €51,365.59)
Total cost for two years: €4552.39
Balance at end of year 2: €51,365.59
Difference in cost: €365.97
The certainty of a fixed rate is costing you about 50c per day
Now...
Lets throw in an overpayment, say you can either save €50 per month and pay a lump sum off at the end of year 2 where you have fixed or pay off €50 per month where you are on the variable. Let's do it for two cases, from the very start, or from the start of year 2.
I am going to be bad and not calculate the interest you would earn on your monthly deposit of €50 into a savings account, it will slightly help but it won't make a massive difference.
Overpayment on variable from month 1:
Year 1: €2,128.39 (Balance outstanding: €52,546.29)
Year 2: €2,372.43 (Balance outstanding: €50,162.36)
Total cost for two years: €4501.82
Balance at the end of year 2: €50,162.36
Overpayment on variable from month 13:
Year 1: €2139.38 (Balance outstanding: €53,157.27)
Year 2: €2400.17 (Balance outstanding: €50,752.75)
Total cost for two years: €4539.55
Balance at the end of year 2: €50,752.75
Now for the fixed...
A one off payment of €1200 on fixed in month 25 brings your balance down to:
€51,365.59 - €1,200 = €50165.59
A one off payment of €600 on fixed in month 25 brings your balance down to:
€51,365.59 - €600 = €50765.59
The balance reduction is slightly greater if you apply it incrementally rather than as a lump sum.
Do the above calculations only confuse you more or do they give you an idea of what is going on?
To me the bottom line is the plan all along before approval was if approved we wanted to get rid of the mortgage in ten years approx. I don't know if fixing it for 2 years would make a difference to that. Yes could not pay off in the first two years but would then have the lump sum to pay off it once the fixed rate was up and then decide to go fixed or variable again then
Getting rid of the mortgage in ten years... (the calculator has prepayment options
)
if you go variable and you start overpaying in month 13 (and not accounting for interest rate changes!), you would need to overpay by €250pm
if you go variable and you start overpaying in month 1 (and not accounting for interest rate changes!), you would need to overpay by €240pm
if you fix for the first two years and you start overpaying in month 25 (and not accounting for interest rate changes!), you would need to overpay by €290pm
I am hoping that all the above doesn't confuse you even more. I think perhaps start plugging stuff into the calculator and see for yourself. Playing with the numbers is a good way to get a feel for how this plays out.