Mortgage - Splitting rates - 10 years Fixed Rate and SVR

Monfreid

Registered User
Messages
18
Hello,

I am currently looking at my options to reduce my mortgage payments and payoff the mortgage quickly

This is my situation:
  • 25 years mortgage, 22 years remaining to full term
  • Current repayment: 1208.10 eur / month
  • Balance: 223K
  • Rate: 3.45% - fixed for another 2 years
  • Bank: BOI
  • LTV < 50%
  • Current repayment: 1208 eur / month
I want to pay a lump sum of 48K against the balance of the mortgage. My goal would be to reduce the monthly payment instead of reducing the term of the mortgage

I like the idea of the 10 years fixed rate because it gives long term security and it's "only" 0.3% more than the 5 years rate with BOI but I don't know if it's wise to take it now if interest rates continue to fall.

My idea is to do the following:

Pay off 48K of the current mortgage balance
Borrow 150K on a 10 years fixed rate (@ 3.3%) ==> 799.92 eur
Borrow 25K on Variable rate ( @ 3.9% with BOI or 2.75% with AIB) 141.21 eur or 126.32

So if i stay with BOI, I would pay 941.13 per month so 266.97 eur less that I can use that to over pay the variable rate loan

My goal is to pay off the 25K in 2-3 years by overpaying it and then overpay the 10 yers fixed rate by 65 eur per month (max allowed by BOI) and paying biweekly instead of monthly so that I pay one extra payment per year.
AIB does not allow over payment nor biweekly payment (they told me that they would accommodate a biweekly payment but they will not allow me to overpay that way : "you can’t overpay on the fixed rate loan by paying bi Weekly, your payments would just be recalculated over 12 months albeit that you would be making 13 payments in the period"

AIB offers 2000 eur for switrching. My solicitor charges 1000 eur + VAT + 300 or 400 eur outlay depnding on the bank so maybe 1600 eur in total so 400 eur left for me but is it really worth it?

I know that the variable rate is higher with BOI but if I manage to folow may plan (pay it off in 2-3 years) and then overpay the fixed rate loan, that would be a better solution? What are your thoughts on this?

Thank you very much
 

Itchy

Frequent Poster
Messages
288
Ulster Bank allow a 10% balance overpayment for free every year. They have a 7 year @3% and 4 year at 2.6%. OP could make the overpayments at no charge, have no variable component and pay a lower interest rate overall.
 

Monfreid

Registered User
Messages
18
if your aim is to pay off the mortgage quickly why isnt the 48k to reduce the term?
I want to reduce the monthly payment so that, with the money saved, I can overpay the SVR loan and once done, I will only have a payment of 800 eur per month, that would be manageable if my wife starts to work part time in the future
 

Monfreid

Registered User
Messages
18
Ulster Bank allow a 10% balance overpayment for free every year. They have a 7 year @3% and 4 year at 2.6%. OP could make the overpayments at no charge, have no variable component and pay a lower interest rate overall.
yes, I agree, my only concerns is what will happen to my mortgage if UB leaves the country in a few years after Brexit, that's why I just focus on AIB and BOI at the moment.
Also, I didn't really have a good experience with them while looking for a mortgage 3 years ago, nothing bad, just that they didn't really care so not too keen on going back there now
 

Brendan Burgess

Founder
Messages
38,125
If you are going to fix for 10 years, would KBC not be better at 2.85% for <50% LTV and 2.8% variable rate?

KBC seems the lender which bases its rates on LTV more so than any other lender. That would suit you best.

You shouldn't overplan this too much.

It seems to me that you are good savers. So you might have more available to pay down your mortgage. And, of course, things might change, so you might need to pay less.

There is no sign of a rise in ECB rates. So I think that competition will bring down rates further - especially for low LTV mortgages such as you have.

Personally, I would fix with KBC at 2.45% for two years and review the options at the end of that.

Brendan
 

NoRegretsCoyote

Frequent Poster
Messages
791
A fixed rate for five or ten years is insurance against future increases in interest rates. Like with all types of insurance, you are paying for people to sit in an office administering it. This is money you never get back.

To me a long-term fixed rate makes sense if and only if: a) you are on a stable income which is not likely to go up; b) mortgage repayments are close to the limits of affordability for you.

It doesn't make much sense if you have money to spare every month, as you can self-insure against interest rates going up. Likewise if your career path is likely to see pay increases in the medium term.

In your situation I would roll with one-year rates and overpay by 10% every month. At the end of your fixed-rate term you will bounce onto a variable for a few days and at that point you can repay a lump sum without penalty. Then go back on a fixed rate.


PS: don't worry about Ulster Bank and Brexit. They have been in the Irish market since the 19th century which has seen several political and currency configurations in Ireland.
 

Monfreid

Registered User
Messages
18
To me a long-term fixed rate makes sense if and only if: a) you are on a stable income which is not likely to go up; b) mortgage repayments are close to the limits of affordability for you.
a) My income is unlikely to go up significantly in the future, it might even get reduced if my wife starts to work part time instead of full time
b) I wouldn't say that the current repayments are close to the limit of affordability but, in sense yes, as if I had to pay more, it would impact other savings (like college fund for ex)

In your situation I would roll with one-year rates and overpay by 10% every month. At the end of your fixed-rate term you will bounce onto a variable for a few days and at that point you can repay a lump sum without penalty. Then go back on a fixed rate.
Yes, it's a good idea, worth considering while the 2 of us are still working full time and after that, fixe the rate for a longer period.
 

Monfreid

Registered User
Messages
18
You shouldn't overplan this too much.
I know :) I'm thinking about it too much, just need to get on with it ...

There is no sign of a rise in ECB rates. So I think that competition will bring down rates further - especially for low LTV mortgages such as you have.
Yes, that's why 10 years might too long but it's a gamble, you don't know for sure which way the rates are going to go, you just have to be happy with your choice at the time of your decision and forget about it. It's like trying to time the market, it never works ...
 

NoRegretsCoyote

Frequent Poster
Messages
791
Yes, that's why 10 years might too long but it's a gamble
It's not a gamble. It's the purchase of insurance!

It's about paying slightly more on average over a variety of outcomes, for having the benefit of not being exposed to the worst of these outcomes.

Think about whether you could cope with interest rates of +200bp without difficulty, and then decide whether it's worth insuring against by taking out a fixed rate.
 

Brendan Burgess

Founder
Messages
38,125
if I had to pay more, it would impact other savings (like college fund for ex)
I presume that "for ex" means for example and not that you are saving up to put an old flame through college?

Anyway, you should not have a separate college fund while you have an expensive mortgage.

You are borrowing money at 3% in order to invest it at 0% or a bit above. This makes no sense.

Unless your kids are about to go to college, pay down your mortgage. You will then have more money to meet the costs of college.

Brendan
 

Monfreid

Registered User
Messages
18
I presume that "for ex" means for example and not that you are saving up to put an old flame through college?
:D, it was "for example" indeed

You are borrowing money at 3% in order to invest it at 0% or a bit above. This makes no sense.
That's exactly what I thought as well and that's why I have decided to use 48K against the mortgage instead of having it seating in a savings account doing nothing.

I don't put my money in the stock market by fear of losing everything or most of it and also because I still have a mortgage to pay so that would be silly I think to risk my savings when I'm no totally debt free. My mortgage is my only debt and I want to pay it off as quick as possible. The only "investment" I do is through my pension.

The oldest of my 2 kids should go to college in 10 years so I still have time to put a bit of money aside until then but you're right when you say I should concentrate on my mortgage first.
 

_ripped_off

Registered User
Messages
43
Agreed. But only because he can switch if UB sells his mortgage and the new lender puts up the rates.

But Ulster Bank is dysfunctional. So if he has experienced this before, he probably should avoid them.

Brendan
In what way are they dysfunctional? About to switch our mortgage to them :oops:
 

Brendan Burgess

Founder
Messages
38,125
Their computer system is creaking and people have lost access to their current accounts twice in recent years.

The people in arrears can't get to talk to anyone to try to sort out the problem.

Banks are generally not very efficient, but Ulster Bank just seems to be the worst.

Brendan
 

NoRegretsCoyote

Frequent Poster
Messages
791
Their computer system is creaking and people have lost access to their current accounts twice in recent years.

The people in arrears can't get to talk to anyone to try to sort out the problem.

Banks are generally not very efficient, but Ulster Bank just seems to be the worst.

Brendan
This is true, but is it relevant to someone looking to take a loan from them?
 

_ripped_off

Registered User
Messages
43
This is true, but is it relevant to someone looking to take a loan from them?
I suppose it will be relevant if we get into arrears on our mortgage though not something I’m planning on so fingers crossed. My parents have their mortgage with UB and have had their fair share of problems too. Our existing mortgage provider AIB are not exactly helpful either so I’ll take my chances with UB and their lowest fixed rates in the market!
 

Monfreid

Registered User
Messages
18
Do you think it's worth waiting a bit before switching after the recent ECB annoucement, mortgage rates might go down even further in the near future?
 
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