Switching and changing the term

[bungaro]

Hi
We are one year into a 25 year mortgage with AIB and are looking to switch unless they better their fixed rates. We are paying about €1300 a month and we can afford it but it doesn't leave much to save (with two young kids and childcare costs). I had a meeting with Ulster Bank and it looks like we should be able to switch easily enough and we can get a longer term should we want it. For example, the guy in the bank showed us a 30 year term and the prices and the 4 year fixed rate was saving us over €250 a month.
I know the longer term will lower the payback amount but I'm wondering if we took that rate and term and overpaid by the 10% allowed would it be better for lowering the principal amount quicker. It would still give us an extra €150 to save per month. In 4 years we could reassess where we are and what is available then.
Thanks!

 

[dub_nerd]

Even just changing the term to 30 years with AIB and no change of rate would cost you €150 less per month. Not saying you shouldn't switch to UB, just that you should know in advance which parts of the change -- lower rate, longer term -- have which effects. Lengthening the term could be a false economy if you don't need it, as you will repay a higher total in the long run. Overpaying will generally just have the effect of reducing the term, reversing the effect of your switch to a longer term, but perhaps giving you more options in terms of varying your repayment when you want.

It's all workable outable on a mortgage calculator or spreadsheet -- if you post the principal amounts, rates and terms I'm sure some kind person here might help.

 

[skrooge]

Just to be clear ulster allow you to overpay by 10% of the outstanding balance per year but I presume you mean paying an additional 10% of the monthly repayment.

If I were you I'd look at term extension as insurance policy. Great to have but hope not to use it. Also It's generally easier to get it at the beginning of a mortgage rather than looking for it when it's needed.

Backing out the numbers I'm guessing you're on the higher aib variable rate so switching rate alone would Save you about €75 a month - again I'm guessing the details. The term extension pulls down the monthly payments by a further €175.

To put that €175 into context it would cost you roughly €25k in additional interest over the mortgage life (with a great many assumptions).

Switching, term extension and trying to overpay by €175 would give you the best of all worlds I would think. You would still be €75 better off a month. The overpayment would help reduce the term while still having the longer duration if needed.


More than likely the term extension will require you to get new mortgage protection as well as your current repayment schedule is for 24 years.

 

[bungaro]

Switching, term extension and trying to overpay by €175 would give you the best of all worlds I would think. You would still be €75 better off a month. The overpayment would help reduce the term while still having the longer duration if needed.

This is what I am hoping skrooge. By reducing the principal amount by over paying (even with a longer term) would hopefully put us in the same position while still allowing us to save a bit which we currently cannot do