Variable or Fixed Short Term Mortgage

T

Tim76

Registered User
Messages
3
Hi all,

I'm taking out 35k over 5 years and the amount I would be paying on a variable would be manageable if the rate was not to increase wildly.

The variable is at 4.09% and the fixed for the 5 years is at 5.35%

Any advice on which way to go?

Thanks in advance for any help!
 
Generally speaking, you are better off with variable rate mortgages as the lenders build in a marging for fixing for 5 years.

Why is it such a short term? If you take out a 5 year variable and mortgages do "increase wildly", can you not extend the mortgage?

Why not take out a 10 year mortgage and pay it off over 5 years?
 
Tim76 said:
I'm taking out 35k over 5 years!
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Just curious,

Which bank is giving you a mortgage of only €35K over 5 years ?

Is this a mortgage to buy or is it a top up mortgage for home improvements or whatever ?

Thanks.
 
Personally I'd go with the variable rate. With such a short term, variations in interest rate won't have a huge impact on your repayments as much of your monthly repayment will be capital.

€35,000 x 5 years at 4.09% = €646 per month. An increase of 0.5% would bring this to €654 per month.

If the interest rate was to go up by a full 3% to 7.09% your repayment would be €695. Less than €50 per month of an increase.

Fixed rates rarely benefit the consumer.
 
LDFerguson said:
Fixed rates rarely benefit the consumer.
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I agree with all who have suggested to go with the variable rate loan. It has been my own personal experience that the banks always won on the fixed rate versus the variable rate.
 
Dermot said:
I agree with all who have suggested to go with the variable rate loan. It has been my own personal experience that the banks always won on the fixed rate versus the variable rate.
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We're in a similar position to Tim but with a longer timeline- planning on borrowing €80k over 10-12 years and , based on postings here and elsewhere, we are tending towards variable rate mortgage, and either (a) paying a bit extra each month or (b) putting the extra we would pay into a savings account to appease any increase in interest rates. Does this sound reasonable/prudent approach ?

Also, on a related issue, our bank is suggesting we take up the max available mortgage and use the available balance of our savings for upgrading the property we have in mind, whereas our own preference is to put more of our savings against the mortgage and perhaps a short term credit union load for home improvements - any views ?
Thanks !
 
What I would suggest would be as follows if you can organise it.

Can you get it over 15 years as it will give you lower monthly repayments on a variable mortgage and at any time that you have surplus cash you can lodge it and this will lower your interest bill and lower your monthly repayments.

You will be getting a far better return by lodging the spare money into your mortgage loan than into a savings account with the low interest rates and 41% Dirt.
Having said that it is no harm to have a reasonable amount of money where you can call on in the case of an emergency.

By taking the 15 year mortgage loan does not mean that you cannot pay it off in 10-12 years. You can pay it off at any time but it just gives you a bit more flexibility and you do not pay any higher rate of interest.

I would point out that I am not a financial expert
 
Skyfall said:
Also, on a related issue, our bank is suggesting we take up the max available mortgage and use the available balance of our savings for upgrading the property we have in mind, whereas our own preference is to put more of our savings against the mortgage and perhaps a short term credit union load for home improvements - any views ?
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I would imagine that the credit union interest rate would be considerably higher than the mortgage so without seeing the figures my initial reaction would be to borrow for home improvements on the mortgage. If comparing the two, factor in the cost of life cover on the mortgage.
 
LDFerguson said:
I would imagine that the credit union interest rate would be considerably higher than the mortgage so without seeing the figures my initial reaction would be to borrow for home improvements on the mortgage. If comparing the two, factor in the cost of life cover on the mortgage.
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Thanks for advice everyone ! Just to clarify our position - unfinished house priced at €100k, estimate a further €15k to finish off.
Our proposal is to deposit €20k, draw down mortgage for €80k and fund finish off costs from a mix of remaining savings and short term home improvement loan- say €10k. If we add the finishing off cost to our mortgage, will this not work out more expensive in the long run though it might make for lower monthly repayment thus helping our cash flow situation ?
Thanks again for the advice
 
Skyfall said:
Thanks for advice everyone ! Just to clarify our position - unfinished house priced at €100k, estimate a further €15k to finish off.
Our proposal is to deposit €20k, draw down mortgage for €80k and fund finish off costs from a mix of remaining savings and short term home improvement loan- say €10k. If we add the finishing off cost to our mortgage, will this not work out more expensive in the long run though it might make for lower monthly repayment thus helping our cash flow situation ?
Thanks again for the advice
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If your bank is suggesting that you borrow the home improvement money on the mortgage, tell them that you want the extra €10,000 over a short term but at mortgage rates. That way you get the best of both worlds.
 
LDFerguson said:
If your bank is suggesting that you borrow the home improvement money on the mortgage, tell them that you want the extra €10,000 over a short term but at mortgage rates. That way you get the best of both worlds.
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Thanks for your post - it was your comment that we should borrow the "finish off " monies on our mortgage that set us thinking. Our query is which is the most cost efficient method for us - borrow on mortgage or short term home improvement loan - is borrowing on our mortgage (albeit at a lower interest rate) but over a much long term rather than a than a 4 or 5 year home improvement loan more cost effective in the long run.
I doubt our bank would agree a short term loan
for home improvements at mortgage rates ????
 
Borrow the lot on the mortgage but pay back a total of what the mortgage payment would be for the lower figure and what the repayment would be for the short term loan, that way you will bring down the balance quicker and by the time the short term loan would in theory have finished you will have cleared that amount of the extra mortgage and have had it at a lower rate.
 
Thanks for the post WBBS- makes good sense ! But will banks play along with that approach ? Will their valuer not value the house at it's current unfinished value and the bank then approve mortgage amount on that basis rather than current state value + €10k to finish off ??
Thanks !
 
I thought the bank were pushing you to do it that way, borrow the lot on the property?

Either way the bank's valuer should value the house at it's present value and on completion of the works. The bank would then normally approve 90% (or whatever their present percentage is) of the finished value but only release 90% of purchase price/present value with the balance retained until the works are done. That was the usual way, things may be different these days.
 
twofor1 said:
Just curious,

Which bank is giving you a mortgage of only €35K over 5 years ?

Is this a mortgage to buy or is it a top up mortgage for home improvements or whatever ?

Thanks.
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To buy, with AIB. The mortgage is to make up the shortfall on a larger sum.

PS- Thanks to everyone else for all the feed back. Appreciated!
 
Variable or Fixed Rate - which to choose ?

Just by way of update on our query regarding Variable Rate v Fixed Rate mortgage.
We are mortgage approved and propose getting a mortgage of €75k with AIB over 12 years . The repayments are as follows:
Variable - €674.64 pm - 4.49%
Fixed 2 years - €676.86 pm - 4.55%
Accepting the views expressed earlier in this thread by posters that banks are always the winners with the Fixed Rate Mortgages, the possibility of fixing for 2 years for an additional €2.22 per month for 2 years appears attractive , to us at any rate , or are we missing something ?? We understand that by going Fixed Rate, we will not be able to increase repayments or pay off on the mortgage for the fixed period but, from what we read, some predictions are that mortgage rates will rise over the next year or so ??
Any views on the above would be welcome .
Also, will the bank go with which ever option we choose, Fixed or Variable , as so far they have only mentioned variable rate in repayment options/figures supplied.
Many thanks !
Edit - any comments on Fixed v Variable in the above scenario ??
Advice appreciated as we are almost at the point of going sale agreed and would welcome views as to a 2 year fixed rate versus variable rate , given the .06% difference between the two on a small mortgage ?
Thanks again !
Edit: offer accepted for property as outlined. Issue for us now is Variable or Fix for 2 years on the mortgage of €75k- 0.06% difference on mortgage - advice / comment please ???
Thanks again !
 
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