Good Mortgage deal? Fixed or variable?

bray_wanderer

I'm planning to take out a mortgage for 100,000 euro over 35 years with BOI to buy my first house.

I have quite a bit in savings to put with this, and will have another 30,000 euro available to me next year (released from a savings scheme), and 20,000 in 2015.

Because I will have these sums of money coming available to me, I thought a certain amount of variable mortgage would be the way to go so I can pay off in lump sums without penalty.

But I'm concerned about the variable interest rate rising hugely. I know no-one can tell me what will happen in the future, but I'd like to hear opinions on roughly how high people think it may go.

The bank's suggestion was that I take 50,000 fixed for 5 years @ 4.64%.
And 50,000 variable @ 3.35%.

Is the fixed rate a good offer? I have no experience in this area and would really appreciate some advice.

35 years is a very long time, and even if I do come up with the money to pay the remainder off in a lump sum, I won't be able to do that with fixed rate.

I'm now considering changing to a 100% variable mortgage. Is this a risky move in the current financial climate? Perhaps I am safer with a fixed rate for 5 years even though it will cost me more currently?

Any advice appreciated! Thanks.

I can't see the banks shooting themselves in the foot with a fixed rate, variable all the way in my opinion. Most of the time it works out much of a muchness but in your case you need the flexibility that the fixed rate can't offer.

bray_wanderer

Thank you for your advice.

I'm inclined to agree. While I can't guarantee being able to pay it all off in the next 4 or 5 years, I certainly hope to have it sorted out before 35 years have passed.

I'd just love to hear an estimate of where people see the variable rate going. Is it likely to go above 4.64% in the next 5 years? If that is the case, perhaps fixed is safer.

I guess it's all a gamble really, gotta just take a chance.

homer911

What you should be asking is will it average more than 4.64% over the next five years. Also dont forget that because the principal will be reducing, the true comparative rate will be slightly higher than this.

If you were to assume an even increase in the variable rate over 5 years (not likely - we will see up front increases starting in June) then if after five years the variable rate was 5.95% then this would equate to break even against the fixed rate - an increase of 2.6%

When you look at it in this light, it makes fixed rate look more attractive

bray_wanderer

All great points, homer911.

Thank you for your advice.

Sandalwood

bray_wanderer wrote: »

I'm planning to take out a mortgage for 100,000 euro over 35 years with BOI to buy my first house.

I have quite a bit in savings to put with this, and will have another 30,000 euro available to me next year (released from a savings scheme), and 20,000 in 2015.

Because I will have these sums of money coming available to me, I thought a certain amount of variable mortgage would be the way to go so I can pay off in lump sums without penalty.

But I'm concerned about the variable interest rate rising hugely. I know no-one can tell me what will happen in the future, but I'd like to hear opinions on roughly how high people think it may go.

The bank's suggestion was that I take 50,000 fixed for 5 years @ 4.64%.
And 50,000 variable @ 3.35%.

Is the fixed rate a good offer? I have no experience in this area and would really appreciate some advice.

35 years is a very long time, and even if I do come up with the money to pay the remainder off in a lump sum, I won't be able to do that with fixed rate.

I'm now considering changing to a 100% variable mortgage. Is this a risky move in the current financial climate? Perhaps I am safer with a fixed rate for 5 years even though it will cost me more currently?

Any advice appreciated! Thanks.

My son in law and daughetr came off a 5 year fixed rate on a 35 year mortgage this month. Initially the rate was fixed at 4.89% for the 5 years. this is a monthly payment of €779.80. If they go on the variable rate now it will cost them €1056.74, it's currently at 6.15%. That's an increase of €278 out of the blue.

TSB have two other fixed rates available to them:- a 2 year fixed rate of 7.25% at a monthly repayment of €1182.83. They also have a 5 year fixed rate at 8.75% at a monthly repayment of €1363.50

The mortgage they took out was for €180k and TSB applied an LTV (Loan to Variable Ratio) for €190k.

They are really going to struggle with this increase even if they go for the variable at 6.15% (€1056.74 pm).

Anyone know of any other options open to them?

taldar

@sandlewood

Please get your daughter to check their original loan agreement and MAKE SURE there is no tracker rate option in the conditions. The institute they are with are known for not offering this option at the end of customer fixed rates even though it is there!

Politbureau

taldar, thank you for the reply. Tried signing back in as Saldalwood but it appears I was already a registered member as politbureau.

When you say "MAKE SURE there is no tracker rate option in the conditions".

Does that mean they are entitled to a more favourable rate or is there another option available to them, assuming that there is no tracker rate in the original contract?

I'm lost on some of the terms of these new mortgage agreements. Back in the day you went on either a fixed rate or variable rate mortgage. Does a 'tracker' mean its tied to the ECB and they should be offered this?

Many thanks. I'm getting them to look at the original agreement and I'll have a solicitor at the meeting next week ( to sign the new contract with the bank) to make sure they are not hoodwinked.

amdublin

In some terms and conditions it states that after the fixed rate period the loan will revert to a variable or tracker rate.

In some cases the banks have just reverted to the variable and not highlighted to the customer the tracker option.

Now at the same time it depend on what tracker is available to them. ECB plus what percent?

I'm confused why you are so involved in your son and laws and daughter's business though to be honest

Politbureau

amdublin wrote: »

In some terms and conditions it states that after the fixed rate period the loan will revert to a variable or tracker rate.

In some cases the banks have just reverted to the variable and not highlighted to the customer the tracker option.

Now at the same time it depend on what tracker is available to them. ECB plus what percent?

I'm confused why you are so involved in your son and laws and daughter's business though to be honest

I'm fearful for them as it appears they are at a point where they may fall into arrears and lose their home with the increase after coming off the 5 year fixed rate. Just trying to get them some good advice. I don't trust the banks. He's a chef and he used to get €25 per hour it's now down to €13 ph. It certainly brings home to me how all these people feel who are on the tipping point of falling into arrears. I care for them so much that I've decided to give them my pension and that will prevent them from falling behind on the mortgage. Thanks for replying.

solerina

amdublin wrote: »

In some terms and conditions it states that after the fixed rate period the loan will revert to a variable or tracker rate.

In some cases the banks have just reverted to the variable and not highlighted to the customer the tracker option.

Now at the same time it depend on what tracker is available to them. ECB plus what percent?

I'm confused why you are so involved in your son and laws and daughter's business though to be honest

Hi
I find you post very interesting, just wondering which lending institutions are involved in this kind of practice ??? and how are they getting away with it

amdublin

http://www.independent.ie/business/personal-finance/property-mortgages/lender-pays-compensation-after-error-with-trackers-2878978.html

cookie1977

Politbureau wrote: »

I'm fearful for them as it appears they are at a point where they may fall into arrears and lose their home with the increase after coming off the 5 year fixed rate. Just trying to get them some good advice. I don't trust the banks. He's a chef and he used to get €25 per hour it's now down to €13 ph. It certainly brings home to me how all these people feel who are on the tipping point of falling into arrears. I care for them so much that I've decided to give them my pension and that will prevent them from falling behind on the mortgage. Thanks for replying.

Thats very admirable. They should remain in communication with their bank and outline any difficulties they are having. Have a look or get them to look at this website. It may help. Best of luck:
http://keepingyourhome.ie/

Also be careful what you are giving them as there may be tax implications for them.

Politbureau

cookie1977 wrote: »

Thats very admirable. They should remain in communication with their bank and outline any difficulties they are having. Have a look or get them to look at this website. It may help. Best of luck:
http://keepingyourhome.ie/

Also be careful what you are giving them as there may be tax implications for them.

Thank you for this info........ very helpful.

kennyb3

Why are you taking it over 35 years btw? Seems mad given its only €100k (which to some people might be huge but you have saved 50k). You dont say what your salary is?

My point is that maybe go over a shorter period if you can afford it (now and with some leeway for interest rate rises). Otherwise you ll be paying down mainly the interest element for a long time

Politbureau

kennyb3 wrote: »

Why are you taking it over 35 years btw? Seems mad given its only €100k (which to some people might be huge but you have saved 50k). You dont say what your salary is?

My point is that maybe go over a shorter period if you can afford it (now and with some leeway for interest rate rises). Otherwise you ll be paying down mainly the interest element for a long time

They took a €180,000 mortgage over the 35 years of which five years have elapsed. They are still paying interest and will be for a long time. TSB gave the 35 year mortgage without doing a proper stress test. I suppose in reality they shouldn't have been given a mortgage. If they applied for one now as opposed to 5 years ago they definitely wouldn't get one. The same house two doors down is up for sale at €110,000. So they are in €70k negative equity. The bank (TSB) today have given them a new option from the three I have mentioned above, which come into play at the end of the month as they come off the fixed mortgage. Basically they said extend the mortgage over another 5 years and the difference between the fixed and variable will not be too much of a shock in repayment terms. Fixed was €779pm and the new arrangement (extra 5 years) €850. This option seems more manageable. Other wise if they stay on the current term of 30 years it will cost €1056. A big differential. I'd say as more and more people come off fixed it will cause big problems for them as the variable rate is higher than the fixed rate thanks to Irish banks going ahead without ECB approval and raising the rate on their own. Thanks for the reply btw.

kennyb3

Politbureau wrote: »

They took a €180,000 mortgage over the 35 years of which five years have elapsed. They are still paying interest and will be for a long time. TSB gave the 35 year mortgage without doing a proper stress test. I suppose in reality they shouldn't have been given a mortgage. If they applied for one now as opposed to 5 years ago they definitely wouldn't get one. The same house two doors down is up for sale at €110,000. So they are in €70k negative equity. The bank (TSB) today have given them a new option from the three I have mentioned above, which come into play at the end of the month as they come off the fixed mortgage. Basically they said extend the mortgage over another 5 years and the difference between the fixed and variable will not be too much of a shock in repayment terms. Fixed was €779pm and the new arrangement (extra 5 years) €850. This option seems more manageable. Other wise if they stay on the current term of 30 years it will cost €1056. A big differential. I'd say as more and more people come off fixed it will cause big problems for them as the variable rate is higher than the fixed rate thanks to Irish banks going ahead without ECB approval and raising the rate on their own. Thanks for the reply btw.

Sorry i think there is a mix up I was replying to the original poster, not the hijack, so my points stand to the OP.