Applying for BOI mortgage - 20 or 30 years? Fixed or variable?

volauvent

I am applying for a ftb mortgage for 180000 from boi. I'm trying to be savvy as don't want them to dictate the best deal for themselves and not consider my wants.
When I spoke to advisor, he said I'd have to apply for 30 year term. I would prefer 20 or even 15..! I want to pay less interest. Do they recommend the longest one to you out of their own interests?
Also any thoughts on fixed vs variable. Don't know which box to tick.

D3PO

you can always overpay on a variable. so even if you get a thirty year term you can essentially reduce this as you go.

would you be able to qualify for a 15 year mortgage of 180k ? you would need apretty hefty salary to qualify for 180k 15 year mortgage

Senna

They could be telling you 30 years as you don't qualify for a shorter term. The shorter the term, the higher your repayments, so they have to see that you can afford higher repayments. Aim for 25 years at a minimum.

Tell us the rates they have offered for fixed versus variable, but even then it is a big decision that only you can decide on what will work best for you.

You can use this LINK to work out repayments/term/interest & capital etc

the groutch

if you're thinking of going for a shorter term, make sure to stress test yourself for property tax of about 50% more than the currently proposed amounts, water charges, and an interest rate of 7-8%. all of these are realistic possibilities.

riclad

the most important thing is go for fixed term interest rate,
as rates are low at the moment.

NIMAN

the groutch wrote: »

if you're thinking of going for a shorter term, make sure to stress test yourself for property tax of about 50% more than the currently proposed amounts, water charges, and an interest rate of 7-8%. all of these are realistic possibilities.

Will the bank not do all this stress testing before they give you any money?
I got a mortgage a couple of years ago and I was told by the bank that their stress tests would be pretty harsh. Thankfully we still qualified.

We took out a 15yr mortgage, with our logic being to get rid of the mortgage asap. We have overpaid on it too, so there's now light at the end of the tunnel.

I say if you can afford to go for 20yr instead of 30, do it. 30yr is a long way away!

D3PO

riclad wrote: »

the most important thing is go for fixed term interest rate,
as rates are low at the moment.

on what basis ? You know nothing about the rates hes being offered, nothing about his financial situation and have provided no insight on what you expect to happen in terms of rates.

if your going to say something so definitive at leat add a bit of substance to your point

Galego

volauvent wrote: »

I am applying for a ftb mortgage for 180000 from boi. I'm trying to be savvy as don't want them to dictate the best deal for themselves and not consider my wants.
When I spoke to advisor, he said I'd have to apply for 30 year term. I would prefer 20 or even 15..! I want to pay less interest. Do they recommend the longest one to you out of their own interests?
Also any thoughts on fixed vs variable. Don't know which box to tick.

I am in similar situation myself and with BOI too (also similar amount). My proposal to them has been: 75% fixed to 3 years @4.69% and 25% variable with 35 years term.
Why have I gone this route?

1- I predict variables to go up within 3 years to 5-6% levels (ECB rate is at its lowest ever and banks losing money with the trackers) and I do not see myself paying off more than 25% of the mortgage in that time.
2- 35 years. Yes! The beauty of this is that I can repay the capital when it suits me. I must say I am very strict with my finances so 35 years does not mean it will take me 35 years to re-pay it but I am better off with flexibility and money left in a deposit for runny days than maybe having to re-structure my mortgage in 5-10 years because something out of my control has changed in my life (accident, job loss, unexpected expenses, etc).
From a financial point of view, there is very little difference between paying a 35 yrs mortgage in 20 years than a 20 years mortgage in 20 year mortgage.

I am not by any means advising you to follow my patch. Only telling you what I have gone for and my reasons.
All the best with the new home!

murphaph

D3PO wrote: »

on what basis ? You know nothing about the rates hes being offered, nothing about his financial situation and have provided no insight on what you expect to happen in terms of rates.

Amen.

OP: this is a huge financial decision that far too many people took/take too lightly. Get INDEPENDENT financial advice before taking any particular course.

There is no one size fits all mortgage. Nobody here can give you a truly useful answer without you divulging a lot of personal information which I'm sure you won't want to be doing.

People can give you general information about different types of loan, but not advice on which one to take. Ignore any answers here that advise A or B for your case.

killers1

volauvent wrote: »

I am applying for a ftb mortgage for 180000 from boi. I'm trying to be savvy as don't want them to dictate the best deal for themselves and not consider my wants.
When I spoke to advisor, he said I'd have to apply for 30 year term. I would prefer 20 or even 15..! I want to pay less interest. Do they recommend the longest one to you out of their own interests?
Also any thoughts on fixed vs variable. Don't know which box to tick.

OP,
If they are saying you have to take a 30 yr term it's because your salary or repayment capacity doesn't allow you to borrow that amount over a shorter timeframe. This is because the stress tested repayment on a 15 or 20 yr term puts your application outside of bank policy and you don't qualify for the loan amount under those terms. This is not for 'their own interest' it's simply to allow you to meet the lending criteria. By taking a 30 yr term you can still repay the loan in 15 yrs by making overpayments and it won't have cost you a cent more than had you been able to avail of a 15 yr term facility.

As for fixed V variable, you don't make this decision due to being some kind of economic guru. A fixed rate carries a premium for buying peace of mind. If knowing exactly what your repayment will be for a certain length of time is important to you and you are willing to pay a premium initially thrn opt for a fixed rate. If you are ok with repayment fluctuations when interest rates change opt for variable. If you want to hedge your bets take a split rate.

volauvent

Thanks all. I have been educated by you all! I don't trust the banks naturally so good to get people on the grounds views. Fixed vs variable is still an annoying choice to make but I'm more informed now. I do think the interest rates should do north according to anything I heard.
Thanks a lot for your advice, very helpful..

therightangle

Galego wrote: »

From a financial point of view, there is very little difference between paying a 35 yrs mortgage in 20 years than a 20 years mortgage in 20 year mortgage.

I dont know a whole lot re finance/mortgages but I am surprised at this.
Can anyone here give me an idea of what the difference would be? Is it that small?

riclad

SIMPLE,GO FOR FIXED term loan,
in a few years time rates could be 5 or 6 per cent,
fixed vs variable, on fixed rate you,ll save at least 75k on interest payments.
WHY would you want to go on variable rate loan?
I THINK adviser is saying go on 25,30 year loan ,its easier to pay, easier to be granted a mortgage.
20 vs 30 year,its simple, on 20 year loan the repayments per month,
would be at least 33per cent ,one third higher,
Say in ten years time, if you have the money,you can pay an extra 300 euro per month,ontop of standard payment,
eg you can pay off loan before 30 years ,
if Your income is high enough to allow you to do so.
I PRESUME MOST Financial advisers are fairly honest not corrupt,
so advisers might only recommend loans from 3 banks,
eg the banks that pay them commission ,x per cent of loan amount.
LOOK IN Bookshops ,finance, consumer ,money guide, or library .

to qualify for 20 year loan YOU,D NEED to have high income, plus large savings in a bank account.
They look at what loans you have,how much you save per week,
your monthly expenses ,income after rent,esb bill etc
variable vs fixed rate,
the total interest paid on 180k,after 30 years will be MUCH higher on variable rate.
i can gaurantee interest rates will be much higher in 5 to 10 years from now.

IF i borrowed 100k,today, in 25 years time ,end of loan ,ill have paid bank back,200k approx,
at current rates ,if the interest rates never went up.

Ritchi

therightangle wrote: »

I dont know a whole lot re finance/mortgages but I am surprised at this.
Can anyone here give me an idea of what the difference would be? Is it that small?

I would imagine it would vary from no difference to a big difference depending on how you repaid it.

For example. if a 35 year was costing 600 a month, and a 20 year 1000 a month. If you took a 35 year and repaid 1000 a month instead from the very start, it should be no different for a 20 year.

But if you paid 600 a month for 10 years, then paid 1400 a month for 10 years, you would still owe some money, as you would have accumulated more interest in the first 10 years.

*Figures may not be correct, but you get the idea*

riclad

ITS simple the longer the mortgage term ,25, 30 years,on Variable rate the more interest you pay.

D3PO

riclad wrote: »

SIMPLE,GO FOR FIXED term loan,
in a few years time rates could be 5 or 6 per cent,
fixed vs variable, on fixed rate you,ll save at least 75k on interest payments.
.

what the hell are you waffling about ?

how about some substance and not just conjecture.

roro2

D3PO wrote: »

what the hell are you waffling about ?

how about some substance and not just conjecture.

And good grammar and punctuation while you're at it.

riclad

Let,s Say you borrow 150k,at fixed rate 4 per cent,
You,ll pay a lot less on interest,payments, than say joe bloggs who borrowed 150k,variable rate loan, if rates go to 6 or 7 per cent variable in 3 years .
I can remember time when variable rate was 9 per cent on a mortgage.I cannot think of one reason to go for a variable loan, if you can get a fixed rate loan at the moment.
IS there someone on the forum ,who thinks variable rate loans are a good financial choice in this scenario?
if someone offered me a brand new honda car for 5k,
or a secondhand rusty 2 year old lada car for 4800, i ,d buy the new car.

roro2

riclad wrote: »

Let,s Say you borrow 150k,at fixed rate 4 per cent,
You,ll pay a lot less on interest,payments, than say joe bloggs who borrowed 150k,variable rate loan, if rates go to 6 or 7 per cent variable in 3 years .
I can remember time when variable rate was 9 per cent on a mortgage.I cannot think of one reason to go for a variable loan, if you can get a fixed rate loan at the moment.

And who's offering a long-term 4% fixed rate?

D3PO

riclad wrote: »

lets SAY you borrow 150k,at fixed rate 4 per cent,
You,ll pay a lot less on interest,payments, than say joe bloggs who borrowed 150k,variable rate loan, if rates go to 6 or 7 per cent variable in 3 years .
I CAN remember time when variable rate was 9 per cent on a mortgage.
i cannot think of one reason to go for a variable loan, if you can get a fixed rate loan at the moment.

1) show me a 3 year fixed rate of 4 percent
2) show me a variable rate currently 3 percent higher than a fixed from the same bank.

NEITHER EXIST.

You really need to get an understanding of rates before you provide "advice" besides which you then go on to extrapolate a 3 year rate difference over a 30 year mortgage which is a joke.

any fixed v variable rate decision is based on the here and now and what you project to happen over the fixed rate period not over 30 years.

riclad

OK, then a financial adviser should be able to work out which loan is best,
if i borrow 180k, at x per cent rate , HOW much am i likely to save at
on fixed rate, versus variable rate loan of 180k, over the next 3 years.
Sorry .i was wrong.
That,s assuming variable rates do not rise by a large amount in the next 3 years.
I WAS CONFUSING FIXED RATE loans ,with a tracker mortgage,
which i presume stay on the same rate for ten years or more.
What is the fixed rate you were offered, eg 4.5 per cent .on a loan of 180k?

I, ADMIT I WAS Wrong, in saying you could get a fixed rate loan for 20 years plus.

D3PO

riclad wrote: »

OK, then a financial adviser should be able to work out which loan is best,
if i borrow 180k, at x per cent rate , HOW much am i likely to save at
on fixed rate, versus variable rate loan of 180k, over the next 3 years.
Sorry .i was wrong.
That,s assuming variable rates do not rise by a large amount in the next 3 years.
I WAS CONFUSING FIXED RATE loans ,with a tracker mortgage,
which i presume stay on the same rate for ten years or more.
What is the fixed rate you were offered, eg 4.5 per cent .on a loan of 180k?

I, ADMIT I WAS Wrong, in saying you could get a fixed rate loan for 20 years plus.

Trackers do not stay the same for ten years or more. Trackers track (hint is in the name) the ECB rate plus a margin added by the bank. These are also no longer available to new mortgagees anyway.

As for whats better fixed or variable, there is no such thing as a best. It depends on your estimation of rate changes over the period of time, also coupled with personal circumstances.

If you are nervous about rate changes paying an additional margin for a fixed rate to have peace of mind may be the right option, where as if this isnt a concern then variable rate is probably the way to go.

The most basic way of looking at it is that the bank doesnt want to lose out. As a result the rate setters in the bank will have calculated what they believe variable rates to average over the period in question and then add a buffer for any variations on their calcutations and use that to set the fixed rate.

In other words if you accept that the bank employees involved in rate setting are good at their job then variable should work out cheaper as the house always sets itself up to win.

murphaph

riclad wrote: »

OK, then a financial adviser should be able to work out which loan is best,

Unless the adviser has a functioning crystal ball then no, he will not be able to definitively work out which one is best. Interest rates change over time...they can rise as well as fall.

riclad

I THINK theres not much chance of rates going down in the next three years,
Yeah ,i remember now ,trackers follow the rate set by the ecb,which tends to be lower than the rate on a variable rate mortgage from an irish bank.

earlyevening

riclad wrote: »

I THINK theres not much chance of rates going down in the next three years,
.

Why on earth not?

President Mario Draghi said he still expects Eurozone inflation to fall below 2% this year. A rate cut in the short term on the back of that is pretty much expected.

PS Riclad, may I ask how old you are?

Galego

earlyevening wrote: »

Why on earth not?

President Mario Draghi said he still expects Eurozone inflation to fall below 2% this year. A rate cut in the short term on the back of that is pretty much expected.

PS Riclad, may I ask how old you are?

I do not see them going down in the short future. My reason to believe this is that banks are losing money from the trackers and they will need to balance the numbers with the variable mortgages. They are also losing deposits so with BOI announcing last week 2bn in losses, it is not looking probable that they will bring down the variable rates. Remember that these variable rates are not necessarily linked to any European index and it is always up to the bank whether to increase or decrease such a rate.


Of course, this is only my opinion in this matter.

earlyevening

Galego wrote: »

I do not see them going down in the short future. My reason to believe this is that banks are losing money from the trackers and they will need to balance the numbers with the variable mortgages. They are also losing deposits so with BOI announcing last week 2bn in losses, it is not looking probable that they will bring down the variable rates. Remember that these variable rates are not necessarily linked to any European index and it is always up to the bank whether to increase or decrease such a rate.


Of course, this is only my opinion in this matter.

I was only referring to ECB rates and hence tracker rates. I agree variable rates wouldn't drop in line with ECB rates.

jester77

Galego wrote: »

I do not see them going down in the short future. My reason to believe this is that banks are losing money from the trackers and they will need to balance the numbers with the variable mortgages. They are also losing deposits so with BOI announcing last week 2bn in losses, it is not looking probable that they will bring down the variable rates. Remember that these variable rates are not necessarily linked to any European index and it is always up to the bank whether to increase or decrease such a rate.


Of course, this is only my opinion in this matter.

The ECB have hinted that they may drop rates a quarter point at their next meeting. So rates could still drop but Irish banks may not pass it on to their variable rate customers.

The rates are not going to stay this low forever. Some economies are already picking up, so it will only be a matter of time before ECB rates start going back up and you can guarantee the banks will pass that on. Either fix for a long time (15+ years) or calculate repayments based on a high variable rate, otherwise you are asking for hardship further down the road.

D3PO

Febs Eurozone Inflation rate was 1.8% below the ECB's target of 2%

Germany in particular in running a low rate of 1.5% last month only prevented from being 1.1% by higher fuel costs.

Its very likely The ECB will cut a quarter point off the base rate at their next meeting, or at the very least the following one should inflation continue on this course.

However there is zero chance of any Irish banks passing this on to their variable rate customers, hoever it may well stave off any planned increase in those rates to increase margin.

therightangle

Ritchi wrote: »

For example. if a 35 year was costing 600 a month, and a 20 year 1000 a month. If you took a 35 year and repaid 1000 a month instead from the very start, it should be no different for a 20 year.

Are you sure about this?

The reason Im wondering is that a 35 year mortgage is pre-loaded with more interest, Im guessing, so the 1000 a month that youre putting in, instead of the 600 a month, is not paying off the same proportion of interest/capital as a straight 20 year mortgage?

In other words, you would still have extra to pay after 20 years (of 1000/month) if it was a 35 year mortgage because you were charged more interest than a straight 20 year mortgage?

Ritchi

therightangle wrote: »

Are you sure about this?

The reason Im wondering is that a 35 year mortgage is pre-loaded with more interest, Im guessing, so the 1000 a month that youre putting in, instead of the 600 a month, is not paying off the same proportion of interest/capital as a straight 20 year mortgage?

In other words, you would still have extra to pay after 20 years (of 1000/month) if it was a 35 year mortgage because you were charged more interest than a straight 20 year mortgage?

I'm not 100%, no, but in theory it sounds right to me. A mortgage is not preloaded with interest, the interest is calculated on the amount you have outstanding, at the beginning you have a bigger capital outstanding which is why you will initally be paying more interest. I'd be 99% sure that it would work out the same, but I hope someone else could confirm?

Ritchi

Actually if you use this: http://www.drcalculator.com/mortgage/ie/

It looks like my theory is right.

killers1

Ritchi is 100% correct. A mortgage is not pre-loaded with interest. The interest charged on a mortgage is calculated on a daily basis on the balance outstanding. If over ayments are made i.e. making the equivalent 20 yr repayment on a 35 yr mortgage term, the mortgage balances reduces quicker and the interest is being charged on a lessor amount o/s than if the 35 yr term was being adhered to. If the 35 yr mortgage is repaid in 20 yrs, the interest charged will be the exact same as if the mortgage term itself was taken out over 20 yrs to begin with.

Cathmandooo

That's very interesting. What would be the point in taking out a 20 year mortgage if the 35 year one gives you a little more leeway? As in if you think at the moment that you'd be well able to make the repayments for a 20 year mortgage would you not be better off going for the 35 year, paying the 20 year repayment and leaving yourself a buffer if something happens in the future leaving you less able to meet the 20 year repayments?

killers1

Cathmandooo wrote: »

That's very interesting. What would be the point in taking out a 20 year mortgage if the 35 year one gives you a little more leeway? As in if you think at the moment that you'd be well able to make the repayments for a 20 year mortgage would you not be better off going for the 35 year, paying the 20 year repayment and leaving yourself a buffer if something happens in the future leaving you less able to meet the 20 year repayments?

That's why I always advise people to take it over as long as possible and amend the repayments accordingly to finish it sooner and still have the peace of mind of being able to revert to lower repayments. Some people just like to take as short a term as possible because they think they won't arrange the overpayments or won't stick to them long term.

Ritchi

Cathmandooo wrote: »

That's very interesting. What would be the point in taking out a 20 year mortgage if the 35 year one gives you a little more leeway? As in if you think at the moment that you'd be well able to make the repayments for a 20 year mortgage would you not be better off going for the 35 year, paying the 20 year repayment and leaving yourself a buffer if something happens in the future leaving you less able to meet the 20 year repayments?

Yes, assuming the bank allows you to take a 35 year mortgage(depends on your age), and you are organised enough to either overpay, or put the extra in a high interest account(one that is higher than your mortgage's interest) if you happen to be on a low interest mortgage.

flintash

Cathmandooo wrote: »

That's very interesting. What would be the point in taking out a 20 year mortgage if the 35 year one gives you a little more leeway? As in if you think at the moment that you'd be well able to make the repayments for a 20 year mortgage would you not be better off going for the 35 year, paying the 20 year repayment and leaving yourself a buffer if something happens in the future leaving you less able to meet the 20 year repayments?

That sound exactly like my plan . You wont need to go to bank to re-mortgage or so, just drop overpayment if you wish/cannot pay.