FTB interest rate - fix for 3-year or 5-year or variable?

jayjay2010

Hey,

I am a FTB and as there is a delay with my mortgage application, this gives me more time to decide which interest rate to choose from. I chose my mortgage with EBS and here are the current rates:

VARIABLE 4.20%
1 Year 3.50%
2 Years 3.60%
3 Years 3.65%
4 Years 3.75%
5 Years 3.80%

I originally chose 5 years fixed as there is the security of knowing what I will be paying for the next 5 years. However, the 3 years option is what I am really leaning towards now as a) it has a cheaper rate and b) if I wanted to break the fixed term the penalty will be less that the 5 year option.

However, I understand that the variable option means that I can pay off as much as I want each month. The thing I don't understand is, if I pay more than the actual amount does that come off the capital payment or interest payment? I don't fully understand how this works.... say I wanted to pay 5k in one go, do I pay interest on this 5k repayment???

Paulw

It is really one of those hard choice questions.

Personally, when I bought, I took the 3 year fixed option. That way I knew exactly how much my mortgage would be for the 3 years. But, I had the option of 3 year, 5 year, variable or tracker. So, when my 3 years were up, I went tracker.

You have to factor in the probability that mortgage rates can't stay this low forever, and will have to go up at some stage. Will that be within 3 years, 5 years or further out?

Best of luck with your choice.