Mortgage Enquiry

bananapancakes

I have a question about my mortgage situation.. Its so simple I'm afraid im missing something.

I have 2 lenders will willing to give me a mortgage.

1. Term 29 years. 2.55%

2. Term 30 years. 3% 2% cashback on drawdown.

Both are for 5 years fixed.

The 2nd option is working out cheaper per month and the cashback is making it a no brainer. At least I think. Am i missing something choosing the higher rate. Thanks in advance

Apologies if this isnt alllowed or in the wrong place, I've been inactive a long time here.

FromADistance

bananapancakes wrote: »

I have a question about my mortgage situation.. Its so simple I'm afraid im missing something.

I have 2 lenders will willing to give me a mortgage.

1. Term 29 years. 2.55%

2. Term 30 years. 3% 2% cashback on drawdown.

Both are for 5 years fixed.

The 2nd option is working out cheaper per month and the cashback is making it a no brainer. At least I think. Am i missing something choosing the higher rate. Thanks in advance

Apologies if this isnt alllowed or in the wrong place, I've been inactive a long time here.

Take a simple example - 100k mortgage at the rates and terms above. Option 1 - after 5 years your mortgage would be at c87,575 , Option 2 c88,907 but you would have 2k cash back so if applied to the loan straight away, that would bring the mortgage down to c87,128. Option 2 would on the face of it look like the better option but you have to remember that there's no guarantee that you'll be able to move mortgage provider or get a better interest rate after the end of the fixed rate.

Personally I wouldn't be rushing for option 2 unless you applied the cashback straight against the loan. You also need to be conscious of what is the bank's standard variable rate after the fixed rate ends.

silver2020

I'm thinking Ulster (2.55%) v PTSB

Don't Ulster also give €1500 towards legal fees?

PTSB are notorious for the highest variable rates, so you'd want to be fairly sure you can switch in 5 years.

Ulster may exit the market, or they may exit most units and keep a mortgage bank open.

Probably by end of 5 years you'll be able to look at 80% ltv rates


I think the 2.55% wins by a whisker. + you get legal fees

Taking a 300,000 mortgage and for the sake of identical comparison, both at 30 years, the 3% interest rate would see you paying €6,536 more interest than the 2.55% rate. Deduct the 2% cashback and its still 536 more, add 1500 legal fees contribution and Ulster wins by €2,000.


The slightly higher figure you get is due to a 29 year v 30 year term.


here's a calculator to play with that will show you the actual interest paid each month https://www.amortization-calc.com/mortgage-calculator/

bananapancakes

It's actually AIB at 2.55% and BOI at 3%.

AIB contribute absolutely nothing towards anything.

bananapancakes

FromADistance wrote: »

Take a simple example - 100k mortgage at the rates and terms above. Option 1 - after 5 years your mortgage would be at c87,575 , Option 2 c88,907 but you would have 2k cash back so if applied to the loan straight away, that would bring the mortgage down to c87,128. Option 2 would on the face of it look like the better option but you have to remember that there's no guarantee that you'll be able to move mortgage provider or get a better interest rate after the end of the fixed rate.

Personally I wouldn't be rushing for option 2 unless you applied the cashback straight against the loan. You also need to be conscious of what is the bank's standard variable rate after the fixed rate ends.

Very interesting thank you. I would never have even thought about being locked in after the fixed period is up, i thought a switch would a possiblity. Cheers

FromADistance

bananapancakes wrote: »

Very interesting thank you. I would never have even thought about being locked in after the fixed period is up, i thought a switch would a possiblity. Cheers

It's not that a switch would not be possible but to switch mortgage provider essentially means a new lending application. You'll be subject to most, if not all of the same criteria you face now and will have to contend with whatever your financal / personal circumstances are at that time. Everything should be fine assuming the value of your house doesnt fall and your financal circumstances do not change.

Black_Knight

Cash back is somewhat of a trap to lure people in with an instant "bonus" cash sum into their account, at the expense of a few quid extra a month in repayments. As silver2020 has shown, the lower rate is actually cheaper in the long run.

Now if you could get 2% cashback with a shorter fixed it might be more worth it (you'll have legal fees etc sooner though), then switch to the better rate.

Don't BoI give an extra 1% cashback after 5 years? Or has that offer ended. If you're set on 5 years that could swing back in favour of BoI.

bananapancakes

Thanks for the very helpful and thought provoking replys. They have progressed my query. Lets make the assumptions that after the initial fixed period all is good and a switch is allowed.

I have done some simple economics, with BOI I am better off to the tune of €11,985 after 5 years including the 3% cash back offer. (2% at draw down and 1% on the 5th anniversary of the drawdown)

I suppose im thinking of the here and now and money in my pocket rather than 29 or 30 years time.

The 2.55% rate with AIB is good, but its costing me more month on month. I dont want to think of the long game at the moment.

Is it all as simple as what i have wrote above. Apologies I'm probably driving ye mad now.

FromADistance

bananapancakes wrote: »

Thanks for the very helpful and thought provoking replys. They have progressed my query. Lets make the assumptions that after the initial fixed period all is good and a switch is allowed.

I have done some simple economics, with BOI I am better off to the tune of €11,985 after 5 years including the 3% cash back offer. (2% at draw down and 1% on the 5th anniversary of the drawdown)

I suppose im thinking of the here and now and money in my pocket rather than 29 or 30 years time.

The 2.55% rate with AIB is good, but its costing me more month on month. I dont want to think of the long game at the moment.

Is it all as simple as what i have wrote above. Apologies I'm probably driving ye mad now.

AIB may cost you more by way of a monthly repayment (can't be that much between the two) but you have to remember you'll pay less interest in the long run. That's the aim of the game to be honest. Who wants to be paying more interest than they should be, interest rates in this country are already high enough. The BOI deal on the face of it looks good but in reality it's not unless you apply the full 3% against your mortgage and move after 5 years.

silver2020

I don't think the figure is anything near €12,000.

Per each €100,000, AIB will be €180 cheaper than the BOI rate after taking into account the 2% cashback. The extra 1% cashback on the 5th anniversary puts BOI as the better deal by €820 per €100,000 assuming you have adhered to all of the terms and conditions.

The main benefit of a cashback deal is exactly what you are looking for - a little extra cash at the start. Possibly for furnishing the home or for some other expense.

So overall, little difference between them, and the cashback wins out due to the extra 1%. Just remember to look for the best deal in 5 years time too

bananapancakes

silver2020 wrote: »

I don't think the figure is anything near €12,000.

Per each €100,000, AIB will be €180 cheaper than the BOI rate after taking into account the 2% cashback. The extra 1% cashback on the 5th anniversary puts BOI as the better deal by €820 per €100,000 assuming you have adhered to all of the terms and conditions.

The main benefit of a cashback deal is exactly what you are looking for - a little extra cash at the start. Possibly for furnishing the home or for some other expense.

So overall, little difference between them, and the cashback wins out due to the extra 1%. Just remember to look for the best deal in 5 years time too

I actually sat down today and number crunched. Your post is quite correct. Thank you. Its amazing on the face of it one looks great value but there is very little between both.