Considerations when applying for variable rate mortgage

[moshil]

Hi all, just looking for some causal advise.

Purchased our 1st home in 2021, hoping to buy a different home at the end of 2024 and move on.

Myself and my O/H are keen to pay off our mortgage as soon as possible to free ourselves up for travel and potentially starting our own business to reduce risk. We are dependent free and this won't be changing. Public sector (relatively) risk free roles that are stable.

We are making decent money, and with our calculations, it would be possible for us to make significant monthly overpayments off the loan (2.5 - 3 times of the monthly payment).

When researching mortgage rates, it seems it would make more sense for us to opt for a variable rate mortgage to allow for monthly overpayments without incurring large penalities/charges and to consequently reduce interest payments.

Just wondering could anyone who is more financially literate possibly spell out any additional risks / points we haven't considered in going for a variable rate mortgage from the off?

The only thing I can consider is if the rates are going absolutely mental, we could always fix either way?

Any advise appreciated!

 

[asurfpro]

@moshil Your greatest risk is probably rate fluctuation, or rather increases. While it's reasonably safe to assume we've seen the back of ECB rate rises for now and can expect to see some reduction by late 2024, early 2025, banks are under no obligation to pass on reductions to variable rate loan holders and there's also nothing stopping them from increasing variable rates regardless of what the ECB does.

Consider the idea of splitting the loan. Calculate what you feel you can comfortably pay off over the first three or five years, take that much of your loan on a variable rate and fix the rest for the corresponding period. Rinse and repeat until the loan is gone.

If rates go up, you only have so much exposure, and you're not restricted in what you can pay off because you're budgeting for only the amount on the variable rate

 

[moshil]

@asurfpro Thank you for the thorough response. I appreciate it!

I'm wondering (again from an uneducated POV), if there would be sense in fixing for a period at all - as ideally (and looking at budgets etc) we would be aiming to pay off the debt in its entirety in a 3-4 year period?

 

[asurfpro]

@moshil I can't say if that's right or wrong, that's your decision. If it was me, I'd always want to allow for the unexpected. If you're sure you're covered for emergencies with instant access to (ideally) six months net pay plus a separate pot for doing fun things and still feel you can clear the loan in three years then go for it.

On the other hand, if you're pumping all your spare cash into the mortgage with no savings besides, give some thought to building a rainy day fund. That might slow down the mortgage clearance

 

[telemachus1]

@moshil Last I checked, the below can be done on fixed rates without penalties but confirm any you may pursue:
- BoI allows 10% overpayment on monthly amount (well below your 2.5-3 times)
- AIB allows €5,000 per year total
- PTSB allow any extra amount (got that from other posters here)
- EBS stopped allowing overpayments but allows you to shorten your term

 

[moshil]

@telemachus1 Thank you for this. Very interesting to note PTSB allows any additional amount.