mortgage interest rates

[boagz57]

generally wondering what people's views are on mortgage rates and where they could be expected to.l be in a few years. I'm on year 2 of a 5 year fixed and have the aib 2.15% green rate. my mortgage is manageable at approx 1k a month. at the end of the 5 year fixed I will have approx 225k left on the house to pay.

going by calculators today if I fixed for 20 years then my repayments would be nearly 1400 a month. this will be a huge difference. should I contemplate reducing savings and avcs now to make overpayment on the mortgage. .my wife puts 200 a month into an avc and I put 400 a month in. we are both public sector workers.we earn pprox 100k between us and have 2 young kids.

our only debt outside of the house is 12k left on a car. we have around 30k in cash savings total. I have 20 years to retirement but can stay for 25. my wife has 32 years to retirement.

I'm a little worried about the cost of living and about what the future holds financially, especially with 2 babies. what would people do in my position?

AIB emailed me recently saying that I could make a €5k overpayment on the mortgage per year online.thanks for any advice.

 

[greatgrammyjean]

@boagz57 What's the interest rate on the car loan? Would you not pay that off with the savings?

 

[boagz57]

@greatgrammyjean interest rate is 4.9%

 

[taylord95]

@boagz57 I’d pay that off with savings. Then get that buffer up again.
Then I’d take advantage of the €5K per year AIB allow you to overpay per year.

 

[boagz57]

@taylord95 looks like a good plan. I think I will go this route. thanks!

 

[sadpaanda]

@boagz57 You can overpay as much as you like at no charge, you aren’t limited to 5k.
Because interest rates are higher than when you drewdown the break fee calculation works out as a negative number i.e there is zero break fee.
I suspect that AIB has told people they can overpay by 5k at no fee so that people won’t look into break fee calculations, there is no break fee if your interest rate is lower than what the market rate is now.

 

[boagz57]

@sadpaanda that's very interesting. I would love to get this mortgage debt down as fast as possible. as soon as I get the car loan paid, emergency fund up to around 25k, I'm going to hit the mortgage hard

 

[lovesharox]

@sadpaanda Didn't know this. Very helpful.

 

[captainfarkus]

@sadpaanda I would doubt that AIB are intentionally trying to avoid people overpaying these loans. It is more profitable to AIB if people do overpay.

 

[jonasbrownith]

@sadpaanda Is that a definite though? Looking through the example calculations AIB provide, they only have examples of where the interest rate is lower when you overpay - which results in a charge.

The thing I see as ambiguous is how they treat the difference between the two rates in that part of their formula. They take one from the other, so if they always take the current rate from the rate you fixed at, you're correct that the overpayment charge will be negative. However, if they reverse the order, or take an absolute value, you'll have a positive number hence an overpayment charge.

Basically say you fix at 3% and the rate when you overpay is 5%. If they take the 5% from 3%, you get -2%. If they take an absolute value though, the sign is ignored and it's 2%.

I haven't personally tried overpaying beyond what they officially allow, so open to correction on that.

 

[sadpaanda]

@jonasbrownith They don’t take the absolute value. It’s old rate minus new rate.

 

[keepwalkingon]

@boagz57 Ya pay it off as soon as possible it’s a liability get rid of liability’s then aggressive pay ur mortgage back with principal only monthly contributions that will save you thousands in interest and when rates do down you can get ur mortgage looked over again

 

[rochelle]

@boagz57 Personally wouldn't fix for 20 years in the current climate 3-5 would probably be what I'd be looking at if I were you. Everything's a gamble though.

I fixed for 10 in 2022 and I'm raging I didn't fix for 15 at the same rate.

 

[deaconmike]

@rochelle I missed fixing for 20 years over 1 €40 missed payment in 2022, I’m still pissed over this

 

[killalljewishpeople2934]

@deaconmike Yikes - what was with that? Made a mistake with the mortgage a year ago where we took out too much money for a holiday and missed the mortgage payment. But then had it fixed when they re-asked a few days later. Hope thats not going to screw us over when the fixed rate expires.

 

[deaconmike]

@killalljewishpeople2934 I was dealing with a broker, I wanted to fix with finance ireland he said there was no point even applying with the missed payment. I have an over draft on my account since to ensure exactly that doesn’t happen again.

 

[killalljewishpeople2934]

@deaconmike ah, thanks! that was unlucky though.

 

[deaconmike]

@killalljewishpeople2934 I think I needed 6 months of clean accounts to have a chance to apply so hopefully you won’t need be caught too within that window

 

[boagz57]

@rochelle I would like the security of knowing that my mortgage is x a month but i agree with your view. at least I'm not paying rent !rent I this estate is double my mortgage currently

 

[rochelle]

@boagz57 That was my logic in going for the 10 year at the time, broker strongly advised I go for the 5 year fixed and I'm glad I didn't listen to him