Fixed, Variable, or Split Mortgages

Squall Leonhart

Currently in talks with the bank about applying for a mortgage.

Our options are fixed 3.1% for 3 years,
Variable @ 4.3%
Split mortgage, to quote the mortgage advisor:

"this is where you can put a portion of the mortgage on a fixed rate & a portion of the mortgage on a variable rate. So effectively you will have two mortgages payments one which is fixed every month & the other is subject to the variable rate however you can lodge any out of course lodgements i.e gifts, inheritance, winnings etc if you wish & there will be no penalty".

We're leaning towards variable, and overpaying from day 1, but if life gets in the way we can reduce our monthly payments and still meet the payments.

Fixed, while lower payments, doesn't sound appealing.

I guess my question is on the split, has anybody here done it this way when taking out a new mortgage (as opposed to restructuring a mortgage in arrears, which is a different thing).

I'm wondering if the split will cost us more than a variable, or will it save us money....? Can't fully get my head around it at the minute.

dar100

Split will cost you less than vireable but more than fixed,

I'd go with vireable !!

Squall Leonhart

Yeah variable is the current leader for me anyway

Trish56

You need to shop around before making a decision there are far better variable rates out there than 4.30%. Majority of lenders offering variable rates of 3.50%.

Squall Leonhart

Trish56 wrote: »

You need to shop around before making a decision there are far better variable rates out there than 4.30%. Majority of lenders offering variable rates of 3.50%.

In the process at the moment of shopping around. Some banks are more willing than others however to lend to somebody not in a permanent full time position - I'm a contractor. That said, we're getting places anyway!

Browney7

What's the deal for the fixed portion when it's term is finished? If they give you a rollover rate equal to the proposed variable it makes the split or even fully fixed attractive. I think you could negotiate a bit more on the variable. I assume at these rates it's BOI?

Squall Leonhart

Browney7 wrote: »

What's the deal for the fixed portion when it's term is finished? If they give you a rollover rate equal to the proposed variable it makes the split or even fully fixed attractive. I think you could negotiate a bit more on the variable. I assume at these rates it's BOI?

I'm not too sure what the story is as of yet with what happens the fixed portion, I was told "see what they come back and offer you at the end of the 3 years", but obviously that's a bit wishy-washy.

Yes it was BOI at those rates. I have been talking to a broker in the meantime who is chasing other banks for me.

peadar76

I'm talking to BOI about switching my mortgage to them. I'm currently with Haven and on a variable rate of 3.4%.
BOI are offering a 3 year fixed of 3.1% plus 3% back in cash (2% now and 1% in 5 years).

Is it not a no-brainer to go with BOI? Or am I missing something? Why are some more inclined to go with a variable that is higher than a 3 year fixed? Am I likely to get screwed at the end of the 3 years?

Squall Leonhart

peadar76 wrote:

Is it not a no-brainer to go with BOI? Or am I missing something? Why are some more inclined to go with a variable that is higher than a 3 year fixed? Am I likely to get screwed at the end of the 3 years?

My reason for planning to go variable is to overpay without penalty, plan to overpay from the word go.

lau1247

Squall Leonhart wrote: »

My reason for planning to go variable is to overpay without penalty, plan to overpay from the word go.

I understand you plan to overpay from the get go but correct me if I'm wrong.. Don't the split option work best??

With split mortgage, you have the advantage of lower fixed rate for 3 years on a portion of your loan (Albeit with penalty if you overpay early on this fixed portion) but compare to going 100% variable, do you realistically think you will overpay the entire mortgage to such an extent that you will finish paying everything within 3 years?. Seems highly unlikely to me and if not, why my not go with split and enjoy lower rate on the fixed portion and overpay on the variable portion?

Squall Leonhart

lau1247 wrote:

I understand you plan to overpay from the get go but correct me if I'm wrong.. Don't the split option work best??

With split mortgage, you have the advantage of lower fixed rate for 3 years on a portion of your loan (Albeit with penalty if you overpay early on this fixed portion) but compare to going 100% variable, do you realistically think you will overpay the entire mortgage to such an extent that you will finish paying everything within 3 years?. Seems highly unlikely to me and if not, why my not go with split and enjoy lower rate on the fixed portion and overpay on the variable portion?

This is why I posed the original question

And no haha, I do not think for a moment I will clear in 3 years, 15 would be the goal.

Like I said in my OP, I cannot work out how much better off I'd be with a split.

lau1247

Squall Leonhart wrote: »

This is why I posed the original question

And no haha, I do not think for a moment I will clear in 3 years, 15 would be the goal.

Like I said in my OP, I cannot work out how much better off I'd be with a split.

your saving should be the difference between 3.1% (fixed) and 4.3% (variable) which would be 1.3% over the 3 years of the portion you choose to fix for the initial 3 years (Assuming variable rate don't change in that time and that when you finish the 3 year fixed, your rate change back to match the variable portion).


I think the saving is a little bit more than that over the full term of the mortgage (If I'm working this out correctly) because you would have paid less interest from the fixed than if you go with variable directly from the get go. Therefore the amount you don't have to pay into interest during the fixed period would mean you could have used it to overpay even more (Assuming you do so) thus reducing the capital quicker and this would have a compounded effect over the full term of the mortgage.

Like for like, the split mortgage seems like a no brainer to me.

restive

Just finished listening to Matt Cooper interviewing a mortgage guy on the radio. He is warning about rates rising in the next 12 -18 months.

Squall Leonhart

restive wrote:

Just finished listening to Matt Cooper interviewing a mortgage guy on the radio. He is warning about rates rising in the next 12 -18 months.

Must have a listen back, thanks

dar100

Makes no difference to me, I've over two years left on fixed rate, at 5.2 % even if rates go up by 2% in next few years nothing will change for me, I'm still screwed 😊

Bubbaclaus

dar100 wrote: »

Makes no difference to me, I've over two years left on fixed rate, at 5.2 % even if rates go up by 2% in next few years nothing will change for me, I'm still screwed 😊

When did you fix at 5.2%?? Holy moses.

peadar76

peadar76 wrote: »

I'm talking to BOI about switching my mortgage to them. I'm currently with Haven and on a variable rate of 3.4%.
BOI are offering a 3 year fixed of 3.1% plus 3% back in cash (2% now and 1% in 5 years).

Is it not a no-brainer to go with BOI? Or am I missing something? Why are some more inclined to go with a variable that is higher than a 3 year fixed? Am I likely to get screwed at the end of the 3 years?

So is this a good deal? I don't intend overpaying any time soon, so no issue there. I don't want to switch again in 3 years though, given that BOI SVR is so high (4.2%?) presumably I will be able to fix again at reasonable fixed rate.

What is the story with some banks have fixed rates lower that variables? I thought fixed rates were always higher

Trish56

I don't think its a good idea to switch your mortgage to a lender whose variable rates are at 4.30% compared to 3.40% with Haven. If you fix in at 3.1% for 3 years and say rates go up by 1% during that period then their variable rate will be 5.30% when the fixed rate expires and all their fixed rates will also be gone up by 1%.
Haven and AIB are the only lender who have passed on all ECB rate decreases to their existing customers unlike BOI.
Be careful fixing in for 3 years as its more than likely that rates will go up within the next 2 years. When the fixed rates expire you will go back to standard variable or you can choose another fixed rate.

If you are seriously thinking of switching why not try AIB who have the same variable rate as Haven and will give you 2k to switch.