Very confused about mortgages as First Time Buyer

adocholiday

Hi all,

We are looking at buying a house in the very near future but we are very confused about mortgage rates and what is a 'good' option.

We are first time buyers looking for a 90% LTV Mortgage on a property worth €415,000. We have Approval in Principle from Haven mortgages, with a 5 year fixed rate of 3.3%. However, checking on a comparison website I noticed that Bank of Ireland have a 5 year fixed rate at a significantly better 3.0% APR with 3% cash back. There's about €60 per month in the difference on monthly repayments.

The issue I see with BOI is that after the 5 years, the current variable rate is 4.5%, but with Haven it's 3.15%, so the savings could be very quickly wiped out.

The obvious solution here is to go with BOI for 5 years and after the 5 years look to fix again, but is that even possible? Is it worth the risk to save extra now (plus the added benefit of cash back), and hope that we can quickly fix again after the 5 years to negate the higher interest charge? Or is it better to play safe and pay the higher monthly repayments now with lower risk at the far side?

Really would appreciate some help understanding some of this!

Edit: Doing some quick calculations, the cash back + monthly savings would add up to somewhere between €14-€15k after 5 years. If the variable rates were to remain the same after the 5 years, it would take over 4 years of higher payments to 'lose' the money saved in the 5 years previous, but the difference in the monthly repayments is about €280 so the month-to-month impact of that increase would be significant. Really unsure of what the best option is in all this.

griffzinho

Hi, Yes you would/should have no problem fixing again. Even switching in five years would be a good option possibly. Your two best options at present would be Bank of Ireland at the aforementioned rate and cash back and also to consider Ulster Bank, with a 4 year fixed rate at 2.6% and €1,500 towards your legal fees. Both work out at around the same over the 4/5 year period.

Eurozone growth is picking up and despite some scope for short term reductions in variable/fixed rates from Irish banks in the short term, chances are over the 4/5 year period core lending rates will rise.

You could go variable with AIB at 3.15% and they have a good record of passing on rate cuts to existing customers. You then would have the option of fixing/switching at any stage after a number of months.

To switch I think UB requires 6 months with same lender, BOI 12 months with same lender, and PTSB 24 months with same lender. So in theory you could switch to UB after 6 months and BOI after 12 months.

However, just a caveat. The cash back offers are under political threat as there is a lot of noise about potentially banning them.

Trish56

Before making your decision you should take the following into consideration:

• What if you lost your job or got ill within the 5 years and could not switch your mortgage to another lender. Also more than likely variable rates will have increased by then and if BOI pass on the increases they will have the highest variable rate in the country.
• What if the value of your home reduces and you will be in negative equity after 5 years like lots of Bank of Ireland customers since the recession that are paying 4.50% variable rate as they cant move.
• Will your circumstances have changed much in the 5 years i.e. both are working now and no dependents - in 5 years you could have 2 dependents and partner staying at home so may not meet the lenders criteria to qualify for the balance outstanding.
• Ask yourself why BOI did not pass any of the ECB reductions to their customers preferring instead to lock them into fixed rates that will cost a penalty if they wish to opt out of.
• AIB/Haven passed all the ECB reductions on to their customers resulting in they offering the best variable rate on the market.

adocholiday

Thanks for the replies. Trish56 makes some compelling arguments for going with Haven. We are both in good secure jobs, and we have no dependents now with no plans for any in the future either, but your points are still valid and it's a big risk to save some money now. Ulster Bank are similar in terms of their variable rate.

Being stuck with a 4.5% variable rate after 4-5 years (and it'll likely be higher) is not an attractive prospect at all, even with the potential savings in the initial 5 years. Then the spotlight on the cashback offers with the chances of them being pulled makes it even less attractive!

I don't think I'm any more certain as to which way I'm leaning on this, but thanks for giving me all of that information because it helps us shape our decision.