What type of mortgage is best?

wondering what people think about pros and cons of

variable vs fixed?

25 vs 30 vs 35?

i was originally thinking about going 5 yr fixed (thinking was as europe turns around and ecb start raising rate on top of irish banks needing to increase margins then rate to go up over next 2-4 years). this was over a year ago now and not quite sure still seems as likely a scenario.

now however the attraction of the fixed is the nightmare scenario (in one narrow sense of course) where we go back to punt and rates shoot up to 10+% as our banks have even more trouble accessing funding with increased currency risk. but is this a realistic scenario do people think? - could we be using punts in say 3 years times and what would a standard variable rate be then?

also on length - i’ve heard the argument for taking say 35 year (assuming variable) which gives you a lower repayment each month and then just over paying each month so it feels like you are on a 25 year but at least if anything ever does happen your minimum commitment is lower so kind of like a bit of a safety valve for free, make sense?

any views greatly appreciated…

The shortest possible time frame, the lowest possible amount and the lowest possible rate. If you want to assess what is the best mortgage then calculate the total cost over the period of the loan - if this doesn’t give you the heebie-jeebies then you are probably immune to financial advice and should just do whatever comes into your head.

If I was starting out again I would take out a twenty year mortgage at less than three times the salary available (joint, single whatever). I would fix the first three years to give me a comfort zone. The only reason I wouldn’t fix would be if the rate was completely insane or I was in a job where I knew that my salary was going to increase over the time frame on a guaranteed and regular basis. A fixed rate will always cost you more than variable but I’ve done it twice and found the comfort invaluable (I lived through 1993 when the rates went to 14% so maybe I’m just scarred). I don’t know of a fixed rate that will allow you to pay off capital in the fixed term so if I did find myself with the wherewithal to pay more into my mortgage I would put it into a good deposit account on a monthly basis and pay off a chunk of the mortgage when I came off the fixed rate.

A twenty year mortgage gives you scope for extension - a thirty five year mortgage doesn’t. If you need anything more than a twenty five year mortgage or 3 times your salary to buy the house of your dreams then you need to change your job or your dreams.

Would agree with most of what metalmike said.

I’d take out a mortgage that I could very reasonably expect to pay off in 15 years. I’d add 5-10 years to the mortgage to allow for a cushion in the event of unemployment/financial crisis, etc. (even if you are a public servant on a permanent contract - think end of Croke Park deal). However, I’d be aiming to pay it off in 15 years or less (if you’re late forties or more when taking out a mortgage, I’d be looking at something that can be paid off in a few years).

Most importantly of all, I’d want it written in small print on the mortgage documents that I can pay off the mortgage early WITHOUT PENALTY.

Regarding what pony said regarding taking a longer term and overpaying. This would seem more sensible to me than forcing a shorter term upon yourself. With the longer term you can still pay it off in 15 years. The only downside that I can see is that you wouldn’t have the discipline and wouldn’t overpay but that’s another matter

first two responses is kinda how i was thinking about it (terms over 25 years should be banned). but in thinking about taking the longer term and just overpaying - whats the catch? (apart from the discipline and physiological fortitude required which i feel i’m ok with).

am i missing some obvious cost or risk?

maybe fixing for 5 years (protect against certain short term risks) and extending term to 30 years (maybe even 35) then gives some safety valve against longer term risks? Aim being from year 6 to 25 try overpay to ultimately have it clear inside 25 years. need to look at figure on this i suppose.

also what is best way to optimize mortgage interest relief - was hoping they would let it die and let market drop but since they seem intent on keeping it going i want to structure mortgage to squeeze as much out of it as possible!

p.s. i’m in mid 20’s and this is the ‘dream house’ (subject to survey and all the usual’s) so i’m comfortable enough with say 30 years if i had to but obviously that’s an extra 50-60k vs a 25 year that i’d rather not pay to bank

I am not a beliver in fixed rate mortgages - they always work out to be expensive in my view. The banks will always predict interest rate trends better than the average punter and the penalties for early redemption of a fixed rate mortgage are always huge. If you want to fix for peace of mind fair enough - but you have to recognise that peace of mind will cost you.

I agree with most of the points made by other posters in relation to the duration of the mortgage. But if you are very keen on a long duration why not overpay to eay away at the capital faster? If I was in the market for a mortgage I would also be trying my best to get one from AIB. The government will be their main shareholder for the forseeable so they will be subject to massive political pressure to keep their rates as low as possible,

+1

A fixed-rate mortgage is a tax on people who think they’re smarter than the banks.

+1

A fixed-rate mortgage is a tax on people who think they’re smarter than the banks.

Going by the last decade I think lot of people may well be smarter and less reckless than the banks…

I’m on year 2 of a 5 year fixed at 4.25% while current variable rate is now 4.45% from what I see on banks website. Could have gone either way, but it worked out - great for security and peace of mind like mentioned above.

There’s no “one size fits all” answer though, all down to personal situation, finances, life. Weigh it up yourself and see. I regret not trying harder to talk my other half into going for the 10 year fixed, but even I wasn’t 100% convinced about it at the time.

Do try and get a mortgage that you can aim to pay off within 15 years or so, even if you go for a 30/35 year term to start - you’re still starting out with the right attitude.

If just looking at it from a financial point of view then fixed vs variable is you betting that you know better than the banks as they will have priced expected future interest rate movements into their rates.
If however you are looking at it from a cashflow point of view and predictability then fixed does offer you the advantage of knowing what your cashflow will be.

As for term, I’d aim to pay it off as quick as possible. If you take a 30yr mortgage but aim to pay it off quicker then so be it, it’s easier pay off a 30 year mortgage in 20 years than it is to try and renegotiate the term of a 20 year mortgage to 30 years if things don’t work out as planned.

30+ year mortgages are common in many other countries so not sure why it should be any different here. In syaing that I have friends who at 35 believed a 30 year term should be the maximum and now at 40 belive 25 years should be the maximum as they realise they are now bidding for properties against people than can borrow for a longer therm and thus, all else being equal, can borrow a larger amount, than them. It’s amazing how one’s age can shape someone’s opinion of how long the maximum mortgage should be.

am also starting to think about merits of fixing for five yrs. euro break up cou is what im getting at here, but ld take years so why not try self insure via the overpaying route (or by sticking difference on deposot) now if i could fix for whole term then that could be interesting matbe ten years fix. really i think my problem is accepting the possibility of very high interest rates in next five plus years, but i accept i have not been around that long so maybe am niave, but then again whole euro situation is pretty unique and maybe unknowable. is sudden disorderly euro breakup main risk i face and sure if so why not go moral hazard route and sink with ship in the disaster scenario i worry about.

p.s. sorry about grammer, using phone, plus sorry bout possibly nonsensical blah blah…

No mortgage is best…and we are getting back, slowly, to the days when people realise the millstone a mortgage is.

My next place will be for cash - and I will take 5 years to renovate - saving as I go. Slow, painful, but at least my 40s and 50s will be on my terms and not the banks.

Any mortgage over 25 years is stupid and fiscally reckless (I should know as I have 35 years left on my 40 year morgage…just too lazy to switch it as it is ECB +0.6% - have the cash to clear it but no point in paying it off as access to cash is just so tight right now).

anyone any views on split rates?

aib.ie/personal/mortgages/Fi … able-Split

e.g. fix for 10 years on half the loan and let other half be variable

actually does not look like they do 10 year fixed - 5 seems to be max for all lenders

True dat.

Come back and post again at the end of the 5 years :slight_smile:
Obviously I hope it works out for you, but on average you’ll loose money on a fixed-rate mortgage.

Imagine this scenario…

The financial and political powers that be make a decision and implement it with legal etc. force that your savings are in such devalued (or inaccessible or damaged etc.) and that those with trackers are seen to be needed to have to pay a levy, since they have “done a bad thing” by actually taking a product that is harming society (since it’s penalizing the banks).

What then?

You are screwed both ways.

Is it better not to clear out your debts and stand with those who are debt free and move into the future in such a way clear of any burden of usery?

Ah but sure we can all imagine specific scenarios that would absolutely screw us - but how likely are they to occur?

If I had €300k wedge and a €300k mortgage I think I’d be looking to solve my wedge on the edge problem by throwing a lot of it at the debt, but I wouldn’t clear it, leaving me wedgeless for the zombie apocalypse. Where anyone draws that line is a deeply personal decision and there is no right answer, except in hindsight.

I know someone with one of those “offset mortgages” where any money you have on deposit counts against your mortgage and you don’t pay interest on that portion of it. Pure madness for the banks to have been offering those but it’s handy to have :smiley: