Best Approach to New Mortgage - Split Variable and Fixed

[Pratch]

Head is a little melted doing the math. Since BoI changed cashback on their variable rate it's messed with our plans a little. Using some bullet points to keep it tidy.

• New one off self-build house
• Cost to build and valuation approx. €500k
• We have approx. €150k savings that will all go to house build (have rainy day savings separately)
• Mortgage will be €350k initially
• We will be coming into approx. €100k around 10 months after initial draw down (will hopefully be around the time the house is completed)
• Plan would be to use the €100k to take a lump sum off the mortgage and get it to €250k
• Have approval from BoI and PTSB (I know from reading here they're not the most popular but efforts to go with Avant were ignored by the broker which didn't fill us with confidence)

In terms of main queries

1. PTSB full variable rate of 4.5% comes with cashback of €7k (based on €350k initial mortgage). If we go PTSB variable rate, can we switch mortgage provider at any stage? Say we've drawn down the full €350k and we pay two months (40 days to get the cashback) of the mortgage payment for this full amount, can we then switch provider? I assume there's no switching possible during the build process where we'll be drawing down in stages. I've seen some posts mention banks don't like to accept a switcher if they haven't been paying their full mortgage for at least 12 months (which we wouldn't have done).
2. BoI are offering a split mortgage option of 4 years at 3.6% on €250k, and €100k on 4.15% variable. On face value, this suits perfectly as once we get the additional €100k we can pay off the variable rate portion of the mortgage leaving only the €250k on the fixed rate. However, I'm a bit reticent fixing for 4 years given the sense the ECB will start cutting rates this year. That said, form reading here and elsewhere, there's no guarantee Irish banks will pass on any reductions so a 3.6% fixed might be as good as it gets for the next couple of years?
3. If there is the option to switch from PTSB once the mortgage is drawn down fully, I'm considering going with them to get the cashback and then switching. If it's possible, (if I was doing this now) I'd go to a BoI variable rate for one month, then move to a fixed rate in the region of their current existing customer rate of 3.8% over 2 years. This would have the (potential) benefit of getting the PTSB cashback, giving it one year for fixed rates to (hopefully) drop, and then switching to more appealing fixed rate at that point.

Does the above seem a little to convoluted? Part of me thinks option 2, and just sitting on the 4 year fixed at 3.6% on €250k is the most predictable option and means less messing around switching.

 

[_OkGo_]

It's unlikely that you will be able to switch for at least 12 months because most banks will want to see at least 12 months of payments as you have said. I'm also unsure how this applies to self-builds, it may be the case that it is 12 months from full drawdown so maybe look into that also.

With that in mind, I don't think option 3 is really an option for you.

Option 1 gives you an effective rate of 2.5% for year 1 (4.5% - 2% cashback) but you will face ~€1500 or so in costs (solicitors, valuation etc) if you plan to switch away from them at the earliest opportunity.

I haven't been keeping up to date with the latest rates/developments but are you only missing out on cashback with BOI because you are choosing a part variable option?

If that is the case then there is surely a better way of drawing down the full amount fixed for 1 or 2 years. You still get the 2% cashback, there would be either a small or no penalty for making a €100k when you finally get it. And it leaves you open to refixing at a lower rate if you believe that is the direction the rates are going without incurring the costs of switching.

 

[Pratch]

It's unlikely that you will be able to switch for at least 12 months because most banks will want to see at least 12 months of payments as you have said. I'm also unsure how this applies to self-builds, it may be the case that it is 12 months from full drawdown so maybe look into that also.

With that in mind, I don't think option 3 is really an option for you.

Option 1 gives you an effective rate of 2.5% for year 1 (4.5% - 2% cashback) but you will face ~€1500 or so in costs (solicitors, valuation etc) if you plan to switch away from them at the earliest opportunity.

I haven't been keeping up to date with the latest rates/developments but are you only missing out on cashback with BOI because you are choosing a part variable option?

If that is the case then there is surely a better way of drawing down the full amount fixed for 1 or 2 years. You still get the 2% cashback, there would be either a small or no penalty for making a €100k when you finally get it. And it leaves you open to refixing at a lower rate if you believe that is the direction the rates are going without incurring the costs of switching.

As of 18 April '24, BoI have removed cash back from all VRs and some FRs. Their best FR of 3.6% is for minimum 4 years but has no cashback. They have a 1 year 4.3% FR with cashback. As we're going partial VR, we lose that portion of the cashback (would have gotten €7k on €350k, now €5k on €250k).

We're extremely lucky that an immediate family member is a conveyancing solicitor and does it for pretty much no fee for family, so switching would only cost us the €150 valuation and maybe €500 to the family member.

Re-reviewed BoI rates and for the sake of one year FR at 4.3% with cashback, then looking to switch to another provider, that might be the best route. So it's shaping up as BoI 4.3% for 1 year with cashback on €250k (€5k) and the €100k as VR so we can pay it off once we get it.

That said, you mentioned a small or no penalty for paying off €100k. Would there not be a hefty enough fee for paying ~28% of your mortgage off on the fixed rate from BoI?

 

[_OkGo_]

So it's shaping up as BoI 4.3% for 1 year with cashback on €250k (€5k) and the €100k as VR so we can pay it off once we get it.

I still think this is the wrong approach. You should fix the entire amount for 1 year.

By leaving €100k variable, you are choosing to pay a penalty now, i.e. sacrificing the €2k cashback.

By fixing, you get the additional €2k and you can still make the lumpsum payment when you receive the money.

You said you expect it in 10 months so by then there will be a very small ERC (early repayment charge) by then. It's impossible to know what it will be because it is based on interbank rates but it is also based on the remaining fixed term which would be 2 months in your case. I would be confident that any ERC would be a very small fraction of the €2k you are giving up.

See here for how they calculate the ERC

Information and Legal Notices - Mortgages - Bank of Ireland

See important information about Bank of Ireland Mortgage Fees and Cost here.

personalbanking.bankofireland.com

We're extremely lucky that an immediate family member is a conveyancing solicitor and does it for pretty much no fee for family, so switching would only cost us the €150 valuation and maybe €500 to the family member.

This also changes your decision a little in terms of what to do about switching because you can do it at a relatively low cost. If you are not going to receive the €100k until close to when the 1 year fixed is up, then you should probably switch with a balance of ~€340k if cashback is on offer and then pay the lump sum off immediately with your new provider.

But that depends on what the best rates/deals are at the time of course

 

[skrooge]

I agree with the above. To put a value on it:

Splitting your mortgage (€250k 1yr fixed + €100k variable) and paying off the €100k after 10 months will cost you roughly €14,095 in interest,at the end of year 1.

Fixing it all for 1 year will cost you about €14,936.

You"ll save €840 in interest but it'll cost you €2000 in terms of forgone cashback.

That's the worst outcome I.e., ignores the possibility of early repayment under the second option

 

[Pratch]

I still think this is the wrong approach. You should fix the entire amount for 1 year.

I agree with the above.

Ah cheers, I knew posting would be a good idea as I'd make a hames of this decision. As _OkGo_ mentioned, I'll look into when the switch is possible with a self-build as that could be the crux.

Just to clarify, the €100k will become available likely just when the full drawn down has occurred. So during the build over a 10-12 month period, we'll be paying off the cost of the mortgage as it accumulates through drawdowns (first draw of €60k, second of €60K etc.). Once the full draw down has occurred totalling €350k, the house will be complete and we will be close to/at one year since first draw down - this is when the €100k is likely to become available to us.

The reason I mention that is if we have to pay the mortgage of €350k for one year AFTER the final drawdown, my figures are coming out as:

Full FR
> Fixed Rate on full €350k for 30 years
> BoI 4.3%
> Monthly = €1,732, One Year = €20,784.
> Cashback = €7,000
> Yearly Cost - Cashback = €13,784 cost to us for one year at that rate

Split FR/VR
> Fixed Rate on €250k for 30 years, Variable on €100k so we can pay this off immediately leaving only the €250k on the FR
> BoI 4.3%
> Monthly = €1,237, Yearly = €14,846
> Cashback = €5,000
> Yearly Cost - Cashback = €9,846 cost to us for one year at that rate

First year cost between "Full FR" vs "Split FR/VR" is €3,938 in favor of the split rate. So although with the Full FR we get €2k cashback extra, we'd have paid €3,982 more for that one year, so would be down €1,938.

If it turns out the one year starts from FIRST draw down and we can switch AFTER the last draw down, then from your posts it looks like the best approach is to go with BoI as they offer 1 year fixed rates and PTSB doesn't, plus PTSB variable rate with 2% cashback is higher (4.5%) than the BoI 1 year fixed rate (4.3%) with 2% cashback. So go with:

1. Take a Fixed Rate with BoI at 4.3% on the whole €350k for one year while the house is being built and obtain 2% cashback (€7k).
2. Hold the €100k off until after the Fixed Rate ends
3. Switch BEFORE paying off the €100k so as to get cashback on €340k rather than ~€250k.
4. Do my homework before the fixed rate ends and identify the best rates to switch to, hopefully with a cashback offer.
5. Get the switch done.
6. Pay off the €100k.
7. Possibly repeat the switching process every opportunity it is financial beneficial with rates / cash back offers?


Side question: I've noticed the CCPC Mortgage Calculator doesn't generate the same figures as the BoI calculator nor other online calculators. They're not wildly different but was curious if the CCPC one is known to be off since it's the only one that calculates the figures differently.

CCPC: €350k @4.3 over 30 years = €1,715.14 monthly
Other Sites: €350k @4.3 over 30 years = €1,732.05 monthly

 

[Pratch]

It's unlikely that you will be able to switch for at least 12 months because most banks will want to see at least 12 months of payments as you have said. I'm also unsure how this applies to self-builds, it may be the case that it is 12 months from full drawdown so maybe look into that also.

PTSB came back saying the 12 months starts from first drawdown. If we took a 1 year fixed rate and the build takes 12 months to complete, then our fixed rate will end once the house is completed. At that point we would be free to switch.

 

[skrooge]

PTSB came back saying the 12 months starts from first drawdown. If we took a 1 year fixed rate and the build takes 12 months to complete, then our fixed rate we end once the house is completed. At that point we would be free to switch.

Maybe this is a silly question - I don't know how repayments work with a staged drawdown - but how will your mortgage payments look in that first year?

If you are making 12 monthly repayments based on the full mortgage amount you will have a stronger case to be be able to switch.


If, however, your mortgage repayments go up over the course of the year -in line with what's being drawn down - then a new lender could argue they've not seen 12 months of you meeting the full mortgage repayment.

 

[_OkGo_]

PTSB came back saying the 12 months starts from first drawdown. If we took a 1 year fixed rate and the build takes 12 months to complete, then our fixed rate will end once the house is completed

This is good news in terms of how the fixed rate works with staged payments. You should also check this with BOI.

At that point we would be free to switch

I wouldn't assume this. Like @skrooge suggested, I would expect a bank doing their due diligence to want to see 12 months of "full" repayments which would be another year beyond what you think. But that's just food for thought, you'd need to find this out for definite.

But worst case scenario, your initial 1 year fix would be up as you complete the build, you can make your €100k overpayment and then you can refix for another year (if necessary) before switching at the end of year 2.

So if BOI confirm the start date of the 1 year fix is at first staged drawdown then I would choose to fix the full €350k for 1 year and reassess at the end of the year

 

[Pratch]

Maybe this is a silly question - I don't know how repayments work with a staged drawdown - but how will your mortgage payments look in that first year?

If you are making 12 monthly repayments based on the full mortgage amount you will have a stronger case to be be able to switch.


If, however, your mortgage repayments go up over the course of the year -in line with what's being drawn down - then a new lender could argue they've not seen 12 months of you meeting the full mortgage repayment.

Fair point, yeah, the repayments won't be based on the full mortgage amount and only based on the amount drawn down. So, exactly as you've said, we won't have paid the full amount for a 12 month period by the time the last drawdown occurs.

This is good news in terms of how the fixed rate works with staged payments. You should also check this with BOI.

I wouldn't assume this. Like @skrooge suggested, I would expect a bank doing their due diligence to want to see 12 months of "full" repayments which would be another year beyond what you think. But that's just food for thought, you'd need to find this out for definite.

But worst case scenario, your initial 1 year fix would be up as you complete the build, you can make your €100k overpayment and then you can refix for another year (if necessary) before switching at the end of year 2.

So if BOI confirm the start date of the 1 year fix is at first staged drawdown then I would choose to fix the full €350k for 1 year and reassess at the end of the year

Got chatting to BoI today and they confirmed the same as PTSB. The one year fixed rate is deemed to have started from the first drawndown, so the best approach is to fix the full €350k to get the €7k cashback, then once we're switched to variable rate for one month we pay off the €100k, then look at options to switch if possible or take the best rate option that suits at that time.

From what I can see from posts about this stuff (e.g. Bonkers.ie), technically there looks to be no 'limit' to the amount of switching you can do as long as you're willing to do the paperwork needed for it (and pay the valuation and solicitor fee).