Planning to buy home

[masterboy123]

Hi,

We are a married couple and in our early thirties. We don't have any dependent family member yet.

We are planning to buy a 3 bedroom home. But unsure about the reality of mortgages. I have done bit of my research and know the basic principles, variable vs fixed, LTV, etc. However, given it is our first mortgage I am worried that we can be fooled easily by broker/bank.

The house we like has a listed price of 240,000 euros and we have saved deposit of 50,000 euros (meaning we have 20% deposit to pay straight). The estate agent said party may agree for 235,000 euros but it's not sure yet (although our offer is of 230,000 euros).

We plan to take mortgage for 17 years with monthly payments of €1130 per month at 3% fixed from BOI (total interest will be €50,000). We have kept the monthly repayment set to 25% of our combined monthly salary, just to be on the safe side.

My question is does this deal sound good enough, especially for people for who experience dealing with mortgages?

I would appreciate any help /advice.

 

[RedOnion]

I am worried that we can be fooled easily by broker/bank.

It's the estate agent that you normally need to look out for!

How many years do you plan to fix rate for initially?
If you want certainty over repayments, you could have a look at 10 year fixed rates from KBC or BoI. That way you've locked in the rate for over half the life of your mortgage.

Overall what you're proposing sounds very sensible and managable.

 

[masterboy123]

Well, we planned for fixed rate for the full 17 years of mortgage. Would people recommend going half variable rate?

It's the estate agent that you normally need to look out for!

How many years do you plan to fix rate for initially?
If you want certainty over repayments, you could have a look at 10 year fixed rates from KBC or BoI. That way you've locked in the rate for over half the life of your mortgage.

Overall what you're proposing sounds very sensible and managable.

 

[RedOnion]

Well, we planned for fixed rate for the full 17 years of mortgage.

Ah, there is no bank currently offering a fixed rate for that long.

The BoI rate of 3% is available for a maximum of 5 years. At the end if 5 years you'd have to pick the best rate available then.

They have a 10 year fixed rate, currently 3.5%, and KBC also have a 10 year rate which is less if you have a low loan to value, and switch your current account to them.

New Mortgage Pricing for 10 year fixed rate (inclusive of 0.2% current account discount) are:
<60% LTV 3.05%
60-80% LTV 3.2%
80-90% LTV 3.75%

If you post details of the amount you are borrowing, I or someone else will try point you in the right direction.

 

[masterboy123]

So our maximum budget is €220,000. Got deposit of €50,000 ready. So loan amount will be €170,000 which we want to clear within 17 years or so, don't want to loose over €50,000 as interest amount.

Any suggestions for the above figures?

 

[RedOnion]

don't want to loose over €50,000 as interest amount

Unfortunately, no matter what you do it's going to cost you interest over the term. So lets look at a few options.

Borrowing 170k for a house worth 220k, is an LTV of just under 80%, so you can get decent rates.

I assume you have other money set aside to cover stamp duty & your legal fees?

All below calculations assume you're not making any extra repayments (which you can do, and will reduce your total interest cost - before calculating if a break fee is applicable BoI will allow you to increase your monthly repayment by 10%. UB will let you pay off 10% of the balance early each year. KBC allow you to overpay by 10% of the initial balance over the fixed term).

I've gone with the best fixed rates available to try help. I hope there isn't too much here to confuse you. Just say if I've over complicated it, and I'll try answer any specific questions.

The big question is - what rates will be available when your initial fixed period ends, so I've included scenarios to try illustrate the impact for you.

Unfortunately the KBC 10 year rate is increasing to 3.2% at the start of April, but it still represents 'good value' compared to the other rates. What your looking at is a trade off of risk of rates increasing a lot over time, vs a higher initial cost. On 17 year mortgage your balance reduces to just under half in 10 years, so even if rates have gone up a lot, it's on a smaller balance.

1. BoI.
Fixed rate at 3% for 5 years.
Your initial repayment will be 1,065 per month for 5 years. BoI will give you 2% cash back at the start (3,400) and 1% after 5 years (1,700).
Your remaining balance after 5 years will be 128,700

So in 5 years you will go onto another rate. Scenarios (approximate total interest over 17 years in brackets):
A. Rate 3%. Repayment remains at 1,065 (47,200)
B. Rate 5%. Repayment will be 1,189 (65,200)
C. Rate 7%. Repayment will be 1,322 (84,400)


2. KBC.
Fixed rate at 3.2% for 10 years (Rate assumes you open a current account with them)
Your initial repayment will be 1,082 per month for 10 years.
Your remaining balance after 10 years will be 81,300

So in 10 years you will go onto another rate. Scenarios:
A. Rate 3.2%. Repayment remains at 1,082 (50,630)
B. Rate 5%. Repayment will be 1,149 (56,300)
C. Rate 7%. Repayment will be 1,226 (62,805)


3. Ulster Bank.
Fixed rate at 2.6% for 4 years (Rate assumes you open a current account with them)
Your initial repayment will be 1,031 per month for 4 years. Ulster Bank will give you 1,500 cash back at the start.
Your remaining balance after 4 years will be 136,500

So in 4 years you will go onto another rate. Scenarios:
A. Rate 2.6%. Repayment remains at 1,031 (40,500)
B. Rate 5%. Repayment will be 1,191 (65,400)
C. Rate 7%. Repayment will be 1,335 (87,760)

 

[masterboy123]

Thank you RedOnion!

The examples you have given are very clear.

Yes, I do have extra money for stamp duty but I am not sure how much one should keep to cover legal fees?

From the 3 bank deals above, i think BOI is giving a good deal with their cashback. Do interest rate ever go as high as 7%?

 

[RedOnion]

Do interest rate ever go as high as 7%?

They have been in the past, but it's crystal ball territory to see where they might be. When banks test your affordability, they add 2%, but it's always good to have an idea if rates do go that high.

You'd need to engage a conveyancing solicitor to buy the house. They'll give you an accurate quote, but it'll cost around 2,000 including VAT.

 

[POC]

I'm confused. You have offered 230k on a house but say your max budget is 220k.

 

[masterboy123]

That particular house is 2 years old only and that's why we had stretched our budget by 10k. Sad news is yesterday we got a call that our offer has been declined and property is sold now.

I'm confused. You have offered 230k on a house but say your max budget is 220k.