Aib Variable rate versus fixed rate. Am i wrong to stay variable

Up dating my money makeover after some changes / helpful input

Age: 43
Spouse’s/Partner's age: 37

Annual gross income from employment or profession: 65k
Annual gross income of spouse: n/a homemaker

Monthly take-home pay €4750 ( this figure includes ICTC tax credit €3300 per annum, €5000 net per annum bonus paid weekly )

Type of employment: e.g. Civil Servant, self-employed
Private Sector construction industry

In general are you:
(a) spending more than you earn, or
(b) saving?

Keeping savings steady at 20k, 8k in daily spending account ( which include holidays etc ) and then overpaying approx €500 a month on mortgage

Rough estimate of value of home
€350000
Amount outstanding on your mortgage:
€125000 16.5 years left at €800 per month ( plus €80..0 PPI )
What interest rate are you paying?
2.75% <50% LTV

Other borrowings – car loans/personal loans etc

No other debt

Do you pay off your full credit card balance each month?
N/A
If not, what is the balance on your credit card?

Savings and investments: €20k in CU

Do you have a pension scheme?

Work one is CWPS scheme I pay €20 and work pays €40 per week. Employer wont contribute higher to this. Current value €45k
Separate one is executive pension plan started 2019. Has 190k value and would expect employer to contribute average of 20k per year to this .

Do you own any investment or other property?

No

Ages of children: 4 and 8

Life insurance: with mortgage, also have PPI and have Death in service cover with small industry pension


What specific question do you have or what issues are of concern to you?

I've kept the variable rate as I'm keen to overpay the mortgage as I'm hopeful that the pension contributions shown above will continue ( I dont make any AVCs )

I'm sure I read on another post suggesting that I should in fact fix for 5 years and even with penalties it would be cheaper in the long run . Is this the case

@Familyman77
It'd help if you pop in the fixed rates & terms available to you to save people having to look them up.

Also, are you open to switching lender, or do you want comments re AIB only?

Sorry, I'm on 2.75% LTV<50% and I can fix for 2.35% for 5 years.

Just looking for AIB at the moment

Thank you

are you in a city? if so you may be able to avail of the avant mortgage which < 60% LTV is 1.95% for 3/5/7 year fixed. might be worth a look . You can overpay 1% per annum of the original loan.

If you want to stay with AIB, have a read through the following thread: https://www.askaboutmoney.com/threads/overpayment-flexibility-of-aibs-5yr-fixed-rate.222401/

Slightly different rate, but same logic applies. I can have a look at any specific questions you come up with over the next few days, or if anything doesn't make sense.

Thank you Red onion

From my reading then , the fact that the shorter term rates are higher in their calculation I would incur no breakage fee based on the 5 year option. However if I picked the 4 year option I would get caught at the 3 year mark. All this is then based on them not lowering the rates on the short term fixed. On another note I rung them a couple of weeks ago to see if I could change to a split mortgage and they said no, they dont do them, even though I did see an advert for them for new customers

@Familyman77
Yes, that's exactly my understanding.

Familyman77 said:

On another note I rung them a couple of weeks ago to see if I could change to a split mortgage and they said no, they dont do them

Click to expand...

Wow. I wasn't aware of this;

"Split Rate - Available for New Mortgage Customers Only
A 'Split Rate' gives you the option of dividing your borrowings between Fixed and Variable rates. This enables you to benefit from the advantages of each rate in whatever proportions you choose."

Exactly, I was hoping to split it by a percentage that I felt I could would be able to pay of the variable section. Guess another example of existing customers not being priority .

Can you get the Green rate, is your BER B3 or higher? I don't think you need a split rate, all its really doing is increasing your average interest rate. You would effectively end up paying 2.55-2.6% depending on your split. Switching to Avant would be a much better option that that.

But if you fix at the lowest AIB rates, then I don't think it makes much sense to switch for you. Your balance is low enough that any cashback offers will only cover the costs of switching and the lower rate on offer from Avant would be eaten up by the cost of switching also. You might come out a few hundred euro better off but it would depend on your solicitors fees for switching.

If you are unsure of fixing for 5 years, then why not fix for 3 at 2.35%, the same logic applies. It's very unlikely that the 1 or 2 year rates will drop below the current 3 year rate so you are free to overpay as much as you want without any cost. If at any time you think the rates will drop then you simply break out of your fixed and move back to variable or re-fix at another rate. You should be able to manage this easily by keeping an eye on AIB's rates during your fixed term

That's a good idea OKGO. I could overpay whilst fixed ( would probably change to quarterly as opposed monthly ). Inthink the 3 year fixed would be the one. When overpaying currently I just lodge through online banking, if I were to do so when fixed would I need to contact the bank and get the breakage cost verified each time

Yes you should confirm each time just to be sure but you should be ok as long as you know the rates have stayed higher than 2.35%

Thank you for the help

Switch to the 3yr fixed rate. Low probability you’ll have to pay a break fee. Keep an eye out for if/when AIB next reduce their rates. Break at that time and refix at the 3yr again assume the pattern on rates remains the same.

Just to confirm will this calculation remain zero if I were to fix the rate for 3 years but then make an overpayment 3 months into this time period or even switch back to variable within a 3 month time period or do I need to wait 6 months till AIB use the 2 year rate ( 2.95% ) in their calculations

[broken link removed]

"Additional information regarding the calculation
We take a number of other factors into account as described below. These will result in a lower ERC than if we did not take these into account. For example:

1. We consider the reducing balance nature of your mortgage, which will mean that your ERC will be less than the indicative figure produced by the A x U X D% formula.
2. When the remaining term does not exactly match a term for which there is a rate available, we will use the two closest rates and apply the most beneficial to you. For example, if you have 18 months remaining on your fixed term, we will use the more beneficial of the 12 and 24 month rates in our calculations.
3. If there is more than one applicable fixed interest rate offered by the Bank at the time the ERC is being calculated, we will always use the fixed interest rate that generates the lower ERC in our calculations."

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According to AIB's terms, you will be compared to the two closest rates and the most beneficial will be used for you. Even if you are compared to the original 3 year rate, it is unlikely to have changed so you should still have a zero break fee. Worst case scenario you have to wait until the 6 month mark to ensure that no fee applies. Or alternatively, at 3 months if comparing the fixed rates is not beneficial to you then AIB's other calculation method (using the wholesale market rates) will probably work in your favour

Familyman77 said:

Just to confirm will this calculation remain zero

Click to expand...

I can confirm nothing, always check before overpaying/breaking But the above is my understanding of it

Thanks OkGo, your understanding was mirroring my own thoughts . Apologies for the terminology of confirmation. Just so used to writing it at work ,thanks again , I'm going to call AIB today

I am in same boat, would it be wise to hold off for 12 months as we are still in very uncertain territory re Covid and contrasting opinions about whether post mass vaccination property will see a surge in property prices or collapse, however unlikely.....

not being able to get a valuation done is a pain to reduce current mortgage cost,, l thought there could be leeway on that but no.....

What I'm hoping to do is fixing at the 2.35% and going to watch out for potential changes in rates or changes in their calculation methods. If it costs €0 to break out of the contract I will just break out back to the variable rate before new rates are confirmed and then be free to sign up to new rate.

I was in a similar position a while back. My general thought is to stay variable... if you chuck a decent few thousand in savings in the mortgage, reducing the monthly payments but keeping the term, then your outgoings on variable 2.75% will probably be very similar to fixed 2.35%, whilst retaining the flexibility of the variable. Yes, it could go up and down, but with a small enough mortgage the difference in monthly payments isn't massive.

If it were me, I'd stay variable and aggressively overpay, reducing the monthly payments. Which then allows you to overpay more, etc etc.