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

I've actually signed up to the fixed rate. When calculating the break fee it will be zero so I will then overpay. The only change now is I will overpay quarterly rather than monthly. I will keep an ear to the ground of potentiall rate changes and if there is a sign if rates reducing I'd be hoping to pay the zero break fee and go back to the variable rate
 
THE_Chris said:
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.
Click to expand...

I'm sorry Chris but that is the wrong way to look at it. A number of fixed mortgages allow some level of overpayment (eg. UB is 10% per year, KBC is 10% over fixed term) and in this case with AIB, there is a very very low risk of paying a break fee for any amount of overpayment.
The levels of overpayment allowed are usually more than enough for most people unless you have a extremely high level of excess income to use

Familyman77 said:
I've actually signed up to the fixed rate. When calculating the break fee it will be zero so I will then overpay. The only change now is I will overpay quarterly rather than monthly. I will keep an ear to the ground of potential rate changes and if there is a sign if rates reducing I'd be hoping to pay the zero break fee and go back to the variable rate
Click to expand...

In @Familyman77 's situation, they are saving 0.4% of €125k or €500 in interest this year and a little less in subsequent years as the balance reduces. The interest saved over 3 years will be ~€1400 which is far better than staying variable. Paying a €1400 premium for the guarantee of overpayments does not make sense when they are unlikely to face any fees for overpaying on their new fixed rate
 
THE_Chris said:
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.
Click to expand...
I was thinking similar but you pay that way much more for the mortgage - best is to fix and overpay or to have only a small part variable when you start with AIB
 
_OkGo_ said:
I'm sorry Chris but that is the wrong way to look at it. A number of fixed mortgages allow some level of overpayment (eg. UB is 10% per year, KBC is 10% over fixed term) and in this case with AIB, there is a very very low risk of paying a break fee for any amount of overpayment.
The levels of overpayment allowed are usually more than enough for most people unless you have a extremely high level of excess income to use
Click to expand...

Fair enough, it might not work for everyone but it did for me - I had the savings to overpay more than the fixed raters would allow. Paid off my mortgage in about 10 years doing that. I ran the maths a couple of times and it made sense. I was with AIB at the time and their variable was the lowest out there. Despite their fixed rates being a shade lower, the maths made sense for me.

Tis different for everyone though, I grant you that. Just another option. I guess thats the point as well, work out every option as for a few hours of sums, you can save quite a bit of money.
 
I have a similar quandry....stay variable or fix for 3 years. I'm currently on 2.95% variable and can fix for 3 years at 2.55% with Haven. I have about 230,000 left on the mortgage with 20 years left. I'm not 100% sure what their overpayment policy is when on a fixed term so I have emailed today to ask them. The thing is that I feel I am now in a position where I can really start overpaying from now. I have about 20k in savings for an emergency fund after focusing on aggressive savings so now, those aggressive savings can continue and become the mortgage overpayment fund either with yearly overpayments or more frequent. I'd like to pay at least an extra 10k a year for as long as I can and get it paid off early.

So, the question is, if I fix to 2.55% for 3 years that will give me about e55 extra per month to go into the overpayment fund which obviously helps. But, if they come back to me and say no overpayments allowed during fixed terms, is it worth it? If I did fix, my plan would be to still save as much as possible into an account and when the 3 years is up, pay that in one big chunk of an overpayment rather than be on the higher variable but be able to pay hopefully 10k chunks per year.

Also, given the Ulster bank news, what is the feeling regarding interest rates in general? If they might come down would fixing now for 3 years be a bad idea? Or would it be a good idea of Covid/UB issues could cause the rates to go up?

Thanks!
 
I fixed mine as per above and my repayments reduced by over €40 per month. With AIB as per above the break fee for overpaying should be zero so I'm going to continue overpaying quarterly if possible.
I'm truly glad that we used this last year to over pay aggressively. A year ago we were paying nearly €1200 a month but now it's at €750 a month and it's a great feeling to have a debt so much more manageable.
I was a firm believer in staying SVR to have some control, however in several other posts contributers took our figures and were able to tell me the merits of AIB fixed rates versus variable. I would say a lot of the time it actually doesnt make financial sense to stay on a higher variable rate - but that would be more for the financial minds here to confirm that
 
sylvin said:
I have a similar quandry....stay variable or fix for 3 years. I'm currently on 2.95% variable and can fix for 3 years at 2.55% with Haven
Click to expand...
Hi,
Unfortunately the terms and conditions that the original poster is benefitting from to overpay without break fee apply only to mortgages written on AIB paper. They don't apply to Haven or EBS mortgages.

You can overpay, but they'll check each time if a break fee applies. The break fee is based on interbank rates. It probably still makes sense to fix though and benefit from the lower rate.
 
Thanks RedOnion. yep, so if Haven come back and say no overpayments during a fixed term, its still better to go from 2.95% to 2.55% for 3 years and just put the savings and the extra e50 a month from the % drop into a savings account and pay it in one big chunk at the end of the 3 years?

Then one other question on that....the 20k savings is 6 months emergency fund (inc 2k for holidays or non emergency things), would it be worth taking 10k of that and paying it off the mortgage now and then once thats done, fix to the 2.55% for 3 years and then build the savings back up to 6 months and keep building a mortgage overpayment fund to pay off after the 3 years are up?
 
sylvin said:
so if Haven come back and say no overpayments during a fixed term
Click to expand...
They will not say this. You are always allowed to make an overpayment but Haven will not be able to tell you whether you will be charged a fee or not because it will depend on the wholesale rates on each date that you make an overpayment. The simplest approach for you is to request a break fee every 3/4 months. If there is no break fee then make your overpayment. If there is one, then retain the money until your next request or until the fixed term ends.

Also, you are probably better off switching away from Haven for a better rate than 2.55%. It's obviously convenient to just fix with them but it would be better for your finances overall to get the best rate. Use the CCPC calculator to see what you can get:

Compare mortgages - ccpc.ie consumers

Whether you are a first-time buyer, or you're looking to switch or move home, use our mortgage comparisons to find the best mortgage for you.
www.ccpc.ie www.ccpc.ie

sylvin said:
Then one other question on that....the 20k savings is 6 months emergency fund (inc 2k for holidays or non emergency things), would it be worth taking 10k of that and paying it off the mortgage now and then once thats done, fix to the 2.55% for 3 years and then build the savings back up to 6 months and keep building a mortgage overpayment fund to pay off after the 3 years are up?
Click to expand...
That is really your personal choice and your comfort level with the risk of only having €10k of cash available. Your family situation and monthly expenses will impact this. For example, if you lost your job and have kids, you would likely have to continue paying creche fees or risk losing their spot when you eventually find a new job. If you both have good incomes, then that might not be as significant risk but creche & mortgage payments would easily burn through €10k fairly quickly. Personally I would err on the side of caution and stay closer to the €20k figure.
 
Thanks for the reply....really helps clarify things. My mortgage is on an affordable home and I haven't heard any good reports about people trying to switch their mortgage to a different bank because of the council charge on the property. So, thats why I'm mainly focusing on the Haven options. When I first got it, I was advised to fix for the first 5 years which was fine but then the rates dropped significantly so I felt very very burned by the experience! My reading of all I can isn't suggesting that another big drop is due so thats why I'm thinking of fixing at the lower % for a few years and add the freed up cash to the repayment fund to pay at the end. I take your point about asking them every few months for a break fee and then either paying an extra payment or let the cash build up a while longer until the next time to ask for a break fee. I think that idea probably gives the best option all around.
 
Last edited:
We fixed our AIB mortgage to 2.35% for 3 years last October and also submitted the overpayment form at the same time to increase payments by approx. e200 per month, with payments going to reduce the term. We also made a lump sum payment of e5000 at same time. I discussed this on phone with them in advance and they advised this was possible and there was no mention of break fees.

It does mean we are committed to the higher payment for duration of fixed period but means we get the benefit of reduced fixed rate. The combination of lump sum and increase of e200 per month which is actually only costing us e160 more at moment than what we were paying of SVR of 2.75%, has reduced term remaining by 3.5 years.

I hope we haven't missed something or received incorrect advice from bank official but confirmation letter seems to be in order and states reduced term period.

I would recommend asking bank if you can do this.
 
When you overpay you should always go for reducing the monthly minimum payment - not for reducing the term. This will give you better flexibility for the cashflow and the term will be reduced automatically at the end.
 
Merowig said:
When you overpay you should always go for reducing the monthly minimum payment - not for reducing the term. This will give you better flexibility for the cashflow and the term will be reduced automatically at the end.
Click to expand...
Hi Merowig, could you please explain what you mean by this? I would have thought the term will not reduce if you choose to lower the monthly repayment rather than shorten the term
 
It does when you keep overpaying. I was a bit unclear further above.

You pay for example 1000 mandatory monthly and then you do an overpayment of 200 on top of that - 1200 payed totally
Next month the mandatory payment will be slightly below 1000 and you continue to pay though 1200 to the bank - the monthly overpayment increases. You keep doing that - you continue paying 1200 while the mandatory monthly payment continues to shrink and your overpayments automatically increase.
Term will automatically shorten at the end as you keep overpaying - at the end there is no loan left at an earlier stage than originally scheduled.

There is also a key post here on that topic

Key Post - "Overpaying my mortgage - should I reduce the term or the monthly repayment?"

This question comes up in a variety of ways and the threads often go off topic with irrelevant calculations. The interest charged each year is exactly the same - we will return to this. Reducing the repayment is simply reducing the payment you are contractually obliged to make under your...
www.askaboutmoney.com
 
Last edited:
The key with overpaying like this as merowig said is that everytime you overpay , your new monthly payment will reduce. I dont have a standing order set up now as I've fixed ( and so will have to request breakage fees ) so i have set a yearly figure for myself of what I intend paying into the mortgage
 
Familyman, thats what I'm planning on doing too. I'm going to keep my savings and open a 2nd savings account which will be to save as much into it as possible and that account will then become the yearly overpayment.

Thanks for the extra info Merowig. I had been thinking to say each time that the overpayment should be put towards reducing the term as I wanted to keep the monthly payment at its existing level, plus whatever yearly overpayments I can manage.
 
You must log in or register to reply here.
Back
Top