Am I being screwed by AIB

[oysterman]

I meant that in 10 years time 5 Euro will not be worth what 5 euro is worth now so the mortgage will not seem so expensive in comparison to what it is now. Is that not generally accepted?

What do you mean? The longer the term the smaller the monthly repayments but the higher the overall interest costs if the mortgage runs full term.

You're both right.

Assuming constant interest rates, the real value of the monthly payment falls in line with inflation (and the burden of it also declines with income increases for the borrower).

But Clubman's point is well made that the longer the term the more interest is earned by the lender. This is at the expense of the borrower.

I've posted before to the effect that variable rate borrowers should always consider making an annual upward adjustment of their repayment amount in line with increases in their income. Thus, they keep the burden of the mortgage constant but allow their pay increases to shorten the term of the loan. There is also the considerable benefit that this cushions against the shock to one's financial planning of a rate rise eg. if you're overpaying by €200 per month, a rate rise which pushes up your monthly payment by €150 means you don't have to pay a cent more (although the benefit of your overpaying obviously diminishes).

 

[ClubMan]

And don't forget - the longer the term the higher the mortgage protection life assurance premiums. Even if you clear, say, a 37 year mortgage in 20 years you will still pay (possibly) significantly more in life assurance premiums compared to an originally agreed 20 year term mortgage.

 

[nestor]

very good points. thank you both!!

 

[tonka]

surely you can reinsure as well as remortgage Clubman ?

eg remortgage within 5 years for a shorter term and lower assurance .

 

[ClubMan]

Yes but then five years on your premium will most likely be higher than when you started as well. My main point is that the mortgage protection life assurance payments on a longer term mortgage (whether it runs full term or not) will be higher (individually and cumulatively) than a shorter term mortgage. It's another cost to be considered when deciding what length of term to go for. In any specific situation a proper assessment of the precise cost involved should be done.

 

[munsterman25]

Im y experience. AIB are tight and for as unprofessional as i've come across in any form of business. Would'nt touch them with a barge pole if I could avoid it. Shop around

 

[eliza]

We are in the process of buying a house (Value 265,000) and have started looking for a mortgage of 150,000 over 15 years which would work out at 1000 approx a month. The rest of the money we have as savings/investments (€80,000) and the rest being gifted by both our parents. My wife stays at home and looks after the kids and my salary is approx 45K a year and my wife brings in about 400-600 a month approx through childrens allowance and her curtain making she does on the side.

We were turned down initially because they said that We could afford the repayments and that I was not in permanent employment (Im on a 2 year rolling contract with state utility, nobody employed less that 4 years ago in permenant). ...

Someone earning 45K a year (i.e. 3000 approx per month) and on contract paying off a 150K mortgage faces two major risks :

a. An increase in interest rates.
What happens if 1000 per month becomes 1500 per month - a heavy burden on a 3K monthly salary.

b. Redundancy
After all the job description states contract not permanent.


Personally if I were Mrfrags, I'd reduce my burden - not increase it. Go for the longer term and pay off early with lump sums if possible.