Combining Mortgages on one property

[DaddyLongLegs]

Hi,

I currently have 2 mortgages with BoI for 1 property.

Mortgage 1:
Balance: 230,000
Term: 19 years
Rate: 3.9%
Rate end: June 2025

Mortgage 2:
Balance: 160,000
Term: 27 years
Rate: 2.7%
Rate end: April 2027

Myself and my spouse are in our early 40's. We dont want to be paying a mortgage into our late 60's so I have started to look at ways of reducing the term. Overpayment is an option but BoI will only allow up to a max of 10% but this only reduces the term by roughly 3 years on both mortgages at the current rates. Obviously there is an option to overpay by more if we moved to a variable rate but as the rates are quite high I'm not sure this makes much sense either.

As an alternative, I was looking at possibly combining the 2 mortgages into 1 and potentially reducing the terms to 18 years or less so it could be paid off before we reach our 60's. This would save us a lot of money over the full term but BoI have said outright that they will not allow this. No alternative options were provided, just a "cant be done, sorry" response!

However, I am wondering if there are other ways around this. Surely, we cant be stuck in this situation for the entirety of both the mortgages? Looking at AIB fixed rates they always seem to be better than BoI but given we have 2 mortgages with BoI for the same property it makes switching almost impossible. Does anyone know of any solutions to this problem?

I have read online in other forums (for other countries) that it might be possible to refinance when 1 of the fixed terms ends? Looking at current situation, if this was possible, I could potentially renew Mortgage 1 for 2 years at 3.3% with BoI. That would take me to June 2027. When the other fixed rate ends in April 2027 I could just fall onto a variable mortgage, potentially pay off some of it then and in June look at options to refinance? Im not sure if any of this is possible but would be good to know if anyone else has had a similar experience and if so how they approached it.

Thanks

 

[Protocol]

After June 2025, when the fixed rate period ends, it should roll-over onto a variable rate, and you are free to make as many lump-sum repayments as you like.

 

[skrooge]

Overpayment is an option but BoI will only allow up to a max of 10%

The 10% they reference is effectively just marketing. You're entitled and allowed to overpay as much as you like with guaranteed that the remaining balance will continue on the existing fixed rate.

So paying in excess of 10% will trigger a break fee assessment by the bank which "might" result in a a break fee. Any break fee - if there was to be one - would be proportionate to what you overpaid by. So there is a danger here you end up worrying about pennies when you could be saving pounds.

As for switching - park the different fixed terms - can you get a better rate than what you're paying right now? At 3.4% it's only AIB that appear to offer a better rate and that is dependent on your LTV and your BER.

Personally I wouldn't touch the term. Longer gives you more flexibility if your income were to take a hit or an unexpected expense popped up.

 

[Monbretia]

When your existing fixed rate ends in June leave it variable and overpay as much as you can when you like, then when the 2027 one is up switch the overpaying to that one and fix the other one again if you want. Very basic solution but could also look into switching the whole thing to new bank as one mortgage assuming you can get a good rate, any overpayment will shorten your term.

 

[Dr Strangelove]

The 10% they reference is effectively just marketing.

It’s really not. It means no break fees on the 10%. I’ve overpay by about 13% a month with BoI with no break fees and they haven’t penalised me.

Personally I wouldn't touch the term. Longer gives you more flexibility if your income were to take a hit or an unexpected expense popped up.

Fully agree. Never reduce term voluntarily.

 

[noelÓm]

I was looking at possibly combining the 2 mortgages into 1 and potentially reducing the terms to 18 years or less so it could be paid off before we reach our 60's. This would save us a lot of money over the full term but BoI have said outright that they will not allow this. No alternative options were provided, just a "cant be done, sorry" response!

By forcing the term to be 18 years, your monthly repayment would rise significantly. BOI worry that you won't be able to afford this higher repayment and that you might get yourself into arrears over time. You are asking them to do another round of underwriting to make sure your net income could sustain the higher repayment and that your employment prospects are still okay. For them, that's a lot of work for very little gain.

If you are dead set of reducing the term to 18 years, you might need to switch lender and convince the new lender that your income is strong enough to sustain the higher repayment.

PTSB allow for overpayment on fixed rates and they do this in such a way that break fees can be avoided altogether. Their interest rates may or may not suit you, but the overpayment flexibility might.

Otherwise, follow the routine advice from other contributors. Overpay the maximum you are allowed to without penalty and consider overpaying by more if the break fee if small. You could also save funds into term deposit accounts that mature close to the end of your fixed rate periods, make lump sum overpayments once your rates rolls onto variable, and then re-fix if you wish.

 

[Brendan Burgess]

Hi Daddy.

There is absolutely no disadvantage in having two mortgages on one property. It's very common. There is no advantage in combining them, and I have never heard of anyone asking for it to be done. I suspect you are making some reasoning error but I can't figure out what it is.

given we have 2 mortgages with BoI for the same property it makes switching almost impossible.

The existence of two mortgages makes no difference at all to your ability to switch.

You might be under the false impression that you cannot pay off a fixed rate mortgage early. You can repay a fixed rate mortgage in part or in full at any time - but you may pay an early repayment penalty.

With only 4 months to go on Mortgage 1, the early repayment penalty will be tiny if there is one. No need to wait until June, you can pay it off now.

Mortgage 1:
Balance: 230,000
Term: 19 years
Rate: 3.9%
Rate end: June 2025

Mortgage 2:
Balance: 160,000
Term: 27 years
Rate: 2.7%
Rate end: April 2027

I don't think that switching to another lender will be worthwhile for you as the 2.7% rate is so good and fixed for another 2 years.

Unfortunately Bank of Ireland and other lenders have variable rates much higher than the fixed rates, to discourage you from choosing a variable rate. If you choose a fixed rate, you are much less likely to switch. In June, it might be worth fixing for 2 years to roughly match the end of the fixed rate on Mortgage 2. That means that in April 2027, you will be able to switch to another lender without thinking of the penalty.

 

[Brendan Burgess]

Myself and my spouse are in our early 40's. We dont want to be paying a mortgage into our late 60's so I have started to look at ways of reducing the term.

It's a nice objective to clear your mortgage early. But don't be too obsessed with it.

If you have a small mortgage in your 60s with low repayments, that is very comfortable.

As you are talking about overpayments, it suggests that you have a very comfortable mortgage in terms of Loan to Income. Is the Loan to Value comfortable as well?

If you have a comfortable mortgage, then it might make more sense to max your pension contributions ahead of overpaying your mortgage.

For example, retiring at 65 with a big tax-free lump with which to clear the mortgage might be better than retiring at 65 with no mortgage but a much smaller pension.

 

[DaddyLongLegs]

Thanks all for the advice.

There is absolutely no disadvantage in having two mortgages on one property. It's very common. There is no advantage in combining them, and I have never heard of anyone asking for it to be done. I suspect you are making some reasoning error but I can't figure out what it is.

The reason I wanted to combine them was to allow us take advantage of better rates in other banks. As things stand, if we moved to AIB in June we could avail of the 3.0% fixed rate for 2 years as our BER is A1 but given there are 2 mortgages I didn't think they would even consider this?

It's a nice objective to clear your mortgage early. But don't be too obsessed with it.

Doing the sums, we could save a huge amount in interest payments, money which could go into helping fund college years for the kids. Obviously, it comes with trade offs but really its about seeing what options are open to us and what best suits the lifestyle we want to have now vs in the future

Is the Loan to Value comfortable as well?

The house is a new build, valued at €950k with 390k to pay but this is our "forever" home so not really sure the LTV really matters?

In June, it might be worth fixing for 2 years to roughly match the end of the fixed rate on Mortgage 2. That means that in April 2027, you will be able to switch to another lender without thinking of the penalty.

For now this looks like the best option and then maybe combining with the advice of others as per @noelÓm . When April/June 2027 rolls around we can possibly revisit the switch then

 

[Monbretia]

The reason I wanted to combine them was to allow us take advantage of better rates in other banks. As things stand, if we moved to AIB in June we could avail of the 3.0% fixed rate for 2 years as our BER is A1 but given there are 2 mortgages I didn't think they would even consider this?

I would think this is kind of irrelevant, both mortgages are on same property so when you switch the new mortgage would just be one single mortgage draw down in new bank for the total to pay off the two existing. It's kind of neither here nor there from a banking point of view that there is two at the moment, could be half a dozen and shouldn't matter once financials and value stack up, they will just be doing a new mortgage for the total outstanding.

 

[Brendan Burgess]

As things stand, if we moved to AIB in June we could avail of the 3.0% fixed rate for 2 years as our BER is A1 but given there are 2 mortgages I didn't think they would even consider this?

Were you hoping to move one mortgage to AIB while keeping the other with BoI? No, that is not possible.

June is just not relevant. The break fee would be insignificant. You can switch now if you wish, but you would have to the arithmetic.

The LTV is relevant as you will qualify for the lowest rates

GreenA 3 Year LTV Fixed <=50%

3.00%

€390k @ 3% = €11,700 interest a year with AIB

160 @2.7 = €4,300
230 @ 4% = €9,200
Total : €13,500 a year with BoI

So you would be saving about €1,800 interest a year by switching to AIB.

So check with BoI what the break fee would be , it might well be worth doing.

Brendan

 

[Monbretia]

Ah yes if you are trying to just move one that won't work, my reading of it was you wanted to amalgamate both into one mortgage.