Mixed mortgage

M

Mr.McGee

Guest
Hi,

I visited my bank yesterday to discuss taking out a mortgage to buy an apartment. After a bit of discussion on the fixed and variable rates options, she brought up another option (mixed mortgage) which involved having a variable rate for 12.5 years and a fixed rate for the remaining 12.5 years. The current fixed rate from the bank would be 4.6% and the current variable rate is 2.35% (which she said could be negotiated down a bit more). She wasn't able to go in to any more detail on this solution as they deal with another partner bank and it's a person from that institution who could tell me more. I plan to arrange an appointment to find out a bit more but was wondering if anyone could tell me the advantages/disadvantages of it.

Thanks!
 
Wow I have never heard of this but it is not to say it is not an option.
I would be more familiar with the mortgage split where you might take out a mortgage of x amount and 50% of this would be at a fixed rate and the other 50% would be variable which will allow for any lump sump or excess payments.

I would question which 12.5 year mortgage would be paid first the fixed or variable
If you take it up and variable is to be paid up first does that mean you cannot first in that time. Also if this is the case I would just choose variable as an option as you can leave your options open later to a fixed rate.

Let us know how you go with next appt. Don't sine away anything. Think about it first.
 
Fixed rates will be like gold dust if the reports are to be believed that the banks are going to do away with them totally.

I'm always been a believer in fixing because I can budget accordingly.
 
I sounds like nonsense to me. I've never heard of such a thing and even if it was an option, how in the name of god would it work?

Firstly, are you going to fix for 12.5 years first? Funny thing is, the longest fixed rate I've ever heard of is for 10 years, so what happens to the other 2.5 years?

Secondly, if you're going to start with the variable for the first 12.5 years, who's to say what rates you'll be looking at then? Or if the intention is to quote you the fixed rate now, how do they propose that this will be an appropriate rate for the time? Do you really trust a bank to be able to read the markets over a twelve year cycle? Any twelve year cycle, never mind the precipice on which we perch at this particular moment in history!

It's also worth checking into that variable rate you were quoted. 2.35% sounds extraordinarily low. In fact I can't find a lower rate than Bank Of Irelands 3% variable, and even that rate is dependant on your loan being half the value of the house at the time of purchase.

In general I feel you should stay away from fixed rates. Some introductory 1 year fixed rates can offer good value but over the long term the variable usually fairs out better than the fixed. In fact just before the bust cycle you had ECB rates jumping every quater and we very quickly went from the historical low of 2% to 4.5%. The reaction was that all new mortgage borrowers started to fix. Little did they know that soon rates would plumate to a new historical all time low of 1% and they are locked in at somewhere around 5%. Five times more expensive!! I have never seen anyone win on a fixed rate. In my view it's a gamble in a game where the banks have already done there sums before they set the rates. And the house always wins!!

Are you sure its not a split rate as niceoneted suggested, where a portion of the money borrowed is paid back on a fixed rate and the rest on the variable?

Patrick
 

+1
 
Sorry, should have pointed out that I'm not in Ireland. I'm in Luxembourg.

As I said, the person I spoke to on Friday was not the "expert" for this but she proposed setting up a meeting with THE "expert"
The only info I was given is that the first 12.5 years would be on variable rate with their bank and the next 12.5 years would be on the fixed rate of 4.6% with their partner bank.

To be honest I'm new to all of this as I've been renting for the last years. I was set on getting a fixed rate for the 25 years, but the simulation she made with the 4.6% put the monthly payments out of the comfort zone for us. 2.35% variable looks attractive at the moment. In their small print it said that if the variable rate goes up, my monthly payments will stay the same but instead the duration will increase. Ditto if the rates decrease, the duration will decrease. But I presume this is the same with all banks even in Ireland?
 
You won't get a definitive answer here as this site deals primarily with Irish financial issues.

In Ireland if rates go up, montly repayment goes up, duration/term doesn't move.

If we fix ... it's fixed at that rate/repayment for the duration of the fix.
 
Ok, that does put a different slant on things. In this country people have been borrowing money (mortgages) over a term that brings them right up to retirement. In these circumstances the last type of loan anybody wants is one where the term can increase beyond their earning years!

However it seems as though your term is going to start at 25 years from what you've told us. So assuming you're in your early to mid thirties or younger, you can probably cope with a stretch in your term. You should ask for an illustration of the effect a 3.5% rate increase would have on the rate.

One thing is for sure however, interest rates will go up, and with all the new money being printed over the past few years, they could rise substantially. I know Germany is dead set against inflation in the Union, but if and when it happens, it may be beyond their control.

Perhaps it's a mindset that comes with the type of set up your used to in a country, but I don't like the sound of it. Too many variables in todays climate. I know that in the states, you can have a fixed rate for the entire term, but then again, if you can't pay, you just give the keys back. Can't do that here, don't know about Luxembourg. Its not fo me though!

Patrick
 
Thanks for the info folks. It kinda shows you how much I know about these asking about a Lux mortgage on an Irish forum. I am Irish btw

Feel free to remove this thread if it doesn't make sense to have it around here.

Thanks!
 
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