Put all savings as deposit to get lowest mortgage rate?

Hi all,

In the process of buying a house and have to decide on deposit and LTV for the mortgage. We're going with AIB and our savings could stretch to 50% LTV at a push to avail of their lowest rate (3.45% 5 year fixed Green). This would leave us with 10 to 15k after solicitor and stamp duty is paid. House will need a bit of work but will be chipping away at it myself. No kids, OK jobs, pretty frugal existence ha. What do yis think? Are we mad to put all the savings in for the sake of 0.1% interest? It just sickens me to hand over a penny more than I need to to the bank! Goal will be to pay the mortgage down as quick as possible, may also have lump sum to go in to it in the next few months. Would be interested in any opinions. Thanks!

I agree with your philosophy but a mortgage is more a marathon than a sprint and it can be good to pace yourself accordingly.

Personally I'd be inclined to hold back as much of my own money as possibly in the short term. At least until you've your feet in the door and get a full sense of what work is needed.

Imagine a situation where it turned out the work was more substantial than you had thought. While you might be able to borrow more now it's not a certainty that the bank will be off the same view in a few months. It could be fairly stressful to be surrounded by a property that needed work but your couldn't do anything about it. Factor in other items such as furniture and white goods and €10k-€15k might disappear relatively fast. I'd see a 0.1% as a fairly low insurance premium for extra peace of mind.

If - and it's a big if - future lump sums were large enough it might be more financially advantageous to go with a mortgage lender that offers a % cashback. But you would really need to crunch the numbers to see how that might play out under various scenarios.

If you borrow <80% LTV, you have a choice of Green 5 year fixed at 3.55% or LTV variable at 3.95%

If you borrow <50% it's Green 5 years 3.45%.

I would hold back the cash and go for the LTV variable of 3.95%.

When you move in and are sorted out, you can then fix for 5 years, and the rate may well be lower as ECB rates are expected to fall. Of course, AIB might not reduce its green rate or they might actually increase it, but I think that the balance of probabilities it is unlikely to rise and may fall.

I suggest the variable rate as there is no penalty for overpaying it and you can then come down below 50% LTV.

If you fix for 5 years, you may face a penalty for overpaying.

Brendan

Pneuma said:

may also have lump sum to go in to it in the next few months.

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How big is the lump sum and how likely are you to get it?

If it's large, it's another reason to go variable.

If it's small, then maybe borrow <50% and replenish your savings with the lump sum

Brendan

I presume you have done a surveyors report on the house and that there are no unpleasant surprises waiting for you?

Check with the bank as well regarding any issues or fees if you pay a lump sum in, historically AIB used to charge a "breakage fee", not sure if they still do.

Personally, I'd hang on to another 10k or so for "just in case" things to do around the house

Thanks for the advice. We were going in guns blazing, ready to fix at the <50% LTV rate but maybe you are right to hold on to a bit of cash for the first couple of months until we figure out exactly what we want to do. House shouldn't need a massive amount but will certainly be 30-40k. We do have other plans that will be more costly, however they will be further down the road I imagine as I'm doing it all myself and there's only so many hours in the day. Obviously we're still earning so not like we'll be broke.

Regarding penalties on fixed rates, I have another thread on it but the consensus is that as long as the other fixed rates are higher than my fixed rate there should be no penalty for lump payments. Still awaiting confirmation from AIB on this, they don't seem to have a clue. The lump sum will be large as it is from the sale of another property, assuming we get round to doing it. I hadn't considered the option of mortgages with cash back as I assume they are tricking you in to higher interest rates. Although maybe it would work out better if I do the lump sum shortly after draw down. I would be concerned we would delay the whole process if we switched mortgage provider now. Do you think it would be worth it?

Pneuma said:

I hadn't considered the option of mortgages with cash back as I assume they are tricking you in to higher interest rates. Although maybe it would work out better if I do the lump sum shortly after draw down. I would be concerned we would delay the whole process if we switched mortgage provider now. Do you think it would be worth it?

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You're right about cash back - in the long run the provider wins. But over the short term and especially if you've a large lump sum to pay down all, or part of a mortgage, it can work out cheaper. How beneficial really depends on the numbers and times frame.

One thing to note is AIB only offer cashback to switchers so your might need to broaden your search is your wanted to go down this route.

Cash back results in much higher rates over the term of the mortgage. People argue that you can switch later, but most don't and a lot can't.

It's an interesting idea if you are just borrowing for a few months because you intend to pay it off with a lump sum.

But might the early repayment of a fixed rate wipe out the cash back?

So if you are going for cash back, make sure to take out a variable rate loan to avoid penalties. Double check with the lender to make sure that variable rates are not excluded from cash back. I don't think that they are.

Lump sum won't clear the mortgage by any means. I'll have a look in to the cash back but will likely just stick with AIB at this stage

It appears that Bank of Ireland and EBS do not allow cashback on Variable rate mortgages. However, PTSB do.