Repayments or interest charged?

[Durrow29]

Moved from a Best Buys post - Brendan

BOI
Fixed for one year or two years: 2.9% (2.3% net after factoring in cash back)
Fixed for three or five years: 3% (2.4% net after factoring in cash back)


This confuses me a little bit. I am looking at two rates.

Finance Ireland at 2.4% and BOI at 3%.

I get the 2% cash back from BOI along with 1,340 after DIRT for a mortgage saver account. This makes my BOI 3% about 3k better than the Finance Ireland Mortgage over 3 years.

How does this make sense if this statement is true "(2.4% net after factoring in cash back)'

Just fearful I am missing something.

	Finance Ireland	BOI
Actual Monthly	893.80	932.29
Cashback	0	4,040
Total cost over 3 years	32,177	29,522
Implied Monthly (when you count cashback)	893.81	820.06

 

[Brendan Burgess]

Ignore repayments and look just at the interest.

Brendan

 

[Durrow29]

Thanks. Well unless I am missing something very obvious the amount I pay over 3 years is ignoring repayments.

750*36 months = 27,000 that is the interest free amount.

BOI is less over the 36 months meaning less interest. BOI is 29,522 and FI is 32,177.

 

[RedOnion]

Fixed for three or five years: 3% (2.4% net after factoring in cash back)


This confuses me a little bit. I am looking at two rates.

You're partially right and wrong.

Firstly, the original post doesn't factor in the impacts of any bonus interest on savings accounts.

On the actual interest rates, for BOI the effective interest rate over 3 years is a bit less than 2.4%. (3%-2%/3). This assumes a constant balance, so it's not 100% accurate as the balance is reducing with repayments.

Over 5 years it's 2.4% with the additional 1% cash back.

What your calculations are missing is the impact of paying down capital balance quicker when you're on a lower interest rate. So you either need to only look at interest rates, or build out a full annuity calculation.

When you calculate it out, BOI at 3% over 5 years, with 3% cash back, works out 98.24 cheaper than a 2.4% rate per 100k borrowed based on a 30 year term.