Pros and cons of a variable rate mortgage

A variable rate mortgage is a mortgage in which the interest rate on the outstanding balance changes periodically. Typically, these loans will have fixed, or “teaser” interest rates for a specified amount of time, after which the interest rate will change based on a variety of factors. In most cases, the initial interest rate on a variable rate loan will be lower than a fixed rate, which can be appealing for homebuyers. But it is important to be aware of the pros and cons before jumping into a variable rate loan.

Pros

Flexibility

The number one advantage of a variable rate mortgage is flexibility. With a variable rate mortgage, you don’t need to worry about penalties for things like increasing your monthly payment, or paying off your mortgage early. You also have the ability to make lump-sum payments on your mortgage throughout the year, which can be very helpful for home buyers with a fluctuating income affected by bonuses or commissions. If your life is likely to change relatively soon, and you plan on eventually moving or selling the house, …

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Advantages and Disadvantages of a long-term mortgage

In a major market innovation in the Irish Mortgage Market, Finance Ireland and Avant Money have introduced new long term mortgages. While longer term mortgages have never really took off in Ireland, they are very popular in other parts of Europe and worldwide. These mortgages can be attractive to borrowers for a number of reasons, but it is important to also consider the potential downsides before making the switch.

Pros

One of the biggest advantages provided by long term mortgage products is certainty. Unlike a two or three year fixed term, a 10 or 20 year mortgage will allow your monthly mortgage repayments to remain unchanged throughout the duration of the loan. This reliable and predictable payment can be very helpful when planning out your monthly and yearly personal finances. It also can be very helpful in determining what your home will cost after factoring in interest. With a long term fixed rate, you will be able to know exactly how much the home will cost you right away, while a shorter term fixed rate will change over the lifetime …

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Spanish Bank Transforms Irish Mortgage Market

Spanish mortgage provider Avant Money has just introduced a new range of products that have the potential to transform the Irish mortgage market. Avant Money has become the first mortgage provider in Ireland to offer a 30 year, fixed rate mortgage. In this type of mortgage, the repayments will be the same every month for the entire 30 year lifetime of the loan. Avant Money’s new fixed rate mortgages have lifetimes between 15 and 30 years, and offer rates as low as 2.25 %. These new long term offerings were introduced shortly after Finance Ireland shook up the market with its innovative 20 year mortgage. These latest moves by brokers represent a huge step for the Irish market, as product offerings here are beginning to more closely resemble that of Spain and France.

Because wholesale interest rates are currently at historic lows, homeowners in Ireland are more increasingly taking out longer term fixed rate loans. Avant Money’s new portfolio of products includes 15 year, 20 year, 25 year, and 30 year fixed rate mortgages, and the rates vary based on …

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The sums behind ‘taxing’ the banks into a rate cut

Yesterday we were on the Sean O’Rourke show discussing variable rates on RTE Radio. We mentioned how doubling the ‘tax’ on banks won’t actually change anything. The mechanisms were briefly covered and we got a few emails asking for clarification so here it is.

The ‘levy’ was part of the Finance Act 2014 which imposed a new annual levy on financial institutions aiming to raise €150 million per annum for 3 years.

This sum is payable on October the 20th in each year (2014-2016) and it applies to a financial institution that is the holder of an Irish (or equivalent EU) banking licence or is an Irish (or equiv EU) building society that was obliged to pay DIRT – unless the amount required to pay in 2011 was not more than 100k.

The main outcry is centred on variable rates for primary home dwellers in particular. So how much of that debt is out there?

We know there are about 300,000 ‘loans’ but the quantum of debt is €39.638m which is about €3bn …

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Primetime: excessive interest rates

Last night’s Primetime had a well thought out piece on variable interest rates.

The general thesis was that variable rates are ‘too high’ and that banks should not be allowed to charge them, the figure of 1% of a ‘cost of funds’ was mentioned several times and various suggestions were made as to making the banks stop the practice of setting their own prices.

To begin with, the ‘cost of funds’ at 1% may be what a bank buys their raw materials at, but then you have to make more on top of it to allow for operational costs, to provide for losses, regulatory burdens, margin and the like. It is worth noting that in AIB’s interim statement which was only made yesterday that they noted that “Net Interest Margin (NIM), excluding ELG, expanded to c.1.64% year to date (YTD) September 2014”.

This means the idea of 4.5% minus the 1% ‘cost’ equating to a 3.5% ‘profit’ doesn’t stack up. If it did the net interest margin …

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Newstalk Breakfast: Ivan Yates & Karl Deeter on PTsb rate increase

Today Ivan Yates spoke to Karl Deeter about the PTsb rate increase. There were several points to consider surrounding this and Ivan touched on perhaps the most important which is about credit provision in general.

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The trend in lending and deposits

We have been banging on for quite some time about the trend in mortgage and deposit rates, namely that mortgage rates will continue to rise and that deposit rates will start to drop (already happening) and this will continue downwards – in particular you’ll have to watch for zero rated fund movements.

Zero rated funds are the money that banks keep for you (a liability for them) in the likes of demand and current accounts. You used to get zero interest but in return you got free banking. Now more lenders are demanding that you keep a certain balance in the account or you get charged a fee, such as Bank of Ireland’s recent decision to require a €3,000 balance to qualify for free banking.

This creates a near ‘negative interest rate’ for people who don’t keep that sum in their current account because fees mean the bank will cover all operational cost associated with your account for regular banking activity while making money elsewhere with those funds or …

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