Help with mortgage when you plan a short term payoff

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  • #95256
    Anonym

    Dear mybankers,
    I’ve been trying to read some of the topics here and familiarizing myself with the system.

    We are buying a house and loaning around 4M.
    Right now I am swinging between a 2,5% fixed rate or an F5 (30 year loan).
    First question is this: the kurs on the fixed rate is 97. Is that a touch too low?

    Overall I was leaning for the F5 because of the extra repayments on the debt and I don’t believe in a sharp rise in the next 5 years. This would make us save a considerable amount in the first 5 years (extra repayments + montly save).
    This of course if there is no rise in rates.

    On the other hand we are probably going to be able to pay off at least 1M of the debt in about 1 years time.
    Is it correct that with the F5 it’s only cost effective to do this payoff in 5 years? How much is the charge to pay earlier?

    What do you guys feel is the best alternative in our case?
    Our global plan would be to pay the full debt amount in 15 years.

    Thank you so much for the help,
    All the danish financial terms are hard to keep up with.

    #220398
    Aalborgtårnet

    Hej jeg har en ejerlejlighed lånet er et F1 uden afvikling, gælden er 875.000 jeg skylder ikke andet i lejligheden, lånet står i Nordea kredit de seneste år har jeg lavet en del i lejligheden nyt køkken nye vinduer lejligheden er blevet vurderer til 1.600.000. Ved en lokal mægler….
    Mit spørsmål er kan jeg få bidrags satsen ned nu hvor boligen ikke er belånt så meget ?

    #220402
    ABD

    Hi Derik.

    First question: A rate of 97 is not “too low” you will encur a loss of 3% but the lower interest rate will make up for this in time. However it might not be the case if you intend to pay out the loan already after 15 years. If you guys are quite sure about repaying in only 15 or 20 years you should definetely select a fixed loan with a shorter repayment time e.g. 20 years as you will gain a much lower interest rate.

    Second question: I hear a lot of bad things about the F5. Without having done the match at this instance it is my opinion that the price of the F5 is to high. So if you decide to go for a variable loan you should select an F-kort loan (refinanced every 6 months).

    With regard to early repayment: With fixed loans you will always be able to repay at rate 100 for a minor fee. With variable loan it is another story. I cant recall why its more expensive but it has something to do with the terms.

    Finally should you select a fixed or variable loan? It sounds like you can afford an interest increase so its really a matter of whether or not you believe the interest rate will increase or not.

    #220404
    ABD

    Aalborgtårnet: lad være med at kapre andres tråd, hvis du vil have hjælp så start din egen.

    #220428
    HalliHallo

    Derik, kan du læse og forstå dansk, men bare ikke tør skrive endnu?

    Ja, jeg er bare nysgerrig.

    #220446
    Emerpus

    I pretty much agree with ABD’s answer to your first question. A bond quote of 97 is generally considered pretty good but whether an initial 3% loss will be a problem depends on 2 things. How long you plan on keeping the loan and whether interest rates go up or down. If you keep the loan for a very long time it will not matter much. If rates go up it will not matter at all. In that case the bond price will go lower and you can buy back the bonds cheaply in order to repay you loan early. You could actually make a neat tax free profit that way should you be so lucky.
    So, you only actually risk losing the 3% if you have to repay the loan early and interest rates have dropped further (in which case you can always repay at rate 100) by that time. If you think there’s a high probability of that situation you might want to consider alternatives.

    Second question:
    Variable rate loans like F5 CAN be more expensive to repay early during the 5 year period but not necessarily. Again, it depends on the development in interest rates. If rates rise, bond quotes drop and vice versa. The difference is that you only have the option to repay at rate 100 by the time the loan is being refinanced (for F5 that means every 5 years). If you want to make an early repayment during the 5 year period you will always have to pay the market price for the bonds which may be above 100 if interest rates are low. Commission when buying the back the bonds will also add a bit to the total costs involved. However, if rates go up, bond prices are lower and you’re all good.
    It might be worth noting that since the F5 bonds expire much sooner than a fixed rate bond loan (in 5 years instead of in up to 30 years) a given rise in interest rates will cause a smaller drop in bond price in comparison so don’t expect the same potential profit when repaying an F5 early if rates go up moderately (and depending on circumstances you might also have to pay some tax if you make a profit buying back the bonds behind a variable rate loan like F5 but that’s another story).

    Personally I don’t think there is anything wrong with F5 and I generally like it better than F-kort but they both have pros and cons so it naturally depends on what’s most important to you. F5 offers a higher degree of safety but less flexibility in the event that interest rates stay at current levels or lower. If maximum flexibility is what you’re after you might also want to look into “prioritetslån”/”boligkredit” types of loans as a part of the package as an alternative to F-kort.

    #220458
    Anonym

    Thank you both so much for your answer.
    Unfortunately last quote I got on the 20 year term was 2%. Which made the monthly rate a bit too high for what I wanted.

    Like everyone I would like to pay the smallest amount possible for my loan.I was tempted by going F5 and riding it out for 5 years and then maybe fixing the rate then.
    I personally don’t believe that the rates will rise in the next 5 years but in the long term 15-20 years they should rise a bit.

    It’s hard to consider the gamble…wait it out 5 years on the F5 and then fix?..just fix now and once I pay back part of the loan in about a year renegotiate for what is left if by chance the rates have gone even more down?

    What would you guys do? lol

    #220464
    HalliHallo

    Lige et lille spørgsmål:

    Hvordan finder man rundt herinde som udlænding, når man ikke forstår dansk? Jeg kan ikke se at Mybanker har en engelsk version.

    Det samme gælder kreditforeningerne, men de fleste banker har vist?

    #220478
    Anonym

    Hallihallo

    Det er hårdt :/ Google translate helps. And also the banks try. Even if they are not great at it. But I understand financial terms are hard to translate and the system is so complex it is hard to make it simple to follow.

    I was reasonably savvy at banking in my homeland. But mortgages there are based on euribor rates. So this bond system is a completely new ballgame.

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