Your Questions: How can I get out of my expensive fixed rate mortgage deal?

Charlie Weston 1 sept 2018

Q: I currently have a €300,000 mortgage and have 25 years left on it. Two years ago, I moved to a five-year fixed rate which I thought was a good move because it would give me the peace of mind knowing my repayments won’t change for five years.

But I now find myself paying a rate of 4.2pc, while my brother, who has a similar mortgage, has just secured a five-year fixed rate of 2.8pc. It galls me to think I’m locked into this rate for another three years. Is there anything I can do? My house is definitely worth more than the mortgage on it.

A: The rate you are paying is too high. You should contact your lender and ask what breakage fee applies, if any, to exit your current fixed rate.

When you entered the fixed rate contract, you agreed to a formula to calculate any fixed rate breakage fee. This calculation varies from lender to lender and, currently, some lenders don’t have any breakage fee.

This is mainly down to the current low cost of funds in the money markets, according to Joey Sheahan, head of credit at Mymortgages.ie

Also ask your lender what rates and/or options are currently available to you. Your existing bank may offer you a better rate.

And ask how much is outstanding on your mortgage. Ask if you were to switch to another lender, what the breakout fee would be.

Then estimate the current value of your home – check the property price register or perhaps Daft.ie for this.

Contact an authorised mortgage broker who will be able to compare and contrast the options between your existing lender and those of new lenders. As a general rule, the more equity you have in your home the more attractive you are to a lender, according to Mr Sheahan.

It is important to note that sometimes your existing bank will only use the valuation of your property from the time you bought it, and won’t let you benefit from any increase in value, Mr Sheahan says.

Other lenders will allow you change into a better LTV (loan-to-value) bracket if the value of your home has increased.

Need to know

As a general rule the more equity you have in your home the more attractive you are to a lender.

Q: My mother has been with the same health insurance provider for the last 15 years. She says likes the “familiarity” and “safety” of this insurer, but I’ve seen how much she pays in premiums and it seems extraordinarily expensive. She is paying about €2,500 more than I am a year. She is in good health and has never had any major claims. I think she feels like her insurer rewards her loyalty – or will reward it in the event of a claim – but I very much doubt that’s the case.

A: This is a common query from health insurance members, especially for those aged 55 and over. Many believe they will be penalised if they change, which is not the case as the legislation guarantees that you will have continuity of cover if you have already served your waiting periods and you’re switching to an equivalent plan.

While many members are happy with their existing provider, the cost has now become prohibitive, as their plan has been hit by multiple price hikes over the past five to 10 years or 15 years, as is the case here, according to Dermot Goode of TotalHealthCover.ie.

On the question of loyalty to a health insurer, this really should be disregarded, as there are no bonuses in the Irish healthcare market for not claiming.

When it comes to health insurance, people should be reviewing their plan annually. If you don’t do this, you run the risk of being on dated plans which have been on the market for 10 years or more, and you are missing out on potentially massive savings.

There are a few things to note:

• Corporate plans are available to everyone irrespective of their age or occupation, and these are invariably cheaper with excellent cover. Always check to see if there’s a corporate equivalent of your existing plan before you renew each year.

• Take on a small excess on your plan. It’s a great way of reducing your costs and, in the majority of cases, the excess will apply per claim in private hospitals only – it’s never per night.

• As mentioned, the legislation protects people fully in terms of not having to re-serve waiting periods and maintaining continuity of cover for equivalent benefits.

A review of the cover should first determine if this is the correct level of cover for your mother and, once this is clear, the objective will be to source the best value plan at this level across the market (covering 335 plans).

Given that the plan hasn’t been reviewed for such a long time, it is clear significant savings can be made while still maintaining an excellent standard of cover.

Need to know

When it comes to health insurance, it is essential people review their plan every year.