John Hearne looks at why the right mortgage switch can deliver you up to €3,600 in annual savings
Mortgage brokers MyMortgages.ie reveals that switching mortgage providers can save homeowners anywhere between €1,200 an €3,600 per year.
Joey Sheahan is head of credit with MyMortgages.ie. He says that despite the fact that the mortgage payment is the most people’s biggest expenditure, it’s something that people don’t pay enough attention to when it comes to getting the best value on the market.
He says, “Many people assume that once they’ve taken out a mortgage with a lender for 20, 25 or 30 years, then that’s the end of the decision process. But mortgages are just like any other financial product – they should be reviewed every three years to ensure you are not paying over the odds.”
Mr Sheahan says he has no sympathy for borrowers who complain that they are paying high rates.
“There are lots of homeowners needlessly paying more than 3.6% in interest, but a large portion of people can easily switch lenders once they have 10% equity in their property.”
“Lots of people are struggling financially under the weight of these rates. We deal with clients daily who are unaware that switching could even be an option for them – many believe that they are simply locked in to the contract with their current lender. And those who have heard of switching, most think it’s too much hassle.”
Research two years ago from the Central Bank found that half a million mortgage holders – that’s 21% of the market – could save money by switching. The reason it’s not more is explained by the presence of tracker mortgages in the Irish market. These are mortgages that track the rate offered by the European Central Bank rate, which, remains below zero.
Tracker mortgages are perhaps the only positive legacy of the boom-era banking. The ongoing tracker mortgage scandal, in which a number of banks illegally forced customers off trackers, is ample evidence of the fact that offering them in the first place has been a source of deep regret for bankers.
If you have a tracker, do not be tempted to give it up.
In a 2015 Central Bank study, 33% of the sample total could make savings by switching, but were ineligible because of small loan values, the existence of an arrears balance on the account in the previous 12 months, and /or loan-to-value ratios of over 90%.
Joey Sheahan says that the Central Bank recently drew attention to the value to mortgage holders of switching by proposing the introduction of statutory requirements to support consumers considering switching their mortgage.
“If we go by the Central Bank’s estimates, then many more people, maybe as many as two in five mortgage holders throughout the country should be switching to another lender, yet switching made up just 3.3% of the mortgage market in 2014 and while this figure has certainly increased since then, it is nowhere near it should be.”
As competition continues to heat up, most lenders are now offering a range of cash incentives to new mortgage customers.
Bank of Ireland will hand back 2% of the value of the mortgage after draw down. In addition, if a customer has a current account with the bank when they apply for a new mortgage, they can qualify for a further 1% cash back after 5 years.
Permanent TSB and EBS are also offering 2% cash back to all new mortgage customers, while PTSB recently added a further incentive. They will hand back 2% of the monthly mortgage repayment, so long as the customer open a Permanent TSB Explore Account.
KBC is offering €3,600 towards legal and other fees if you draw down a mortgage with the bank before the end of next month. There are also preferential rates for the current account holders, together with a 50% reduction in the cost of home insurance for the first year.
AIB will give you €2,000 within two months while Mortgage Store, Pepper Money and Ulster Bank will give you €1,500 towards your expenses.
Don’t get carried away by these offers. They will allow you to take care of the legal fees that are inevitable when you change your mortgage provider, but when it comes to you assessing the financial benefits of switching, the impact of introductory offers is negligible.
Look instead at the rates and the payback timeline.
Figures from MyMortgages.ie illustrate this point neatly. Suppose you’ve got a 30-year mortgage on €250,000, which carried a rate of 4.20%. Your monthly payments will be €1,222, while over the life of the mortgage you will pay the bank the principal you borrowed, along with 76% of that figure over the life of the loan.
Switching mortgage provider and securing a new rate of 2.75% will reduce your monthly repayments to €1,020, while the total interest bill over the life of the mortgage will fall to €117, 417, a saving of €72,698.
Fixed and variable.
“If you are a fixed or variable rate mortgage customer you are of interest to other mortgage lenders,” says Joey Sheahan. “This means you could potentially save thousands of Euro over the remaining term of you mortgage by switching mortgage provider. Due to the current low costs of funds available for banks, in many cases there is no early breakage fee for exiting a fixed rate. You just have to call you back and check this.”
To begin the switching process, the first step is to contact your existing lender and confirm your rate of interest, balance outstanding and term remaining on the mortgage. Ask them if the variable rate you are on is the best available, and what fixed rate option are available to you as an existing customer. You can then go comparison shopping, or you could get an independent broker to compare what’s out there.
“The more equity you have in your home,” says Sheahan, “the better the new terms likely to be available to you but you can switch even if your loan is 90 of your value.”
And when you are comparison shopping, make sure to investigate fixed as well as variable rates. While the latter have always been the default option in the Irish Market, fixed rate have become increasingly popular in recent years. They offer the key advantage of giving you certainly in monthly repayments.
Source: The Irish Examiner 08/12/2017
If you are interested in getting a mortgage and would like to speak to us at MyMortgages.ie please don’t hesitate to contact us at [email protected] in Cork +353 21 4277037 or 353 86 8060601
MyMortgages Ltd t/a MyMortgages.ie is regulated by the Central Bank of Ireland