John Hearne says it makes sense to switch mortgage; save €275 a month, or €99,000 over the life of a loan.
Latest figures from the Banking and Payments Federation (BPFI) show a substantial upsurge in mortgage-switching.
In the last quarter of 2018, there were 1,684 re-mortgages/switching loans. That’s a 71% increase on the previous year.
“The numbers stack up” says Joey Sheahan, head of credit at MyMortgages.ie, explaining that by reducing the variable interest rate from 4.5% to 2.75%, switching could save an average mortgage-holder €275 monthly, €3,300 annually or €99,000 over the life of a 30-year , €280,000 mortgage, assuming a loan-to-value of less than 50%.
“We need to do more to broadcast to every mortgage-holder in the country that they could be in line for savings and to explain to them that the process need not be arduous, complicated, or as intimidating as they might expect.”
Sheahan expects that 2019 will be an even better year for switching mortgages, not least because of recent changes to the Central Bank’s consumer protection code.
New rules to give consumer better mortgage info
Among the changes, lenders are now required to let customers know at least 60 days in advance that they’re about to come off a fixed interest rate and they must provide details of the new rate, which will apply from the expiry date.
Lenders will also have to provide mortgage-holders with information on other possible options available to them.
For consumers on a variable mortgage (other than a tracker rate), lenders are now required to notify mortgage-holders every year as to whether they could get a cheaper interest rate, as a result of a change in their loan-to-value ratio. The changes also introduce a 10-day turnaround for a decision on a fully completed mortgage application and for the lender’s switching pack to include standard, prescribed information.
Sheahan expects competition among banks heating up in the months ahead, and banks vying for customers can only lead to a better value for everyone.
“If you are a fixed or variable rate mortgage customer, you could be in a position to save tens of thousands of euro over the remaining term of your mortgage by switching mortgage provider.
“Due to the current, low cost of funds available for banks. in many cases there is no early breakage fee for exiting a fixed rate. The more equity you have built up in your home, the more savings you are likely to make.”
Last week also saw an interesting development in the fixed-rate mortgage market. Bank of Ireland announced that while its one-and-two-year fixed rates would fall by 0.10%, its longer term fixed rates would rise by 0.20%.
A rise in longer term fixed rates signals that markets are rethinking the future path of interest rates, and that the downward cycle may be ending.
Daragh Cassidy, of price comparison and consumer site, Bonkers.ie, points out that while fixed rates have become more popular in Ireland in recent times, the choice for consumers to fix over longer periods is still limited here.
“In many European countries, you can get a competitive, fixed rate for up to 20 years or more. In Ireland, the maximum term is 10 years and even this is only available from two lenders, one of whom has now increased its rate at a time when the European Central Bank rate has never been lower. “A 20 year, fixed rate in France would be around 2%” he says. “With Bank of Ireland, the rate is almost 4% over 10 years, which outlines how expensive longer-term fixed rates are in Ireland, compared to most Eurozone countries.”
One further decision Bank of Ireland announced last week was the extension of its cashback offer until the end of the year. This brings the bank in line with all of its competitors.
Both AIB and KBC are now offering discounts off home insurance (30% and 25% respectively); Ulster Bank is offering customers €1,500 towards legal fees; and Permanent TSB is offering 2% of your mortgage back in cash.
Bank of Ireland’s 3% cash back offer is dependent on having a current account with the bank – while EBS has recently increased its cashback offer to 3%, also.
Robyn Hamilton, as Bonkers.ie, says that offers such as these are certainly worth considering.
“It’s wonderful to finally secure your dream home with a mortgage, but it’s not much good if you can’t afford to furnish it.”
She says that if you were to take out a €225,000 mortgage with EBS or BOI, the 3% that you would get back in cash would give you €6,750 in total (€4,500 upfront and €2,250 after five years), which is certainly nothing to be sniffed at.
Permanent TSB has also recently made moves to sweeten its cashback offer. In addition to the existing 2% cashback at draw-down, the bank will also give you 2% of your monthly mortgage payment back in cash each month, provided the mortgage is paid from a Permanent TSB Explore Account.
“Certainly tempting,” says Hamilton ” but before you’re swayed by an lucrative cashback offers, spend an equal amount of time considering their value over the lifetime of your loan.”
MyMortgages Limited trading as MyMortgages.ie is regulated by the Central Bank of Ireland.