Do it !
We are ready to chase down all ends of the earth to save a couple of hundred quid on our car insurance. We won't hesitate to put Sky and Virgin side by side. Yet a central bank report last year found that 61% of eligible mortgage holders stand to save over €1,000 in the first year after a switch. The savings stack up to over €10,000 over the life of the mortgage. But only 2.9% made the switch over the term analysed. Why not ? We should ! There is some inertia at play. Maybe even a sense of loyalty to the bank that "took a chance on us"? People worry it will be hassle. But it won't be really and it will be worth it. And once we have done it, we will be ready psychologically to keep on doing it - if cheaper providers come to the market.
What kind of savings can I make ?
Competition is increasing in the Irish mortgage market. There is quite a range in the variable rates available at the moment. At the moment, the variable rates range from 2.70% up to 4.50%. In fixed rate offerings, the lowest rate available is 2.25%. Perhaps this does not seem a large difference but bear with me !
Let us assume we have been sleepy with our mortgage and stayed on the 4.50% rate. Taking a mortgage size of € 300,000 and a term remaining of 25 years, we would have a monthly payment of € 1,667. We would be repaying a total of € 500,249 over the life of the mortgage. This is an interest cost of € 200,249 above the € 300,000 loan we initially took.
If we switch to a 2.25% mortgage rate, our monthly payment drops by about €350. We make over €4,000 savings per year. But we save over a whopping € 100,000 in total interest payments over the life of the loan !
Monthly Payment : € 1,667 ------> € 1,308
Annual Payment : € 20,010 -----> € 15,701
Interest Cost: € 200,249 ---> € 92,518
And even more crazy than that ...
In the above example, we saved money on our refinancing. However, we could also top-up our mortgage and still save money. For example, we could get a new mortgage with the cheaper lender for €350,000. We can then repay our (expensive) mortgage outstanding of €300,000. This leaves us with €50,000. You can use this for home improvement - a new office in the house for the new WFH reality, for example.
But the great thing is that, in this example above, monthly savings are still possible.
Monthly Payment : € 1,667 ------> € 1,526
So, yes, in this example, we take out €50,000 but still decrease our monthly payments. This is because we move from the 4.50% rate to the 2.25% rate.
We write more about mortgage top-ups elsewhere. Our key point is that if you are looking to top up your mortgage, don't just go to your current lender. If you shop around (and we can do this for you!), there are savings to be made. Come talk to us !
But will there always be savings ?
In the above example if we had started with a rate of 3.50% instead of 4.50%, our savings would have been nearly € 200 per month, over € 2,000 per year and € 55,000 interest over the life of the mortgage. The savings will depend on the size of your mortgage loan, the rate you are currently on and the size of your loan as a percentage of your home value. And if you have still have a tracker mortgage linked to the (very low) European Central Bank rate, savings may not be possible.
If you contact us with your situation, we will quickly outline the savings that are possible.
Ok, I can make a saving, what about the process ?
The memory of the long process of purchasing their home turns people off the idea of switching their mortgage. But switching mortgage is a much easier process.
You will need to engage a solicitor. However, the new lender may help pay for this. And you will need to gather documentation for approvals - recent payslips, salary certificate etc ... This administration can be tiresome but it is worth it. Also once you have done it, it remains fresh in your mind and you are very ready again to take advantage of mortgage savings as the market reprices.
Did you say the new lender will pay my legal fees ?
The main lenders offer a variety of cash up front offers. At the time of writing, KBC are offering € 3,000, AIB € 2,000, Ulster Bank € 1,500, Permanent TSB 2% cash back etc ... These amounts can be used to pay your legal fees. However, some of the cheaper lenders are not offering cash back.
The cash back deals sound attractive. However, the most important metric will be the all-in rate, the APR on your new mortgage. It may be more economic to go with a lower mortgage rate and ignore the lenders offering cash back. But in other situations, the cash back may be needed to cover the setup of the deal. Talk to us at AM Financial and we will help make the decision clear for your own situation.
How do I start this process ?
It only takes a minute to start. Take a look at your most recent mortgage statement (or ring your bank) and take a note of how much is outstanding, how long is left and what your current rate is. Then you are ready ! Get in touch with us and we will outline the savings that could be made. If you want to go ahead, we will help you all the way through the process.