We all want to enjoy our new home without the stress and burden of struggling with mortgage repayments (if you do find yourself struggling to pay your mortgage, you should act quickly to stop yourself from falling into debt). A mortgage is, after all, one of the biggest financial undertakings you are likely to take in your lifetime and you want the best deal that is available to you, or at least, have a loan repayment option that is manageable.
There are three options to help reduce repayment costs (options should be discussed with your mortgage provider).
- Switch lender:
The number of people that switch lenders in Ireland is quite low, despite the good incentives currently on the market. It really is worth comparing deals, as it can be a very rewarding option.
- Get a better rate related to the equity in your home:
If you are on a variable mortgage, ask your lender if your repayments could be lowered by opting for a Loan-to-Value (LTV) loan rate: LTV rates are based on the value of the home relative to what is owed on it.
- Break out of your fixed rate and get a cheaper interest rate:
Many mortgage holders can now break out of fixed uncompetitive mortgage rates without being hit with an exit penalty — check with your lender as high exit rates still might apply to one or two banks in the market.
You may have heard the term re-mortgaging but were unsure of what it really means: it is basically switching your mortgage to a different deal, either with the same or another lender and using the new deal to repay the existing mortgage, or to borrow money against your property. Remember, you’re not tied into your mortgage deal for the rest of your life!
Why you should remortgage
1 in 5 people could save money on their mortgages by switching (according to research findings released by the Central Bank of Ireland on mortgage switching). Surprisingly, only one in ten of mortgage holders switch! The people that do switch it’s usually because:
- Their current fixed deal is up for renewal:
Most fixed deals last 2-5 years, after that you are put on the lender’s standard variable rate; there’s likely to be better rates on the market. Start shopping around 2-3 months before your rate ends.
- They want to move from interest-only to repayment:
Interest only, as the title suggests is only paying back the interest on the money borrowed, with a repayment mortgage you pay back both interest and the capital amount borrowed over the term. Your lender generally will do this transaction for you without the need for a remortgage.
- They want to be able to make overpayments:
Maybe you recently found yourself in favourable financial circumstances, for example, a pay rise or lucky enough to win some lotto money! And now you want to pay off some extra on your mortgage but your current lender won’t accept a large overpayment; it might be time to shop around (remember to check for the exit penalties).
- They want to borrow more money, maybe for renovations or an extension.
- They want to be at a better rate than you are currently on.
You could save thousands
Tens of thousands of euro could be saved: switching from a 4.5% rate to a 3.5% rate on a 20-year €300,000 mortgage could save you nearly €160 a month. Over the lifetime of a loan, which can add up to tens of thousands of euro in savings! On a €250,000 mortgage, over a 20-year period, the potential lifetime savings are €22,800.
Some lenders have special offers to help cover legal fees when switching.
Reasons for not switching
Research shows 44% of mortgage holders said that they “had not switched mortgages as they thought the process would be too complex”. Other reasons are not knowing how much money they could save, finding it difficult to compare mortgages or thinking that switching takes too long. The Central Bank of Ireland is now tackling this perception through new transparency rules for lenders.
But, the majority of people who do switch have a positive experience. If your current mortgage rate is over 3.4% it’s worth switching if you can.
What are the new measures that will make switching easier?
The Central Bank of Ireland is introducing changes to the 2012 Consumer Protection Code, to help consumers make savings on their mortgage repayments, provide additional protections to those eligible to switch, and facilitate mortgage switching through enhancing the transparency of the mortgage framework. The new measures will be effective from the first of January 2019.
But wait, a few things to consider first
Your loan to value ratio (LTV) how much mortgage you have in relation to how much your property is worth. The percentage you own is your equity — this is a key consideration before remortgaging.
Let’s say you bought your home for €200,000 and took out a repayment mortgage of €170,000. At the time of purchase, this would give you an LTV of around 85%. The best deals on remortgages tend to be available to people with an LTV of 60% or less.
Negative equity (an unfortunate consequence of the credit crunch) is when you owe more on your mortgage than your property is worth. Generally, lenders won’t approve your application if you are in negative equity.
When it may NOT be a good idea to remortgage
- If you’re lucky enough to have a debt of less than €50,000, any savings made are not likely to be worth making the move.
- Sometimes the cost of freeing yourself from your current deal exceeds the value of the savings, due to a large early repayment charge (exit fee).
- Your home value has dropped.
A quick explainer of the two most common types of mortgages rates
Fixed rates are a lot less complicated than variable rates but in turn are a lot more restricted. A fixed rate means that your interest and monthly repayments are fixed for a predetermined time, usually, over 1-3 years but they can go up to a maximum of 10 years. A fixed rate offers peace of mind to the customer because it means that your rate definitely won’t go up in that time. Unfortunately, your rate also definitely won’t go down which means you might miss out on lower interest rates and lower repayments.
It’s also important to note that there are a lot of fee penalties associated with fixed rate mortgages. You might be subject to penalties if you decide to move to a variable rate, if you want to switch lenders, re-mortgage or pay off all or part of your mortgage.
Variable rates are subject to change, meaning that the interest rate can go up or down subject to a variety of factors. Unpredictability might not be the most attractive option for those looking for stability but it’s important to know that variable rates offer the most flexibility. Variable rates allow you to top up, extend or pay extra off your mortgage without having to pay any penalties.
I’m eligible to switch, now what?
If you’re eligible to switch:
- Compare all mortgage providers, you can get a good summary of current mortgage rates on sites such as Money Guide Ireland. Or ask a mortgage broker to do this for you, the fee could be up to several hundred euro but it will save you time and they will offer you impartial advice.
- Bring the following information with you to the broker or bank: ID e.g. passport, Bank statement (usually 6 month), Proof of address, Salary certs, usually 3 months, P60.
Current Mortgage Incentives
Here are a few of the offers currently on the market — some of these offers include ‘controversial’ cashback offers, with the new rules enforceable in 2019 mortgage lenders will have to explain the pros and cons of these offers.
BOI offer 2% cashback to all new customers and 3% to those with current accounts with them (no maximum cashback).
PTSB offer 2% cashback lump sum for new customers and 2% of the monthly repayments back until 2027.
EBS give 2% cashback to all new mortgage customers.
Ulster Bank offer €1500 towards legal fees for all new customers.
KBC will give €3000 to mortgage switchers only.
AIB give €2000 cashback for mortgage switchers.
Do you need a property solicitor to remortgage?
Generally, yes. The process is called conveyancing. By using a conveyancing solicitor for this process, you have the peace of mind that all the details have been accounted for, protecting you legally and financially, while ensuring the remortgage goes ahead quickly and smoothly.
- Your solicitor will obtain the deeds from your old mortgage provider.
- He/she will examine the title to the property to make sure that it is in order and can provide sufficient security to your new lender.
- He/she will guide you through the details of your new offer.
Remember it is well worth the expense to have it done properly, and if it is done by a professional you’re a lot more likely to have the mortgage accepted by the lender. Changing your mortgage could change your life!
If you have decided to switch mortgage providers in order to save money, Gibson & Associates Solicitors can carry out the legal work on your behalf.