Is It Now Time to Consider Switching Your Mortgage?
Our Guest Author is Robert Whelan, Mortgage Advisor to Employee Financial Wellness
One of the main issues affecting all residential property owners is the interest rate they pay on their mortgage. Are you paying too much?
There are potentially thousands of euros to be saved by switching your mortgage.
Banks are actively lending again and have dropped their rates considerably over the past 18 months.
This presents an opportunity for homeowners, who may feel they are overpaying on their current interest rate, to potentially reduce the amount of interest they will pay over the term.
A lot of people switch their utility providers on an annual basis to receive a discount but rarely think of switching their mortgage, which in most households is the biggest expense.
The amount you can save depends on the size of your loan, the value of the home for which you are borrowing, and your current interest rate.
There are reasons you may not be in a position to switch, for example;
- If you are currently in negative equity.
- You have a bad credit rating.
- Your circumstances don’t meet the bank’s criteria (not enough income, excess loans, etc.).
- If you are on a tracker rate it’s extremely unlikely switching lender would make sense at this time.
If you are not sure if you could save, it is definitely worth reviewing with your Mortgage Advisor to ensure you are not missing an opportunity for savings.
Here is an example of how much you can save on a mortgage of €250,000 over 20 years by simply getting a better rate:
Obviously, the bigger the loan, the longer the term and the higher your interest rate the more you are going to save.
If you aren’t in the position to switch today, it is still worth planning a review of your mortgage every 3-5 years as your circumstances change.
There is mounting pressure on the banks to reduce their expensive variable rates and with more lenders eyeing up the Irish market, interest rates should drop.
It’s important to bear in mind that you are essentially going through an entire mortgage process again which can take time. The Mortgage switch process usually takes between 6-8 weeks.
However, don’t let this put you off as the savings can be more than worth it and a number of banks are offering cash incentives to cover the cost of switching. For example, KBC and AIB are offering €2,000 for switchers while PTSB, EBS and Bank of Ireland are currently offering 2% cash back.
Can You Save Without Switching?
The first thing you should do is contact your current lender to see if you can get a better rate. Most lenders will negotiate your mortgage rate on the basis of an up-to-date valuation of your home. Should your lender not offer you a better deal or there is a better offer elsewhere, then it is time to consider switching. If you are on a fixed rate then it is wise to wait until the fixed rate has ended before considering switching as the banks may charge a penalty for breaking the fixed rate.
Another tip for reducing the amount of interest you pay is to pay extra off your mortgage if you can afford to do so. Paying off your mortgage as quickly as you can is effectively an investment with a guaranteed return.
In the example given above you could save an extra €11,340 on top of the €34,080, if you were to continue with the higher repayment figure of €1,541 per month – essentially overpaying your mortgage by €142 per month. This would have the added benefit of shortening the term from 20 years to under 17.5 years!
If it saves you money and costs you nothing, then what are you waiting for?