Up to 160,000 Irish families are disbursed each month, for hundreds of euros, because they simply have not tried to change their mortgage. Many do not realize that rates are falling and that lenders are anxious and have sufficient resources to attract them to their businesses.
But, are the benefits greater than the pitfalls, how do you do it and why are we so reluctant to do so?
Is it really worth all the trouble?
Well, you’re assuming there’s a lot of trouble. But we will return to that. For now, the simple answer is yes, if you, like many, can take advantage of significant savings. Last week, the expert group of the Institute for Economic and Social Research, which reports government policy, reported that many Irish families could make “big profits” by transferring a mortgage to one of their current lender’s competitors.
Days before, the Association of Mortgage Advisors of Ireland (AIMA) estimated that eight out of 10 homeowners with a standard variable rate are “paying more” for hundreds, if not thousands of euros each year. That’s up to 160,000 families who pay on the odds because they haven’t considered changing.
But aren’t we all paying the odds in Ireland? Isn’t it just a fact of life here?
Compared to our European neighbors, you’re right. We still have the second most expensive mortgage rates in the euro zone, after Greece. The overall average mortgage loan rate in Europe is 1.37 percent. Overall, that is about half of the average 2.9 percent rate here (2.8 percent for fixed rates and 3.2 percent for variables).
The Federation of Banks and Payments of Ireland (BPFI), which represents mortgage lenders, says that the average buyer for the first time gets a € 225,000 mortgage loan. Obviously, that would be a little higher in Dublin, and somewhat less outside the capital, but let’s take that average as an example.
If I lent that amount for 30 years, at an average mortgage rate of 2.9 percent, I would be paying an additional 174 euros each month in Ireland compared to the average borrower in the euro zone. That is more than € 2,000 for a year, which could be spent on medical care, child care, education or debt payment, to mention a few things.
So it’s just a fact of life here?
You will not get a deal as good as our friends in Germany or France in the short term. But, as competition in the Irish market increases, rates have decreased very slowly in recent years.
The banks left Ireland during the recession: for example, Halifax and Danske Bank closed their residential operations. But with the recent arrival of non-bank lenders such as Finance Ireland and more people looking to switch between the key lenders here, mainly AIB and Bank of Ireland, and to a lesser extent Ulster Bank, everyone is forced to offer better deals.
A Post also expects to start offering mortgages soon, and even credit unions are participating in the game: more than 100 credit unions across the country now offer home loans.
What kind of savings can I expect to make?
Suppose you are a couple who obtained a 30-year mortgage of € 300,000 two years ago at 3.5 percent. According to the calculations of the mortgage advisors of AIMA, you can save almost € 140 every month by switching to a five-year loan with a fixed rate of 2.5%. Moving to a standard variable rate mortgage of 2.95 percent would put an additional € 85 in your pocket every four weeks.
It is true that when your mortgage changes, the process you are going through is quite similar to the first time you applied for a mortgage, and that discourages many people.
Borrowers with a 3.9% mortgage of € 350,000 for 25 years could save more than € 230 or € 160 respectively each month by making the same changes.
“Many people got the best deal available at the time they took out their mortgage and, obviously, assume it is still the best,” said AIMA President Trevor Grant. “However, the reality is that it is probably no longer up to date. Others believe that if they remain loyal to their current bank, it will be reciprocated in some way, which is an absolute fallacy.”
Are there rates as low as 2.5 percent?
And less. The lowest rate offered at this time is 2.25 percent of KBC. You must have 40 percent of capital in your home, so it might not be a broker for everyone. The same lender also has a fixed rate of 2.3% with less onerous conditions, while Ulster Bank also offers a rate of 2.3%.
“If you are paying an interest rate of more than 3.5 percent or 4 percent of your mortgage, you could really save good money,” says Daragh Cassidy of changing the Bonkers.ie website. “Your mortgage should be like any other bill. You should consider changing every few years or at least examining it to make sure you get the best deal. “
Why are we so reluctant to change our mortgages?
Exchange rates generally between services in Ireland are beginning to improve. We are improving in the change of public service providers such as gas and electricity, compared to other countries. Recent research shows that about 30 percent of us have changed broadband and television providers in the last three years. About a fifth changed its gas supplier in 2018, compared with the 14 percent that changed its electricity supplier.
But mortgages, such as credit cards and checking accounts, are an area where we need to improve shopping.
“There are some reasons,” says Cassidy. “Maybe there is a little inertia, the fear that the process is too difficult and maybe people don’t realize what they could really save. Some people feel that there are many problems involved.
“It is true that when you change your mortgage, the process you go through is quite similar to when you took out a mortgage for the first time, and that discourages many people. But when you look at the figures and what you could save, up to € 200 or € 300 per month, it’s not about anything risky, nothing gained. There is a lot of money to save. “
However, the change is not open to everyone. For example, if you have changed jobs since you got your mortgage for the first time and are not earning as much or if you have a negative net worth or have lost payments, it could be difficult.
The closer you are to the end of your fixed term, the lower the charge; in some cases, it can be insignificant
In addition, it goes without saying that if you have a follow-up rate of, for example, the European Central Bank rate plus half a percentage point, you will not get a better deal, so it makes no sense to even look.
But if you are in the middle or upper range of the mortgage rate range, it is worth at least analyzing your options. If nobody is willing to let you change, that’s fine, it’s not the end of the world. “You will probably find out very quickly in the process whether your change will be accepted or not, before incurring legal costs,” Cassidy adds.
If I have a flat rate, does that prevent me from changing?
Technically, if you currently have a fixed rate offer, it is blocked but you can exit it by paying a breakage fee. Banks have a very specific formula on how they calculate that rate, and there has been a well-founded perception that they are prohibitively high.
“But they have fallen in recent years, because interest rates are now much lower,” says Cassidy. “Obviously, the banks are not shouting about this, but you might find that the charge is only a few hundred euros, and will compensate you with medium-term savings. If the charge is thousands of euros, it might make sense to wait until That your fixed term ends.
“The closer you are to the end of your fixed term, the lower the charge, in some cases it may be insignificant.” Your bank has to inform you what the charge will be if you request it.
How do I change then?
The first thing to do is to log in to your online banking or phone your bank and ask them what mortgage rate you are currently paying, what is the remaining term of the mortgage and what is the outstanding amount due. Armed with these three data, you can use a series of online mortgage calculators, managed by lenders and comparison sites, including one from the Commission on Competition and Consumer Protection at ccpc.ie.
If the savings look good, contact the lender that offers a deal that suits you and tell them you want to change them. Many of the lenders have exchange equipment in place. They will send a switching packet. Fill that with the information they want and take it from there.
Did you mention hiring a lawyer again?
Legal costs are one of the most likely things to deter people from changing providers or mortgage rates. Inevitably, these are mandatory and is a cost that must be taken into account when assessing the wisdom of making a move.
Rebate offers have a role to play in the Irish market, as long as people enter with their eyes wide open and know what they sign up for.
However, AIMA mortgage brokers point out that the costs must be lower than those incurred the first time you obtained your mortgage loan. And they point out that all major lenders seem to be offering some form of payment, or repayment offer, to help commutators cover the cost.
This could be a fixed sum or a percentage payment of the value of the loan, which could offer an unexpected profit of several thousand euros.
But I didn’t read about distrusting these incentives?
You did it in fact. ESRI last week warned borrowers that they might be forced to make bad decisions under the appeal of cash offers. He conducted a study that showed that many possible commutators were “initially attracted” to high cashback offers with little or no understanding of the implications of APR (annual percentage rate).
On average, consumers opted for a € 2,200 money back on an APR of 0.4 percent better, a move that would leave them worse. But ESRI also discovered that, where mortgage creditors were better informed, they put much more weight on the rate.
“Rebate offers have a role to play in the Irish market, as long as people enter with their eyes wide open and know what they sign up for,” says Cassidy. “Offers that offer refunds are usually higher than mortgages that do not offer refunds. Three of the best rates at this time, in Finance Ireland, KBC and Ulster Bank, do not include money back.
But if you are changing at a lower rate and get a refund, you should more than offset the costs. “
Anything else to consider?
It may be worth taking a look at “green” mortgages, which are becoming more popular. They offer reduced interest rates if your home has a high BER energy rating, usually A or B. AIB offers a five-year fixed rate of 2.5 percent on these mortgages.
Anyone who has done a thorough remodeling of their home in recent years, improving their energy rating to bands A and B, can consider whether they can recover some money with cheaper mortgage refunds and improved fuel bills.