Changing mortgages can generate huge savings

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.

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