Switching your mortgage: what you need to know

September 27, 2021

Switching your mortgage might seem like a daunting task, but you could make significant savings if you can switch to a lower interest rate.

Can you switch?

If you are thinking about switching your mortgage, it is important to first fully understand your current mortgage. This will help you to decide if it makes sense to switch mortgage type or provider. The first step is to find out what type of mortgage rate you are on, for example, if it’s fixed or variable, and what your current interest rate is.

In general, if you are on a variable rate, you are free to switch your mortgage.

If you’re on a fixed-rate mortgage, it’s likely you won’t be able to switch within the fixed term without paying a penalty. This could be quite costly and might mean it’s not worth your while switching now. However, if you are coming to the end of a fixed rate, you could start doing some research now. Also, your lender must tell you about any cheaper options 60 days before your fixed rate period ends.

If you’re on a tracker mortgage it’s unlikely you’ll get a better rate.

How much can you save?

If you’re eligible to switch, you should compare the mortgages available from different financial providers to see what savings you could potentially make. You can do this easily using our mortgage comparison Money Tool.

The tool will show you

  • the difference between what you are currently paying and what is available in the market and
  • your monthly repayments and the total cost over the lifetime of your mortgage

For example, if you have 20 years left on your mortgage with €200,000 outstanding at an interest rate of 3.5%, your monthly repayments would be approximately €1,160 per month, and the total cost of credit would be slightly more than €78,000.

If you were to switch to a mortgage with a rate of 3% with the same term and amount, the monthly repayments would drop to €1,110 and the total cost of credit would be just over €66,000.

This change in rate would result in a savings of approximately €12,000 over the 20-year term.

Special offers – are they worth it?

When you start to look at different options for switching your mortgage, you’ll see that some lenders have special offers to encourage you to move your mortgage to them. These may include:

  • a percentage of the value of your mortgage back in cash
  • a set amount of cash back
  • paying all, or part, of your legal and/or valuation fees

Cashback offers are attractive because they give you money in the short term. But they might not make financial sense in the long term if you look at how much the mortgage will cost you overall. The lenders that have these special offers often have higher interest rates, so it’s important to focus on the interest rate they are offering.

You should always think about the interest rate, because a lower interest rate means significant savings on your mortgage.

So don’t let the short-term gain of a cashback offer dazzle you, the interest rate actually determines your monthly repayments and how much you spend on your mortgage altogether.

Find out more about switching your mortgage and what to consider.

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