Switching your mortgage

You could make significant savings on your mortgage if you can switch to a lower interest rate. Since 1 January 2019, the Central Bank of Ireland has put new measures in place to make it easier to switch your mortgage.

Under the new measures lenders must:

  • Tell you about cheaper options 60 days before your fixed rate mortgage period ends
  • Notify you, if you are on a variable rate (but not a tracker), if you can move to a cheaper rate due to a change in your loan-to-value ratio. You will need to provide an up-to-date valuation for this.
  • Explain the pros and cons of any mortgage incentives such as cashback offers in a clear way
  • Give you a comparison of how much your mortgage costs versus other options offered by your lender if you ask for one
  • Give switchers all the information they need to switch including how long it will take
  • Give you a decision within ten business days of receiving a completed mortgage application

Can I switch?

If you are eligible to switch you need to consider:

  • Loan-to-value (LTV) ratio – how much you owe on your mortgage in relation to how much your house is worth. Lenders will consider the LTV ratio when you make your application. An up-to-date valuation is needed to get an accurate value of the property.
  • Outstanding balance – if you have a small outstanding balance on your mortgage you may find it difficult to switch as lenders may have a minimum amount they are willing to lend.
  • Negative equity – lenders may not be willing to take you on as a mortgage customer if you are in negative equity i.e. if you owe more on your mortgage than your property is worth.
  • Mortgage term – minimum or maximum loan terms may apply when you are switching. For example, some lenders may not accept an application for a mortgage over 30 years or less than five years.
  • Repayment history – whether you have been meeting your mortgage repayments over the previous 12 months and any other financial obligations will be considered as part of your new application. Lenders will examine your credit history as part of this.
  • Fixed Term – If you are on a fixed rate and want to break out of it early, you may have to pay a fee, sometimes called a redemption charge. The cost of this charge should be weighed against potential savings that could be made by switching or alternatively you can wait until you are coming to the end of the fixed term and then switch.

Can I save money?

If you are thinking about switching your mortgage it is important to first fully understand your current mortgage as this will help you decide if it makes sense to switch mortgage types or providers.

You can use our tools and calculators to compare mortgages, see what other rates are available and what savings could potentially be made.

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 approx. €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 approx. €12,000 over the 20 year term.

Variable rates and switching

If you have a variable rate mortgage, lenders must give you clear information and:

  • Explain to you how they set their variable interest rates
  • Give you an explanation if the interest rate goes up
  • Give you information on what other options may be available

There is more information available on the Central Bank of Ireland’s website.

Things to think about

Before you start applying to other lenders it is worthwhile contacting your current mortgage lender and asking about your Loan-to-value (LTV) ratio as most lenders offer better rates the lower the ratio is. Over the lifetime of your mortgage, your LTV ratio will change as your mortgage decreases and the value of the property changes. If you want to get a reduction in your rate based on the LTV, you will need to get a valuation of your home.

Example – reviewing your LTV
Jenny took out a mortgage four years ago to buy a property in Dublin. The house cost €250,000 and Jenny borrowed €210,000 from her bank after choosing a variable rate mortgage, with an APRC of 4.6% over 35 years. Jenny’s LTV was over 80% at the time and her monthly repayments were approximately €1,006 per month.

Four years on, Jenny gets a valuation of her house and it has risen in value to €400,000, with the bank confirming that her mortgage outstanding is €199,200. She is now in an LTV band of up to 50% and can avail of a lower variable rate of 3.1% with her provider, meaning her revised monthly repayments are now €834.

Jenny has saved herself €172 per month simply by taking the time to review her LTV. Over the lifetime of the mortgage, this will amount to a saving of approximately €63,970. When we take out the €150 valuation cost, Jenny has saved herself €63,820.

This example is for illustrative purposes only (September 2019).

If you switch lenders there will be many of the same fees and charges as when you first applied for a mortgage and these need to be weighed up against any savings that could be made.

Are special offers worth it?

Before making any important financial decisions it can be a good idea to get financial advice.

If you are switching to a new lender it is the same as applying for a new mortgage and you will have to go through many of the same steps again.

There is no specific timeframe that applies to mortgage switching as the process depends on many different factors such as gathering documents, getting a valuation, getting insurance in place etc. but it is likely to take a couple of months at least.

Mortgage protection insurance

With your current lender you may be part of their group mortgage protection insurance policy. When doing your research on switching you should ask other lenders if they have a group policy you can join and what the criteria is for joining.

If they don’t have a group policy you may need to take out an individual policy and this can be difficult if you have had a serious illness or a new policy could be more expensive than your previous policy as you are now older. Having a mortgage protection policy in place is a vital part of the switching process so if you are in a group policy, you should look at your options as early as possible.

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