It has been proven that one of the most stressful things anyone will ever do in their lives, is buying or building their first home and applying for their first mortgage.
However, switching the mortgage from one lender to another is not considered stressful. It often makes financial sense to switch, but many think that because it was such an ordeal in the first place, they cannot contemplate repeating the process, but perhaps they should.
Despite the potential savings, most people in Ireland never switch their mortgage, although this is now increasing.
Central Bank of Ireland switching measures
The Central Bank of Ireland (CBI) introduced new measures to make mortgage switching easier which lenders now have to follow.
Each lender must have a switcher pack available for customers detailing all the required information necessary to switch. Lenders must tell you about cheaper mortgage options 60 days before you come out of a fixed rate mortgage. They must also explain the pros and cons of any mortgage incentives such as cashback offers, and let you know how long it will take, if you decide to switch. Lenders must also provide comparisons of how much your mortgage costs versus other options with other lenders, if you ask.
As with any loan, your credit rating is important and will be checked by the new lender if switching. If you have taken out any other loans or credit cards since your first mortgage, and have missed any repayments, this may not be looked on too favourably by the new lender. Anyone can request their own credit report from the Central Credit Register website. Lenders are legally obliged to register all details of loans drawn down in excess of €500 for this register.
Dear Money Mentor,
We are considering switching our mortgage. We are not sure where we might get the best value. We own a house valued at €300,000, built on a site on the family farm, with an original mortgage of €225,000 over 25 years. We are currently on a three-year fixed rate which is due to expire, repaying €1,100 per month. We would prefer to go on a fixed rate – again for a period of time. Are there other fees and charges involved in switching our mortgage?
Sean and Aine
Hi Sean and Aine,
According to the Competition and Consumer Protection Commission (CCPC) mortgage tool, the two best options for you currently, based on the interest rate, would be a mortgage with Avant Money or ICS Mortgages. For a switcher mortgage of €225,000 on a home valued at €300,000, over 25 years, and based on a three-year fixed rate of 2.2%, you could save a monthly amount of €124.27, nearly €1,500 per annum. At the end of the three-year period you will have options, to continue onto a new fixed rate or choose a variable rate available at that time. Most fixed rates are for terms of one, three or five years.
This can be quite a saving over the life of your mortgage in both monthly repayments and total interest payments over the remaining life of your loan.
If you switch mortgage lenders you will also incur legal fees and surveyor/valuer fees as the new mortgage provider will need to register a charge/ mortgage over your property. Legal fees may cost you about €1,500 on a mortgage switch, or maybe less, so it is very worthwhile to shop around. The legal fees for a switcher mortgage should be less than the original legal fees you paid when you first bought your home, as it is a much more straightforward transaction. This fee will include VAT and the valuation fee should be about €150. This may seem expensive but a saving of €1,500 per annum will easily cover this.
As with most loans, you can reduce the remaining years of any mortgage by repaying lump sums as your resources allow. The loan to value (LTV) on your property as it currently stands is 74%. Both Avant Money and ICS Mortgages offer this three-year fixed rate on mortgages for all LTV greater than 70% and less than or equal to 80%.
In general, borrowers with lower LTV ratios will qualify for lower mortgage rates than borrowers with higher LTV ratios.
Avant Money is the latest arrival into the Irish mortgage market, and is lending through a small number of brokers, so if you are in a rural location you may have to do your application online, if you opt to switch to Avant Money.
You should check with any new potential lender if they offer any incentives if you switch, which might be useful to cover legal fees. The real savings should be in the interest rates.
Using a mortgage broker is sometimes worthwhile as they will provide any expert advice you might need. Their fees are usually paid by the lender so there should be no cost to you.
As you already have a mortgage, I assume you have a mortgage protection insurance policy. If you switch mortgage lenders you will not need to cancel this policy as your new lender will also (quite likely), require you to have a mortgage protection policy in place.
In most cases, this policy can be transferred from one lender to another. However, the amount you are insured for under this existing policy will need to be at least equal to the value of your new mortgage and run for the same term.
Likewise, you can use your existing home insurance policy with your new lender, if you wish.
Best of luck if you decide to go ahead and switch your mortgage.