HOW MUCH BETTER would you feel owing €100 less on your mortgage each month? While both obtaining and maintaining a mortgage are by no means easy, getting your head around switching one can be just as difficult.
That’s why earlier this month we asked our readers what exactly they’d like to know about the process – and whether it’s actually worth the headache of moving your mortgage to a new, lower rate. To shed some light, we put these questions to the Competition and Consumer Protection Commission (CCPC).
While our informal survey found that 100% of respondents said they would switch if it meant they would save money, over half (54%) of these had considered switching but had not looked into it.
Although it might look like a negative statistic for consumers, it actually reflects something very positive – that the number considering switching has increased, as Áine Carroll, Director of Communication and Policy at CCPC explains:
There’s been a fair amount of advertising around it so it’s on people’s radar. However it is not a short process. There are a lot of different stages to the process – such as figuring out your loan-to-value (LTV) or contacting your solicitor.
And in general, people may be becoming more savvy – though CCPC found in 2016 that only half of mortgage holders were aware of their rate of interest, 78% of those surveyed know not only their rate but the exact figure they pay each month. It’s a huge step in knowing if you have the best mortgage to suit your needs, shares Carroll:
Knowing your exact rate is the first thing in terms of switching. These results would be very positive and suggest that people are being very active in managing their personal finance.
Why do people not bother to switch?
The long process is not the only thing that is putting people off – almost a third (30%) of respondents said that they simply weren’t sure that it would have any benefits, while over a quarter (27%) explained that they just didn’t want the hassle involved, and 29% were worried about the costs involved.
And then there’s the time involved – “we talk to a lot of people switching all different types of financial products and services and switching mortgage is definitely one of the most involved you’d ever go through”, admits Carroll. “People are time-poor.”
Will it be worth it for me?
Carroll says that the first step to assess if there is a lower rate available to you is to use an online comparison tool where you input your your estimated house value, your current interest rate and current repayments where “you can see very clearly whether switching will be an advantage”. Some 66% of those surveyed said that you would use an online tool to compare rates.
While 100% of respondents said they would switch if it meant saving money, our survey found saving €100 on your monthly repayments trumped upfront cash payments (14%) and having your legal fees covered by your new mortgage provider (16%).
How much you could save really depends on your current mortgage set up but the general rule of thumb is that “the more money you owe or the bigger your mortgage, the more you stand to gain if you can get a different rate”.
Carroll shares a pretty astonishing example of this in action:
Take a mortgage for a house valued at €160,000 with an outstanding amount of €120,000. The current interest rate is 4.2% with 30 years of €586.82 in monthly repayments. By switching to 2.95%, you could save €84.13 a month, or €30,285 over the mortgage term.
If a mortgage is for example, twice that value – you stand to save twice the amount, though “even if your mortgage is small, your savings could be considerable” says Carroll.
It also depends on the type of mortgage – our survey found that 47% of those surveyed said they are on a variable-rate, 41% are on a fixed-rate and 11% are on a tracker. Carroll says that looking into a variety of rates can be particularly worth it at the minute:
We’re definitely seeing an increase in people on fixed-rates. In the past, fixed-rates tended to be higher than variable-rates but now some of the lowest rates on the market are fixed.
How much will it cost me?
One thing that respondents hadn’t gotten their head around was what happens if you already have a fixed rate and want to switch. Nearly a third of those surveyed (32%) did not realise that you will be required to pay a breakage fee if you do switch from a fixed-rate.
Carroll reminds that it’s worth looking at your options about six months before you come to the end of your terms to see if you can get a better rate from a different lender. Although you can ask your lender at any time what this breakage fee would be, estimating it yourself isn’t that simple:
Calculating breakage fees is complicated. It’s a calculation based on the amount outstanding on your mortgage, the interest rate you pay and the length of time you have left.
The good news is that it’s not up to the bank to decide this figure for you – they need to use a formula covered by legislation.
So here’s the nitty gritty of your estimated costs, as Carroll explains:
There may be other fees such as admin fees for some banks which your solicitor will talk you through and assess whether they need to be paid up front, “but these are becoming less common and they tend to be very small.”
Almost half of respondents (44%) either weren’t sure, or didn’t know whether you would have to pay a solicitor (though this is only required if you move financial institutions). Carroll explains why they’re necessary:
You’ll need one because when you switch your mortgage your deeds will move to your new financial institution and there’s quite a lot involved in that. A solicitor will take care of all of that paperwork between your two lenders.
What happens if I have a tracker mortgage?
“If you have a tracker mortgage it’s very unlikely that it makes sense to switch if you have one”, says Carroll. Essentially, if you do switch from a tracker, you will not be able to get another one as banks simply don’t offer them anymore.
“A lot of people who have them feel fortunate to have them because the rates have been flat for a long time but when European Central Bank rates go up, everyone’s trackers will go up too.”
I don’t have that long left on my mortgage, is it worth it?
So there are two factors at play here as to whether another lender will be interested in taking your mortgage on, says Carroll. Firstly, what the outstanding balance is and secondly, the term remaining on your mortgage.
“What we would say generally is they wouldn’t accept more than 30 years or less than five or ten, though it’s always still worth asking”. It’s worth an initial phone call to a lender to ask would they be interested. “It’s important not to make an assumption that you can’t switch”.
Do I need to repay a cashback offer if I switch?
Luckily there were regulations brought in in 2016 to protect consumers around this, but it depends when you took out your mortgage as to whether you’re covered. “If you’ve taken out a mortgage since March 2016, you do not have to pay back a cashback offer. If you it was prior to this, it’s really important that you check your lender’s terms and conditions around this.”
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