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'My fixed-rate is ending and I’m thinking of switching mortgage - what should I know?’

Consumer expert Áine Carroll says that a switch could save thousands.

Image: Unsplash

THE WORLD OF MORTGAGES can be a tricky one to navigate, and the one you opted for when you purchased your home isn’t necessarily going to be the best option for the entire length of your mortgage.

To make it easier on our readers, we want to get an expert’s support for when you have to weigh up – is it worth switching my mortgage?

We have the Director of Communications and Policy at the Competition and Consumer Protection Commission (CCPC) Áine Carroll to weigh in on a conundrum that one of our readers was wondering about:

‘My fixed-rate mortgage is coming to an end soon and I’m thinking of switching mortgage as the market has changed a bit. What sort of things should I be considering in order to make the decision?’

Here’s what Carroll says that you should be asking yourself in order to make the right decision about switching your mortgage.

1. Can I definitely switch?

jeshoots-com-219386-unsplash Source: Unsplash

Well, you’ll need to get to the end of your fixed term first, or pay a penalty, says Carroll. She reminds that while on a variable rate you can switch at anytime, fixed rates are different: “With a fixed rate you may have to pay a breakage fee if you switch your mortgage within the fixed rate term.” 

Secondly, Carroll reminds that there are unfortunately some circumstances in which it’s unlikely that you will be able to switch your mortgage:

Many lenders will require you to have a certain balance on your mortgage, or will only give you a mortgage for a minimum term. So if your balance is very low or you only have a few years left, your ability to switch may be hindered. Also if you are in negative equity you will not usually be able to switch.

2. What percentage do I actually pay currently?

The problem with mortgages is that people don’t tend to be as knowledgeable about how they work as other financial products, says Carroll: “Our research has shown that there are a lot of information gaps in terms of mortgages, which makes people less likely to switch.”

Speaking of research, CCPC found in 2016 that only half of mortgage holders are aware of the rate of interest that they pay on their mortgage, while 86% are aware of their monthly repayment amount “often to the cent”, says Carroll. Elsewhere, they found that over 2 in 5 people have switched at least one product or service in the last 12 months.

3. Should I get my house revalued?

shutterstock_1116701036 Source: Shutterstock/Elena Zhi

If you are coming to the end of a fixed rate, Carroll says that it can be worth getting your home valued to find out if your loan-to-value, or LTV, has changed. As housing prices have increased in the last few years, this is likely to apply to a lot of people:

If you think your home has increased substantially in value, you may be able to qualify for a lower rate from your current provider and there may be substantial savings to be made over your mortgage.

LTV is just as important if you have a variable rate mortgage, says Carroll: “If you took your mortgage out years ago, your LTV may have come down. And your lender, or other lenders, may have better rates based on a lower LTV so it’s worth looking into.”

4. Have I contacted my current bank about it?

There are two really important questions when you’re considering switching from a fixed rate mortgage – whether you want to change mortgage type and whether you want to change lender, as Carroll explains:

Do you want to go with a fixed rate again or onto a variable rate? This can depend on how important certainty is for you – they give you that certainty for the fixed rate period. Second thing is, don’t just look at the rates your current lender is offering you – look at what else is available in the market.

Actually, going to your current lender is a good starting point, says Carroll who says that they may have a better rate that they are prepared to offer, which means that you don’t have to go through the switching process between banks. Sometimes in fact, banks are prepared to match an attractive offer that you’ve seen elsewhere. Find out how yours compares here.

5. Am I getting distracted by special offers?

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“While cashback offers can be really attractive, there is a reason why lenders offer them” says Carroll: “Your mortgage is very valuable in terms of the interest a lender will earn over the long term of the mortgage”.

“You need to work out what the special offer is actually worth to you – the difference between say an interest rate of say 3% versus 3.5% is going to be worth a lot more to you than getting your legal fees paid,” warns Carroll.

6. Have I done the maths?

Once you’ve gathered a few concrete factors like how much you owe on your mortgage (you can see this on your statements), your rough LTV based on how much you think your house is worth – you can do some calculations. Now’s the time to have a look at CCPC’s mortgage comparison calculator to find out how much you could save, says Carroll. 

“Even a small difference in the rate you pay can add up to a substantial figure, such as €40,000-€50,000 long-term, so it’s really worth looking at your options”, says Carroll. For example, if you have a mortgage of €250,000 on your house and the house is now worth €350,000 and you have 25 years left, you could save over €50,000 by switching to a lower rate.

7. Have I considered the additional fees involved?

rawpixel-555905-unsplash Source: Unsplash

There’s an important thing to note in all this – switching mortgage is not necessarily easy and it’s not free: “there’s a very big commitment in terms of time but it can be worth it”. You may need to pay a breakage fee if you break a fixed rate, you’ll have to pay a solicitor (though some lenders will cover this) and house valuation fees.

Solicitor fees can vary a lot warns Carroll, but you can approach a few and see what they’re prepared to offer. There can also be product fees and admin fees to arrange loans but they tend to be small, but always ask any lender to outline all the costs involved in switching.

And a last word of advice?

If you don’t want to ‘rock the boat’ with your bank, you’re not alone: “A lot of people have worked really hard to make their mortgage repayments and have had a tough few years financially, so some of them are cautious about approaching their lender, which is totally understandable”, says Carroll.

“However doing some research is not going to put your house at risk or mean that you actually have to switch – you’re not risking anything by looking at what lenders can offer you.”

Still a bit confused about whether you could benefit from switching mortgage? Have a look at CCPC’s handy mortgage comparison tool to get an idea. Make sure you’re fully up to speed on all of your options by visiting the CCPC’s mortgage switching section to learn more.

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