Switching your mortgage. You can potentially save thousands...
“Banks are actively lending again and have dropped their rates considerably over the past year and a half. This presents an opportunity for homeowners, who may feel they are being ripped off on their interest rate, to potentially reduce the amount of interest they will pay over the term. A lot of people switch their electricity and gas providers on an annual basis to receive a discount but rarely think of switching their mortgage, which in most households is the biggest expense.
The amount you can save depends on the size of your loan, the value of the home for which you are borrowing, and how expensive your current lender is. A lot of people may not be in a position to switch, e.g. if you are currently in negative equity, have a bad credit rating or your circumstances don’t meet the banks criteria (not enough income, excess loans, etc.). Also, if you are on a tracker rate it’s extremely unlikely switching lender would make sense.
If you are not sure if you could save, it is definitely worth reviewing because if you are in a position to switch you can save quite a lot.
Here is an example of how much you can save on a mortgage of €250,000 over 20 years by simply getting a better rate:
|Loan||Term||Rate||Monthly Repayment||Savings over the term|
Obviously, the bigger the loan, the longer the term and the higher your interest rate the more you are going to save.
If you aren’t in the position to switch today, it is still worth reviewing your mortgage every 3-5 years as your circumstances change. There is mounting pressure on the banks to reduce their expensive variable rates and with more lenders eyeing up the Irish market, interest rates should drop. It’s important to bear in mind that you are essentially going through an entire mortgage process again which can take time. However, don’t let this put you off as the savings can be more than worth it and a number of banks are offering cash incentives to cover the cost of switching. For example, KBC and AIB are offering €2,000 for switchers while PTSB, EBS and Bank of Ireland are offering 2% cash back.
Can you save without switching?
The first thing you should do is contact your current lender to see if you can get a better rate. Most lenders will negotiate your mortgage rate on the basis of an up-to-date valuation of your home. Should your lender not offer you a better deal or there is a better offer elsewhere, then it is time to consider switching. If you are on a fixed rate then it is wise to wait until the fixed rate has ended before considering switching as the banks will charge you during this period.
Another tip for reducing the amount of interest you pay is to pay extra off your mortgage, if you can afford to do so. Paying off your mortgage as quickly as you can is effectively an investment with a guaranteed return.
In the example given above you could save an extra €11,340 on top of the €34,080, if you were to continue with the higher repayment figure of €1,541 per month – essentially overpaying your mortgage by €142 per month. This would have the added benefit of shortening the term from 20 years to under 17.5 years!
The Mortgage switch process usually takes between 6-8 weeks. If it saves you money and costs you nothing, then what are you waiting for?"
For further information on switching your mortgage or to find out how much you could potentially save you can contact Rockwell Mortgages on 01-2966120, email [email protected] or visit www.rockwellmortgages.ie.