Sunday 25 September 2016

Save €30,000 on your rip-off mortgage by switching lender

Published 10/05/2015 | 02:30

With AIB’s main rivals insisting they won’t bow to political pressure and cut their standard variable rates, switching to AIB could be the only way for those on the most expensive mortgages to chop their mortgage bills
With AIB’s main rivals insisting they won’t bow to political pressure and cut their standard variable rates, switching to AIB could be the only way for those on the most expensive mortgages to chop their mortgage bills

Homeowners with the most expensive mortgages could save almost €30,500 by switching to AIB when it cuts its standard variable rate next month - or more, if their mortgage is higher than €300,000.

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With AIB's main rivals insisting they won't bow to political pressure and cut their standard variable rates, switching to AIB could be the only way for those on the most expensive mortgages to chop their mortgage bills - unless they're borrowing less than 60pc of the value of their homes and so qualify for a cheaper loan elsewhere.

Many of those on standard variable mortgages however have borrowed more than 80pc of the value of their homes and so don't qualify for cheaper loans.

The standard variable rates charged by most of the Irish banks are twice the eurozone average, and more than four times the interest paid by many of those on tracker mortgages. This is crippling many borrowers.

At 4.5pc, Bank of Ireland, Permanent TSB and KBC Bank have the most expensive standard variable mortgages for existing customers.

A customer on a 25-year standard variable mortgage of €300,000 with either of these lenders could save almost €30,500 by switching to a standard variable mortgage with AIB next month.

AIB will cut its standard variable rate to 3.9pc this June for both new and existing customers. This comes about seven months after a similar variable rate cut by the bank. AIB is the only lender so far which has cut variable rates for existing, as well as new, customers.

AIB's upcoming standard variable rate is still high when compared with other European banks, according to Brendan Burgess, a consumer advocate who has put together a new group which is fighting for lower standard variable rates. "At 3.9pc, the rate is still 1.7pc above the average eurozone rate of 2.09pc," said Burgess.

However, the chances of AIB cutting its variable rate even further are slim if its rivals don't follow suit.

"There's no compelling reason for AIB to move again if its competitors don't cut their rates," said Michael Dowling, managing director of the mortgage brokers, Abacus Finance. "The message is coming out that the other banks are not going to move."

Bank of Ireland chief executive Richie Boucher recently indicated that he will not bow to political pressure to cut standard variable interest rates. Last month, Ulster Bank boss Jim Brown also said that his bank has no plans to cut variable rates.

Many believe that AIB's rivals are more likely to chop their variable rates if they start to lose customers - than to do so in response to political pressure.

"The thing which will determine whether banks cut their variable rates or not is if they start to lose business from customers switching to other lenders," said Trevor Grant, director of the financial advisers, Cedarhill.

How would you switch mortgage?

First, identify the lender you want to switch to. Your ultimate goal when switching mortgage should be to save money on your home loan - rather than on legal fees or insurance. Should the lender you wish to move to cover your legal or valuation fees, or your home insurance bill, it's a bonus - but don't make such a perk your main reason to move.

Make sure you're switching to a lender who offers you a cheaper long-term interest rate as this should save you tens of thousands over the lifetime of your mortgage. Some of the cheapest rates out there are available to people borrowing less than between 60pc and 80pc of the value of their home. By the time you switch, the value of your home may we worth more than when you first took out your mortgage - which could mean you qualify for one of these cheaper rates. Remember, if you're on a fixed rate mortgage, you could be hit with penalty fees if you switch lender before the fixed term is up.

Second, check that the bank will allow you to switch to it. It is unlikely to do so if you are in mortgage arrears or negative equity. Like all loans, you must prove to your lender that you can afford to repay your mortgage.

Third, get all your documentation together, such as pay slips, P60, six months up-to-date current account statements, 12 months up-to-date mortgage account statements, and proof of address and ID.

Fourth, complete a switcher mortgage application from the lender you are hoping to move to.

Fifth, appoint a solicitor to take care of the legal work involved.

Sixth, organise a valuation of your property - the bank you are moving to will want one.

Seventh, make sure your home insurance and mortgage protection cover are in place for your new loan.

Finally, be prepared for a wait. Some lenders say it can take up to two months to switch your mortgage - however, the wait could be longer if you run into any legal issues.

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