Don't be swayed by 'free' gimmicks...Check rates before committing to new mortgage deal
The mortgage market is finally rumbling and rolling in the direction of consumers.
After the tracker scandal, the bailouts and the vulture funds, most of the banks are finally back in profit and eager to lend. They can only make money by loaning it out, and the most loyal customers are those with mortgages.
Because the property market is still stagnant, lenders are focusing on shoring up existing borrowers, attracting switchers and offering all kinds of incentives (silly and otherwise) to persuade people to move their money.
The biggest incentive, however, should always be a consistent lower interest rate, not gimmicks.
Mortgages are the longest term financial product you'll ever buy, so don't be swayed by "free" insurance offers, or current accounts or even "cash back": they're all preying on instant gratification, rather than long-term savings.
Bonkers.ie's Mark Whelan explains the difference, based on a loan of the average house price of €344,700.
"Bank A is offering 2pc cash back and an interest rate of 4.2pc. This means a borrower will get €6,894 back in cash upon draw-down and the cost of credit over the lifetime of the loan will be €256,441," he said.
"Bank B, which isn't offering any cash back, has an interest rate of 3.50pc. The cost of credit over 30 years will be just €208,731. Therefore, in this example, taking 2pc cashback in the short-term may end up costing an extra €40,816 over the lifetime of a loan."
The panel shows some current rates available for someone with 80pc loan to value (LTV).
This is the value of your house less the mortgage on it and is the single most important factor in switching. The lower the LTV the better.
Fewer than 1pc of people switch their mortgage to a different bank. Yes, it can be a hassle, but the lifetime benefits are enormous, especially with house prices rising, giving you more equity to play with. So, what's new and what should you do?
To Fix or Not to Fix?
Well, Ulster Bank set the financial cat among the pigeons with its latest fixed-rates offer of just 2.6pc for four years, while KBC has brought out a 10-year product priced at 2.95pc for those with less than 60pc LTV (until now, only Bank of Ireland offered a decade-long fix).
Fixed rates on one hand give peace of mind on outgoings. But they also lock-in customers, penalising them heavily (with up to six months of payments) if they try to break the contract early. So, choose wisely.
The ECB is due to raise rates as early as spring 2019, but by how much is unknown. You can be sure banks are not charitable, and are already pricing that in.
I asked Joey Sheahan of MyMortgages.ie what his advice is for potential switchers.
"All financial decisions warrant due consideration, particularly with something as significant as a mortgage. So, it is imperative you weigh up all your options and take expert advice when deciding whether switching is the best course of action for you," he said.
He says the process may appear protracted, but the savings will be worthwhile. First, you need to arm yourself with some key information.
"To start the process, you should contact your existing lender and confirm your rate of interest, balance outstanding and term remaining on the mortgage," he said.
"Ask them if the interest rate you are currently on is the best available to you and what fixed-rate options would be available to you as an existing customer. A professional mortgage broker will compare your existing mortgage terms to what is available in the market. The more equity you have in your home, the better, but you can switch even if your loan is 90pc of your value.
"One of the primary considerations is whether to stick with the same lender or move to a different one. It's generally more straightforward to stay put, as you will avoid the mortgage approval process. However, do not let this put you off; it can be relatively streamlined if you have an expert helping you."
What will I need?
If you decide to go ahead then you will need to go through the application process and submit your documentation. This varies by lender. The minimum requirements are:
*One recent payslip.
*Three months of recent current account statements.
*Most recent credit card and mortgage statements.
Most banks offer legal fees to cover the switch.