Thursday 19 April 2018

Should I switch mortgage?

There are mortgage providers on the market looking for you to switch your mortgage. Should you?

You need to be aware of your current interest rate to ensure any other providers switching offers benefit you financially. Most lenders now provide competitive Loan to Value rates – meaning the lower your mortgage versus the value of your house, the lower the interest rate you can avail of.

The other consideration for people switching are the associated fees – again most lenders in the market are offering to contribute to your legal fees by offering cash contributions when you complete your new mortgage – ranging from €1k to €2k.


Are you suitable?

Generally you need to be in a secure permanent employment or be self-employed greater than 2yrs to be considered. Once your LTV is less than 90% you should be in a position to compare your existing mortgage rate to those out in the market for switching customers.   If you bought at a good time and got a house for a good price, then the chances are your Loan-to-value ratio is good. For example, if your mortgage is €300,000 and that house is now worth €400,000 then your LTV is at 75%.

Switching obviously only makes sense if you get more favourable terms. Depending on how much you owe a reduction of 0.3% or 0.4% could result in significant savings every month. Taken over the life of a mortgage, say 25 years could add up to thousands.


The security of a fixed rate

If you are on a high standard variable rate and you’d prefer to have the security of knowing that the rate won’t rise for the next 1-5 years or more, you could consider moving to a fixed rate.

Interest rates on a three-year fixed rate for €200,000 mortgage range from 3.6pc to 3.85pc. However, the downside with a fixed rate is that the flexibility to change things in the future is more limited. If you want to get out of a fixed rate early, you may have to pay a penalty fee, for instance.

The other issue with fixed rates is that in most cases there is usually less scope to over-pay so that you can reduce the mortgage term and therefore interest that you pay on it. Some banks may charge a penalty if you want to overpay on a fixed rate but others may allow overpayment on a fixed rate mortgage to a restricted degree.


Reduced term

Most people when they buy a home are hard pressed with years of saving,  thinking about fees and furnishing their home and are keen to keep payments down. But maybe your circumstances have changed for the better in the interim; maybe you got that promotion, or came into an inheritance. When switching mortgage, it’s a good time to examine the long term impact of your mortgage term. A better interest rate could allow you to shave months, maybe years of your mortgage repayments. That time will be most welcome at the other end.


Some, but not all mortgage lenders will help you cover the cost of your legal fees in switching mortgage.


Switching mortgages isn’t for everyone, it is more a reward for those who have made prudent financial decisions in the last few years and stand to reap the benefits.

You may have a lifelong relationship with your bank, and surely switching mortgages would damage that? Actually no, Banks, probably more than anyone else realise that if they can’t match the deal being offered elsewhere then they stand to lose.

Switching has never been easier, and there are a range of very tangible and real benefits for the customers to be had. If your broadband provider wasn’t up to scratch, you’d switch, so why should’nt you switch your mortgage.


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