informed decisions blog

Blog56- How Much Could I Save By Switching Mortgage? The Big Switcheroo!

18th December 2017

Paddy Delaney

What do most of us have……really really desperately wanted it initially……….but now we really really want to get rid of (a clue, it’s not your partner!)……………..the answer is of course our mortgage!

We have covered mortgages a few times on here, including the ever popular ‘should I clear my mortgage or save for the future’ episode. This week we are going to ramp up the pressure on existing mortgage holders, we are going to hold a mirror up to them and their habit, and indeed inertia! In a survey we held earlier this year we asked how many of you believed you were on the best possibly mortgage rate…..interestingly 70% of people were not sure!

That points to the fact that people aren’t informed as to the best mortgage rates in Ireland at the moment, and whether they are getting the best deal available or not…..we are going to fix that right now! Switching mortgage in Ireland for some reason is no that popular versus many other states, however for some it can be a very financial prudent thing to do!

Firstly, thanks for checking out Ireland’s #1 Financial Planning Blog & Podcast, we are delighted to have you visit! By all means please do check out our ‘why’ which will explain why we are creating this blog and podcast every week for our listeners and readers! Also, thanks a mill’ to our latest iTunes Reviewer, it means a lot to us, so please do pop over and leave a review if you have a minute!?

Can I Switch My Mortgage?

There’s no point in getting all excited about the benefits of switching mortgage (there can be many!), if it is not available to you….here’s what you’ll need to prove:

  1. You have an existing mortgage!
  2. You live there (usually only benefits ‘owner-occupiers)
  3. You have a clean payment history on that mortgage in recent years
  4. You have consistent/permanent income(s) which the bank will deem sufficient to repay the ‘switched’ mortgage
  5. You have the time required to compile documentation & attend solicitor and bank/broker in order to switch to the new loan
  6. You will want to be benefiting financially in order to even consider switching, so you’ll need to know what the savings (if any) will be
  7. Be prepared for some element of hassle, as these things usually always have some twists and turns!
  8. You will need to be of an age where the bank is willing to give you the new mortgage up to a reasonable age, some banks will lend to you till you are 65, others to 70.

Should I Switch My Mortgage?

Another humdinger of a question! We can’t answer that question for you, but we can show you how to answer it for yourself. There are lots of comparison websites in this country, and there is no doubt that they help people get better deals. They make their money from people switching. There is also a government funded switching site that is pretty awesome, which we are big fans of here, and that is the Competition & Consumer Protection Commission website (I think they could do with some help on the name of the site in fairness!). It’s a fabulous and totally un-biased site which is updated daily…..check it out here.

All you need to have to hand in order to do a comparison is the following:

  1. How many years left on your mortgage
  2. Approx value of your house
  3. How much you owe currently on the morgage
  4. How much you are paying each month

Be careful with number 4. Make sure that the figure you put into the calculator is the amount you are paying toward the mortgage each month. So of us have home insurance or mortgage protection included in the same direct debit. Make a phone call to your lender if needed in order to determine exactly how much the mortgage repayment is on it’s own.

Whack the figures into the calculator and select whether you want to compare it to best Variable rates, or Fixed rates of the various terms 1 year to 10 year.

What is APRC?

In the next section you will see APRC referred to when detailing two different rates of interest on a mortgage. This stands for Annual Percentage Rate of Charge (as if we needed another acronym!). It is however the only accurate way to compare two rates as it includes all charges in the rate, including set up charges. It is common to see an interest rate quoted of say 3%, however the APRC is almost a full 1% (3.9%)……moral of the story is that you go with the APRC in comparing loan rates……now that we have that cleared up lets get on with the story for you….

How Much Could I Save By Switching Mortgage? A real-life story!

We want to share a real-life story with you. A friend of the show, we’ll call him Jimmy, got in touch to tell us that on the back of a recent blog/podcast we did he went on the hunt to reduce his mortgage payment. He shared his story with us, and invited us to share it with other listeners so that they could too benefit from it.

Jimmy lived in his house with his wee family. The house was valued at around €290k. He had a mortgage of €170k, and was paying €915 per month. The rate was 3.9%. There were 25 years left on the mortgage. Jimmy and his partner are in their 30’s.

They shopped around for the best rate mortgage they could find. They managed to find a market leading fixed rate of 3.05%, for a 10 year fixed mortgage. They were keen to fix it for the medium to long term as they wanted that security knowing it would not increase in future, that was important to them. This rate was subject to them switching their current account, which they were happy to do.

In addition they were going to get 3% Cash-Back provided the loan was drawn-down before March 2018. They were both working and earning the same salaries as when they originally took out the mortgage, with a clean payment history.

They got the ball rolling on the new loan via a broker, informed the original lender of their plans, and then followed the process with the new lender. Essentially the new loan goes directly across to clear the old loan, one cancelling out and replacing the other.

They are now paying €90 per month less than they were on the old rate, with the term the same as the original mortgage (they had the option of reducing the term but they wanted to keep it as long as possible for now). They also got €5,000 Cash-Back recently which has helped them hugely! All complete in a little under 3 months! yes they had to pay a solicitor €1,200 for the legal side of things, and there was some time invested in meetings and gathering info, however…..

Over the term of the mortgage this switch, including the Cash-Back, stands to benefit them €32,000! Delighted for them!

What About The Insurances?

When switching do try and keep your existing Mortgage Life Cover, provided it is the most appropriate cover for you (worth taking this opportunity to make sure it is actually!). Your original lender would need to ‘release interest’ in the policy before the new lender can note it on the new loan (‘assign it’). It is always prudent to make sure it is ‘assigned’ to the new loan so that in the event of a death the benefit goes directly to the lender to clear the loan.

Also really important obviously to make sure there are no ‘gaps’ in cover if you are cancelling or replacing either the Mortgage Life Cover or the Home Insurance…..if something tragic were to happen during that ‘gap’ you could be left in dire straits!

Are There Another Other Options?

Your existing lender might well be able to do you a better deal than you currently have! You may not need to switch lender in order to get a better mortgage deal, saving you the time, hassle and expense which comes from moving to the new lender (documentation, solicitor fees etc). So if you have decided to switch it is always worthwhile contacting your current lender and telling them your gone unless they can do something similar for you!

So there you have it…….the ‘can I’, ‘should I’, ‘how do I’, ‘what will I save’ of the mortgage switch conversation… be a legend and share this with your peers and anyone who you reckong would benefit from knowing about this.

Thanks for reading, you’re a legend!

Paddy Delaney

QFA | RPA | APA | Qualified Coach



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