Despite the fact that there are major savings for many mortgage holders by switching, very few do despite the potential savings on offer. For example the switching tool on the Competition and Consumer Protection’s website here shows potential savings of €36,440 over the lifetime of a mortgage with a remaining balance of €250,000 (see example below for more information).
If you are on a variable-rate mortgage or you are coming to the end of a fixed-rate you could potentially save by reviewing your options. The Competition and Consumer Protection Commission (CCPC) has a number of steps including a handy mortgage switching calculator to help you find a better deal:
Step 1: Are you eligible to switch?
If you are on a variable or fixed-rate mortgage you are in the best position to see if could save by switching. If you’re on a cheap tracker mortgage, in negative equity or in arrears you probably won’t be eligible to switch.
Step 2: Use the mortgage comparison tool to find a better deal
To find a better deal use the mortgage switching tool here to see if you could save. All you have to do is enter the market value of your house, your outstanding mortgage and your current monthly repayments. The tool will show you the difference between what you are paying now and what is available in the market, per month and over the lifetime of your mortgage. If you do find a better deal with another provider, contact your lender to see what they can offer you first before you consider switching. Below is an example of the potential savings identified by the mortgage switching tool.
EXAMPLE:
You have a remaining balance on your mortgage of €250,000
Your house has a market value of €350,000.
Your mortgage term is 25 years.
Your current monthly repayments are €1,300 on a variable interest rate.
Using the mortgage switching tool, you could potentially save €121 a month or €36,440 over the lifetime of your mortgage if you switched to a lower interest rate. Remember this does not factor in any additional costs.
Step 3: Don’t be enticed by freebies
Offers such as free legal fees, discounted insurance or payment breaks to switch sound tempting but you need to make you decision based on the total cost of the mortgage. Introductory packages can save you money in the short term but remember to consider the long-term costs you will pay when the offer runs out.
Step 4: Consider all the costs involved
If you can switch your mortgage, find out what costs are involved. Compare your current deal with any you might consider switching to and think about all costs involved such as:
• Redemption fees: This is the fee to cover the cost of breaking out of a fixed rate if you don't have a variable-rate mortgage.
• Legal costs: Some lenders may offer to meet the cost or pay a contribution toward your legal fees. Check first if there is a limit on how much the new lender will pay, if the legal fees are more than this, you will have to pay the remainder of the cost.
• Valuation fees: The new lender will want a new valuation report done. The cost of this will generally be incurred by you.
• Product fees: Some lenders charge a fee to arrange the loan. This can be around 0.5% of the total cost of the mortgage.
• Brokers' fees: If you use a broker you may be charged a fee for mortgage advice or to arrange your mortgage. Always ask in advance what charges apply.
• Administration fee: Some lenders charge this fee to cover additional services before you receive your mortgage. You may also be charged this fee for rearranging the terms of your mortgage. You may not get your money back if you do not go ahead with your mortgage application.
Step 5: Switch if you find a better deal
If you find you can make savings by switching and you meet the lender’s eligibility criteria then you should consider switching. If you're switching to a new rate with your existing lender, they will issue you a letter confirming the change to your contract terms. It can take some time to switch to a new lender as it is the same as applying for a new mortgage. So you will need to provide documentation such as proof of your identity, personal details and meet certain criteria. You will also need to redeem your current mortgage before you apply to switch and contact your existing provider for your redemption figure. This figure normally includes the balance of the loan amount, interest fees and other fees such as admin etc.
For more information on mortgages and switching visit CCPC here
