With the latest entry of a mortgage lender into the Irish market, John Lowe of Money Doctors asks the question: are you getting the best deal on your mortgage?
Avant Money (well known to the Irish public with their ubiquitous Avant credit card) are the latest mortgage lender to entice the borrower with a 7-year fixed rate option of 1.95% – the lowest in the Irish market.
Many borrowers will be reading this and wondering would they qualify for such a rate and, more importantly, is it worth their while applying?
The simple answer is that there are three areas you need to address before you even think of applying to any lender if you are thinking of switching your mortgage:
1. Loan to value – your mortgage needs to be 80% or less of the value of your home. In some cases, it may be prudent to reduce your mortgage to comply with the 80% loan to value requirement in order to switch.
Say you owe €420,000 on your home but it is only worth €500,000. In order to avail of the best 5-year fixed mortgage interest rate on the market (2.2%) you would have to pay off €20,000 and switch just the €400,000 – 80% loan to value.
2. Income – can you still justify the mortgage you were approved originally? Covid payments and Employment Wage Subsidy Scheme (EWSS) have affected many incomes in Ireland, plus redundancies and liquidations have become more frequent in the last few months in particular if not the next few.
Essentially the rule is 3.5 times your single or joint annual incomes. So if you are both on €45,000 per annum (permanent and past the probation period) and have no debts, you would be entitled to a loan of up to €315,000 up to age 68 (the maximum age most lenders now allow). So if you are under the age of 33, you will qualify for the maximum term of 35 years.
Certain professions will also qualify for greater multiples as their income paths may generate greater income in the years to come. Lenders have discretions (usually 20% of their annual loan books) but quickly use these discretions up in the first few months of each new year…
3. Credit history – Miss a loan repayment and it is recorded both in the Irish Credit Bureau (icb.ie) and Centralcreditregister.ie, the new government credit agency. That one missed payment stays there for 5 years and it is extremely difficult to persuade a lender to approve your loan if you have missed a payment. Bankruptcy stays on the record for life.
You can apply to either a credit agency for your own report. You just need your name, date of birth and your addresses. It is a free service and takes 3 to 4 days for that report. Guard your good name.
Savings has now also become a big part of the assessment process for lenders. You may be paying a low mortgage repayment and in switching to another lender, you may decide to upgrade, renovate or extend requiring additional funds. The new greater repayment still needs to be validated and justified.
The differential between your old and new repayment you should already be saving on a monthly basis so the new larger repayment is not a shock to your financial system! Proof will be needed.
It is certainly worth checking out as there are some really good rates available currently while many existing mortgagors ( you ) are paying higher than even the average rate in Ireland 2.82%. If your rate is over 3% you need to review. Email me for details.