On March 16, 2023, the European Central Bank increased its base interest rate by 0.5% to 3.5% affecting thousands of families up and down the country who have tracker mortgages or standard variable rate mortgages.
John Lowe of MoneyDoctors.ie asks the question are you getting the best deal on your mortgage – is it now time to review your mortgage?
The reality is another 0.5% increase is due before May this year so mortgage holders need to brace themselves or else look at ways of cushioning the extra cash they are going to need to maintain repayments.
If you are considering such a move, there are three areas you need to address before you even think of applying to any lender or approaching any mortgage intermediary:
1. Loan to value
Your mortgage needs to be 90% or less of the value of your home – it was 80% before January 1, 2023. In some cases, it may be prudent to reduce your mortgage to comply with the 90% loan to value requirement in order to switch.
Say you owe €450,000 on your home but it is only worth €500,000. In order to avail of the best four-year fixed mortgage interest rate under 80% loan to value on the market (3.20%) you would have to pay off €50,000 and switch just the €400,000 – 80% loan to value.
2. Income
Can you still justify the mortgage you were approved for originally? Essentially, the rule is 3.5 times your single or joint annual incomes (first-time borrowers can avail of four times from January 1, 2023). 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 unless guaranteed pensions – then up to age 70).
If you are under the age of 33, you will qualify for the maximum term of 35 years. Certain professions and public sector employees may 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 in the Centralcreditregister.ie - the new government credit agency. That one missed payment stays there for five 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 this credit agency for your own report or call (01) 224 5500. You just need your name, date of birth, and your address. It is a free service and takes three to four 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 are paying higher than even the average rate in Ireland 2.93% (March 2023).
If your rate is over 3% you need to review. Email me for the best mortgage details fact sheet.
For more information click on John Lowe's profile above or on his website.
The views expressed here are those of the author and do not represent or reflect the views of RTÉ.
