Insights
Why Switch Your Mortgage?
15th July 2021
After pensions, I believe mortgages are the next big financial product which people struggle to fully comprehend. I feel you should look at your mortgage every 3 to 5 years to ensure you are getting the best rate possible. I always build this into the financial review. At SYS Mortgages we research the marketplace to secure the cheapest and most suitable mortgage for our clients. We have knowledge of the most competitive rates available, and the financial incentives being offered to mortgage switching clients.
The Central Bank conducted a survey in 2015:
“Based on the analysis of over half a million mortgages, up to 21% of borrowers could save money by switching. Of those mortgages that could save money by switching, approximately 16,000 could save over €1,000 in the first 12 months, and around 27,000 switchers have the potential to save in excess of €10,000 over the lifetime of the mortgage.”
These are the questions I ask my clients to ascertain if it is worth their while changing:
- Which type of interest rate are you on: Fixed, Variable, Tracker, Interest only?
- What is your interest rate and term?
- Loan to Value (LTV) = Outstanding mortgage balance versus the current value of the property.
- Have you any additional top up loans?
- Do you need a second mortgage, aka a Top Up/home improvement loan to do an extension or work on the house or grounds?
- Do you have any Education loans or family members participating in 3rd or 4th level courses?
Fixed Rate:
From the 01/01/2019, the Central Bank introduced new rules to make it easier to switch mortgage providers.
I suggest that you order a redemption figure from the lender to confirm what the penalty may be.
When you come off a fixed interest rate you will default to the lenders variable rate unless you opt to enter a new fixed term agreement. If you are on a variable rate there will not be any penalties for redeeming the mortgage. At SYS we will be recommending that they shop around at this point.
Interest Rate and Term:
Anything over 2.7% is a sign you should investigate the possibility of changing provider.
Are you happy with the term is another question that I ask my clients? I regularly hear people saying they want to retire at 60 but their mortgage term brings them to 65. We need to factor this into your financial goals.
Loan to Value (LTV):
Loan to Value ratio helps loan providers determine the amount of risk they are exposed to. The higher the loan ratio is, the higher interest rate you pay. If the value of your property has increased, and you have paid a sizeable amount off your mortgage, this then reduces the LTV and is another sign savings could be made. (The Mortgage provider will need an official valuation of your property).
Education:
Although this may not be advisable to everyone, you can release equity from your home to help with 3rd and 4th level expenses. Like home improvements, current education loans can be merged into a new mortgage with certain lenders.
Second Mortgage/Home Improvement loans:
A second mortgage is also commonly known as a ‘Top up Mortgage’ for something like of an extension or work on your property. These smaller loans are sometimes at a much higher rate and can be merged into one new loan at a lower rate.
Cost of Switching:
Associated costs would be legal fees, valuation fee & broker fee – typically the financial incentive offered to switchers will cover this cost plus you may avail of lower interest rates which will save you money over the long term.
Thanks for reading! If you have any questions or would like to get more information, please feel free to contact me. You can find me on LinkedIn https://www.linkedin.com/in/paul-heverin-79853872/ or you can email me at paul@sysgroup.ie