Switching your Mortgage in today’s market could be one of the best things you do, given the great low fixed rates that are available, some as low as 2.2% p.a.. The monthly savings alone could really make a difference to your monthly expenditure.
A Mortgage in most cases is a lifetime expense, it is a payment that will have to be made every month for a 20 – 30 year period. With that in mind, it makes sense to ensure that you are getting the best rate and lowest repayments available. By keeping your interest rate at the lowest rate available, you are reducing the interest that is being paid over the full term of the mortgage. Take the following example:
- Consider you had a Mortgage of €300,000 on a Variable rate of 3.6% p.a. and a remaining term of 25 years
- Repayments would be €1,518 per month
However, if you were to change providers and get a fixed rate of 2.6% for 5 years
- Repayments would be €1,361 per month
- This represents a saving of €157 per month x 60 months = €9,420
As you can see, in a short period of 5 years only, you are significantly reducing your monthly repayment. You are also reducing the amount of interest you are paying on the mortgage by nearly €10,000. If you are eligible to switch your mortgage you should consider the following:
- Loan-to-value (LTV) ratio – how much you owe on your mortgage in relation to how much your house is worth. Lenders will consider the LTV ratio when you make your application. An up-to-date valuation is needed to get an accurate value of the property.
- Outstanding balance – if you have a small outstanding balance on your mortgage, you may find it difficult to switch as lenders may have a minimum amount they are willing to lend.
- Negative equity – lenders may not be willing to take you on as a mortgage customer if you are in negative equity i.e. if you owe more on your mortgage than your property is worth.
- Mortgage term – minimum or maximum loan terms may apply when you are switching. For example, some lenders may not accept an application for a mortgage of less than five years.
- Repayment history – whether you have been meeting your mortgage repayments over the previous 12 months and any other financial obligations will be considered as part of your new application. Lenders will examine your credit history as part of this.
- Fixed Term – If you are on a fixed rate and want to break out of it early, you may have to pay a fee, sometimes called a redemption charge. The cost of this charge should be weighed against potential savings that could be made by switching, or alternatively you can wait until you are coming to the end of the fixed term and then switch.
If you switch lenders, many of the same fees and charges payable when you first applied for a mortgage, may apply again. These need to be weighed up against any savings that could be made. You will need to engage the services of a solicitor, and a new valuation will need to be completed. Before making any important financial decisions, it is good idea to get financial advice. If you are switching to a new lender, it is the same as applying for a new mortgage and you will have to go through many of the same steps again. Do keep in mind though that you already have your property and insurances in place, and you do not pay stamp duty when switching.
Some lenders have cash incentives for switching your mortgage, whether it’s a single payment or a percentage cashback offer. This can help offset the expenses of switching.
At Lyons Financial Services we do not charge any fee for our services. If you are considering switching your mortgage, please get in touch with us. We will be able to quickly assess what your options are, and help you make that switch as simple and stress free as possible.