What if bringing the adequate changes to your current mortgage could help you save thousands in the long run? Well, according to The Central Bank of England, considering the option could be particularly beneficial to Irish Citizens. The extensive research led by the financial institution has yielded compelling statistics. For instance, it has been found that 20 percent of current mortgage holders could save on their monthly premiums if they changed providers to obtain a better rate. Of course, not everybody would be eligible for the switch, but taking a look at the possibility would definitely be worth your while. Once you determine that you are indeed eligible, you will have to through a lengthy and tricky process, but again, the benefits reaped at the end of the day will certainly be more than rewarding.
Switching should be easier through the guidance of the Competition and Consumer Protection
Since the process of switching can be quite tedious, following the steps below can prove quite useful in lightening the weight of the prerequisite research that all big financial decisions normally incur.
The first rightful step would be to visit the Competition and Consumer Protection’s website to consult the eligibility criteria. Here would be the factors that one has to take into consideration when he or she considers switching mortgage providers:
- To start with, your loan to value ratio, or LTV, has to be relatively low. Your Loan To Value ratio is the amount you owe on your house compared to the cost of your house. Mortgage providers normally look at applicants’ LTV ratios when they review the case of potential new clients. Basically, the lower your ratio is, the better your application stands.
- The outstanding balance on your mortgage will also be taken into consideration. If your account comprises a small outstanding balance, switching might get harder. Normally, most Irish banks will accept to take over a minimum mortgage ranging from € 25 000 to € 50 000.
- Your application will be affected if you are experiencing a negative equity on your mortgage. The latter happens when what you owe on your house actually exceeds the said property’s market value. Obviously, your application stands fewer chances of being approved by a lender if you are experiencing a negative equity.
- The remaining term of your mortgage will also be a determining factor. Generally, lenders will not take you over if your remaining term is over 30 years or under 5-10 years.
- Financial institutions will verify whether you have been regular in paying your due premiums during the past 12 months.
- A new bank might apply new criteria to your loan. For example, your new mortgage provider might require a higher income from you. If your financial situation has negatively been impacted since you first took out your home loan, you might encounter obstacles as you try to change.
- Another factor which your potential new lender might consider will be your credit rating. The institution you are applying to will either perform an ICB – Irish Credit Bureau – or check the Central Credit Register. The loans and credit cards you have applied for and obtained since first taking out your mortgage will be considered as well. If you are in mortgage arrears, you will not be able to proceed. Additionally, if you are currently on a tracker mortgage, switching might be useless as you probably have the lowest possible rate already.
- If you break out of a fixed rate mortgage early, your current mortgage provider might charge you a penalty fee. The latter, which is also referred to as a redemption charge, will take account of factors such as your interest rate, your outstanding mortgage and the time remaining on the term of your fixed rate period.
Use the Competition and Consumer Protection’s website to access the mortgage comparison tool and efficiently compare rates from different financial institutions. The tool will also help you estimate how much you could be paying instead of your actual premium, and how much you could save up in the long run. While going through the comparison, be sure to have all of your mortgage information at hand, as you will be required to input the current value of your home, the outstanding amount you owe, the years are left on your mortgage and the amount that you pay every month.
If you decide to change banks, be sure to talk to your current mortgage provider so that the latter has the chance to offer you a better rate. If you still decide to go forward with the switch, you can contact individual lenders or go to the switching section on your current mortgage provider’s website.
Be careful as you switch
When considering a new lender, be wary of wary of cash offers and incentives. While those may look very attractive at first glance, they rarely stack up against better rates throughout the lifetime of your mortgage. They currently have
The John and Mary Case Study
John and Mary own a home of 360 000 Euros, on which they owe 300 000 Euros. They currently have a loan-to-value ratio of 83 percent, as well as a 25-year term remaining on their mortgage. The couple wants to switch providers to adopt a variable-rate mortgage for flexibility.
In doing their research, John and Mary stumbled upon a provider who offers a cash back of 2 percent on the amount borrowed. Since the cash-back would amount to around € 6000, they quickly settle and disregard other lenders with better rates. Lender A – which is the selected option – gives John and Mary an APRC of 4.6 percent, while Lender B – one of the disregarded options – would have issued an APRC of 3.6 percent for the same loan-to-value ratio. Over the lifetime of the mortgage with Lender A, the cost of credit is approximately €200,249. However, with Lender B, the cost of credit would have been €150,561. In the end, even if John and Mary benefit from a cash-back with lender A, they would have been able to save an additional €43,688 through Lender B’s better rates.
Related articles published in The mechanisms of personal insolvency in Ireland :
- Rent increase disputes are on the rise after price cap
- German lender proposes to pull Ireland out of its housing crisis
- Irish borrowers seeking help to alleviate debts
- Government-qualified first-time home buyers flock to Dublin
Image : Shutterstock