TODAY’S PROPERTY market can feel like an intimidating place for those seeking a mortgage. But there is help out there.
In a new series, we’re helping readers through the mortgage maze by tackling some representative dilemmas with real-world insights from expert lenders.
Today we take the example of a family in Dublin who have just come off a fixed rate, and are wondering if they could save by switching their mortgage.
The dilemma: We’re a couple with two children in Dublin – I’m 39, my wife is 42. We bought our house in Phibsboro several years ago, and thanks to the market it’s currently valued at approximately €500k. There’s €285k outstanding on our mortgage.
We started out on a fixed rate when we bought the house, but have just moved on to a 3.5% variable rate so our payments have gone up a bit. We’re currently paying €1,464 per month with 24 years left on the term.
I work in fund administration earning €60k a year. My wife is working part time at the moment, and earns around €20k. So a monthly saving could make a big difference to our household budgeting. We’re wondering if it would be worth our while to switch the mortgage, maybe to another fixed rate. We’ve never missed a payment so hopefully that would stand to us.
What could we save by switching and what would be the fees involved?
The vital statistics:
We asked Ray McMahon, Director of ICS Mortgages to share his insights.
Ray: Firstly, yes, you can absolutely save by switching your mortgage.
There are very significant savings available to many borrowers in the Irish market right now. For people that are coming to the end of a fixed rate period of their mortgage, what typically happens is that you move on to a standard variable rate, which can be very high.
In addition, over that time people may have seen their house appreciate in price, and they will also have paid off some of the principal on the mortgage. That means they may now find themselves in a lower loan-to-value bracket, which will mean they can avail of lower mortgage rates.
It’s well worth shopping around, and the best way to compare products is to look at the APRC – the Annual Percentage Rate of Charge – which captures the cost over the entire lifetime of the mortgage.
As borrowers looking to borrow at a loan-to-value ratio of less than 60%, you should now be able to get a much lower rate than what you are on. For example, we offer a five year fixed rate mortgage at 1.95%. Taking your figures into account, your new monthly repayment would be €1,239.93. That’s a substantial saving – more than €220. If you add that up for one year, it’s more than €2,600; over five years, it’s more than €13,000.
Savings aside, the mortgage products on the market have evolved too. There are features now that might not have been there in the past. One such feature is an overpay facility where some lenders allow you to pay more than your monthly repayments. At ICS Mortgages, we allow 20%, meaning that if you’re on a fixed rate, and you want to overpay – perhaps you’ve got a bonus, or had a windfall, or have some extra savings – you can pay up to 20% without a break fee. That gives customers the ability to reach a lower loan-to-value ratio sooner, or even reduce the length of their mortgage overall.
When shopping around for mortgages you can also look out for features that help with life events. You’re able to take a payment break when you need it, for example if you’ve just had a child or are making home improvements so have new expenses to get used to.
Switching is not difficult – in fact, thanks to the recent Payment Services Directive on open banking, it’s never been easier. If you have an existing mortgage, refinancing is a lot easier than you might have experienced the first time around, because this time, you’re not trying to buy a house as well. Having a good payment history should absolutely stand to you too.
There are some costs; you will have legal costs and a valuation fee for example. What we would always say is to look at those costs, and then look at any potential savings, and compare them over the whole lifetime of the mortgage. The same would apply for cashback offers where you may end up on a higher rate and not make the same level of savings over the longer term.
Everybody’s situation is different. So it’s really important to have as much flexibility as possible when it comes to your mortgage; to really manage your mortgage as optimally as you can. You’ve got a good payment history, you’ve got equity in your home, you’re shopping around and looking for savings and that’s exactly what you should be doing.
ICS Mortgages is an award-winning specialist mortgage lender, with accolades including Best Mortgage for Public Sector Employees in 2020 & 2021. With a nationwide network of brokers, along with a direct lending team available on the phone or online, they can help you make that move into your dream home. To find out more, visit icsmortgages.ie/mortgages.
Dilemmas are composites drawn from the real-world experience of lenders at ICS Mortgages.
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