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Sunday 4 December 2016

Switching your mortgage could save €22,800 over the life of an average loan

Banks are falling over themselves to attract switcher business

Banks are falling over themselves to attract switcher business.
Banks are falling over themselves to attract switcher business.

With war being waged in the mortgage market over the increasing gap between those lucky enough to have a tracker and the poor old suckers on variable rates subsidising them, I thought I'd look this week at whether it's worthwhile switching your mortgage to get a better deal.

No, sadly, you can't switch to a tracker - they're gone forever, but with new lending all but stymied, banks are falling over themselves to attract switcher business.

There's a good reason for this - switcher customers are already pre-selected (by another bank).

They probably have equity in their homes and cherry-picking allows banks select only customers that do, and avoid those in negative equity.

Position

So if you're in a prime position of owing less than 90pc of your house's value (less than 80pc is even better), you should definitely look at moving your loan.

First things first: switching your mortgage is not like transferring car insurance. It will take time and is a complex business but the cost savings over the term are well worth it.

For instance, moving from a typical rate of 4.7pc-a-year to 3.99pc on a €250,000 loan saves €95-a-month, or €22,826 over a 20-year term.

Some banks are more aggressive than others at attracting business and offer special deals.

KBC stands out here with a 3.85pc rate, discounted further if you also move your current account (banks love this because it supplies them with a constant cash flow).

Others offer to pay your legal costs of moving, or house insurance.

Rates are still very high though, compared to our European counterparts.

There's no getting over this and all banks, most recently PTSB at its latest agm have shown little or no interest in dropping them.

Even Bank of Ireland, back in profit and almost out of State hands, has among the highest interest rates going. This is because almost half of all domestic and two thirds of all buy-to-let mortgages were sold as trackers - locked in, by law, to an ultra-low, unsustainable rate which is loss making. They should never have been sold in the first place and now other customers are propping them up.

Add to that the problem of those in arrears, and banks only have two choices - lend more at higher rates, or charge people to mind their money.

All of them are doing both. So, if you think you might be in the market for a change, here's what to do:

1. Get your house valued by a local estate agent and calculate your 'loan to value' (LTV) ratio, e.g. House value is €250,000; mortgage is €205,000, therefore your LTV is 82pc. Anything below 90pc puts you in the market.

2. Survey what different banks have on offer (see table), but don't be swayed by the switching offers alone: the interest rate is key, although it can go up as well as down.

3. Consider switching to a fixed rate. Historically these are rarely lower than variables, but are now as banks price in a long period of stagnation, signalled by the ECB.

For example, PTSBs variable rate is 4.07pc for an LTV of 80pc. Its three-year fixed rate for exactly the same mortgage is just 3.98pc. You are locked in of course, but rates are unlikely to move upwards so it's definitely worth committing.

4. Use a specialist mortgage broker. This is not DIY territory and the €500 or so spent will be an excellent investment.

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