Switching your mortgage to save money? Here's what you need to know

Switching your mortgage to save money? Here's what you need to know

Updated: 3 months, 7 days, 13 hours, 3 minutes, 12 seconds ago

Something went wrong, please try again later.

Invalid email Something went wrong, please try again later.

Sign up to our free email alerts for the top Promotions sent straight to your e-mail

As the cost-of-living crisis continues to bite everyone is looking for more ways they can save money.

While we've previously covered several money saving tips including when electricity credits are due, how to apply for a once-off social welfare payment, and even the cost benefits of installing solar panels.

Below is a Q&A with Liam O’Connor, Sales Director at the Irish Mortgage Corporation, on how to make savings with many households single biggest cost.

Buzz: Who is and isn't eligible to switch their mortgage?

Liam O'Conner: Homeowners with a minimum of 10 per cent equity in their home can switch their mortgage, subject to meeting affordability and credit policy requirements with proposed new lender.

Unfortunately, a homeowner will not be eligible to switch their mortgage if their Loan to Value is greater than 90 per cent.

Should people always switch their mortgage similar to how people are encouraged to switch their energy supplier or is there ever a good reason to stay with your original provider?

A mortgage payment is most likely going to be the most expensive outgoing for any household. So it is important to review your mortgage interest rate options on an ongoing basis to ensure that you are getting the best possible deal available to you at that time.

Mortgage holders can make significant savings if they are able to avail of a lower interest rate by switching their mortgage. It would of course make sense to stay if the existing lender’s interest rates remain competitive and continue to match the mortgage holder’s requirements.

People should always consider switching if there is a possibility that they could avail of a lower rate by moving their mortgage from one lender to another.

For sale sign outside property

(Image: Getty)

How long do you have to be with your original lender before you can switch?

The majority of lenders will insist that you have your current mortgage drawn down for a minimum of 12 months before considering a switch.

However, there are some lenders that will consider a switcher application sooner.

I understand the amount of people that switch mortgages is very low, why do you think that is?

The latest figures published by the Banking and Payments Federation of Ireland (BPFI) in respect of August 2022 would indicate that approximately one-third of all mortgage approvals for that month were in the non-purchase/switcher space.

This is up approximately 179.5 per cent from the same time last year, so mortgage activity within this space is not as low as one might think.

There are some associated costs such as legal and valuation fees that can deter mortgage holders from switching. However, a number of lenders (not all) will cover the cost of these fees by way of a cash payment after drawdown.

Lenders also require a significant amount of supporting documentation such as salary certs, payslips, and bank statements as part of the switching process in or to assess credit worthiness and affordability. Having to gather up this documentation can also put some people off switching as it might have been quite a stressful and cumbersome exercise at the time of taking out their existing mortgage.

Nowadays, most mortgage brokers have very functional and accessible online portals that facilitate uploading of documents directly from clients resulting in a much quicker and less stressful customer experience.

What's a tracker mortgage and what does that mean for your ability to switch?

A tracker mortgage is a variable rate that “tracks” the ECB main refinancing rate.

For example, let’s say the bank’s margin is one per cent and the ECB rate is 0, the actual mortgage rate is then one per cent. However, let’s say the ECB rate rises to 1.25 per cent, then the mortgage rate is 2.25 per cent.

The benefit of a tracker rate is the certainty you have in that the bank is contractually obliged to maintain their margin as agreed at the outset. This is a hugely valuable feature. The downside is that it is a variable rate and can increase, as we have seen more recently.

If switching your mortgage or even fixing your mortgage with your existing lender, serious consideration needs to be given to the fact you are relinquishing such a valuable feature. However, this then needs to be compared against your current needs and being able to fix your mortgage moving forward for its full remaining term for example.

Tracker mortgages have not been available in Ireland on new mortgage business since early 2009. Make sure to seek impartial expert advice here so that your decision is a fully informed one.

For people on a fixed mortgage rate, if they switch they are charged a fee. Can you give me an idea of the price range of the fees?

Fixed rate break cost depends on a number of different factors including the time remaining on the current fixed rate, the borrowed amount, and the cost to the bank when the fixed rate was initially taken.

In a rising interest rate environment, these break costs tend to reduce, and more recently we have seen many cases where they have been zero.

Your best bet is to contact your mortgage lender who will be able to tell you the position currently on your mortgage.

How long does it take to switch mortgages? From start of the process

Too long!

From initial engagement with your broker, for example, four months should be allowed.

Due to large volumes, and KBC and Ulster Bank leaving the Irish banking sector, and other lenders such as the non-bank lenders like ICS and Finance Ireland currently being de-facto closed for new business, lender turnaround times, in general, are slow currently.

Is there anything else you'd like to add?

Your mortgage is likely to be your biggest financial commitment. It’s really important to constantly review it (typically each year even if on a fixed rate) as better options may be available.

The answers have been edited for brevity

READ NEXT - Nord Stream pipelines' leaks likely the worst methane spill in history

READ NEXT - Frontex: Ireland's contribution to controversial European border agency has more than trebled in five years

SIGN UP - The Buzz Climate Newsletter