Switching your Mortgage Lender – is it worth it?
If your current mortgage rate is over 3.5% we say it is worth switching if you can.
Below – we show some comparisons that show a mortgage switch on a €240k mortgage can result in savings of more than €8000 over 3 years. (Including cashback offers). Bigger mortgages will result in even bigger savings.
Back in the “Celtic Tiger” years most of the Irish banks were actively trying to get people to switch mortgages by offering lower rates and other incentives. In 2006 the mortgage switching market made up about 15% of all new mortgages in Ireland.
Now in 2019 – most of the banks in Ireland are again offering incentives to attract switchers – but how much can you save by switching? Is it worth it? ….
An example : A homeowner took out a 25-year mortgage 5 years ago. It was a €270k mortgage. (Term remaining 20 years).
The property is now worth €350K and the outstanding balance is €240k
Their current mortgage (variable rate ) is 3.7%
Repayments are €1416 a month.
Total repayments over the next 3 years will come to €50,976
After 3 more years of continuing with this mortgage, the outstanding balance on the mortgage will be €214,267
We have compared some of the options for switching mortgage provider by calculating the savings made over a 3 year period.
Important Note: These comparisons assume that the current payer’s variable rate will stay the same for the 3 years.
Example 1 – Cashback
Switching to Bank of Ireland at 3% for 3 years fixed with 2% cashback.
Repayments will be €1334 a month.
Total repayments of €48,024 over 3 years That is a reduction in repayments of €2952 over 3 years.
The balance remaining after 3 years will be €212,937 – which is €1330 less than it would be by continuing with the current mortgage
BOI also give a cashback of 2% to all new customers – which is €4800 on a €240,000 mortgage.
Switching fees of €1000
Overall Result with BOI after 3 years: Better off by €8082
Example 2 : Switch to the lowest 3 year fixed rate (2.4%). (No Cashback) from Finance Ireland)
Repayments will be €1260 a month – a total of €45,360 over 3 years which is a saving of €5616 compared to the current mortgage.
The balance remaining after 3 years will be €211,000 – which is €3267 less than with the current mortgage. Switching fees of €1000 to be deducted.
Overall Result after 3 years:
Better off compared to current mortgage by €7883. But – worse off compared to BOI offer by €199.
There is not a lot in it – but with the cashback mortgage you get the €4800 lump sum straight away which may be of more use than a small saving every month.
Free Money :
It is possible to do multiple switches one after another to several of the banks offering cashback. On a 250k mortgage it would be possible to “earn” in the region of €10,000 from doing 4 switches . (After legal fees) .
The banks do not ask you to repay the cashback – even if you switch away from them a week after getting the cashback.
We will do a post soon outlining the best way to go about doing this multiple mortgage switch.
Figures updated January 2020 –
Cost of Switching
There are some costs involved in switching your mortgage – you will need a property valuation and there will be legal fees too. On average – you can expect these two costs to come to about €1000.
Check out this page for details of the current Lowest Mortgage Rates