Mortgages: save money
A home loan can be one of the biggest financial decisions of your life. But just because you already have a mortgage doesn't necessarily mean you're stuck with it. Other loans currently on offer might mean lower costs and savings.
Should you switch to a different package or a new lender altogether? The following frequently asked questions cover key steps in making that decision, and highlight the main benefits and potential pitfalls.
What do I need to know before deciding to switch?
Start by checking the small print in your existing mortgage's contract to see if you are liable to pay a penalty for ending your agreement with your old lender.
By law, you cannot be penalised for repaying a mortgage early, but if you have a fixed-rate mortgage you may have to pay the cost of breaking the fixed-rate contract.
Then you need to cast a careful eye over the new lender's terms and conditions to see what you might be letting yourself in for. You will need to know:
- The total amount they will let you borrow
- The loan's APR (annual percentage rate)
- What mortgage terms are available (for example 20, 25 or 30 years)
- What the repayments will be if you decide to take a shorter term. This can save thousands in interest over the life of your mortgage - but not, of course, if higher mortgage repayments result in you having to borrow elsewhere, such as on your credit card
- Whether you can pay more often. For example, paying fortnightly instead of monthly could reduce your overall interest bill depending on how often the interest is calculated
- What effect a hike in interest rates (by 1%, 2% etc) will have on your repayments if you are on a variable rate
- Whether flexible terms are available such as payment breaks
- If the new loan is fixed rate rather than a variable rate mortgage, what the fee is if you pay it off early
But how do I know if the new mortgage is cheaper?
Check the latest surveys in a price comparison website or the price charts in some Irish newspapers' business pages. Remember, though, that some surveys may not include newer entrants to the Irish market.
When comparing products, always compare like with like. Make sure the quotes you get are for the same loan amount, the same term and the same type of scheme ("variable" versus "variable" or "fixed" versus "fixed" etc), then compare the APR (annual percentage rate) figure with the one for your existing loan. If you are comparing like with like, a lower APR usually means the loan will cost you less in interest over that same period.
Couldn't I just use a broker to shop around for me?
You could. The main advantage is that a mortgage intermediary (a broker or agent) can take some of the work out of shopping around. But one disadvantage is that this may come at a cost. Always bear in mind that the broker's advice may be very limited.
For example, he or she might only represent one or two lenders, so get a list of the lenders they do arrange mortgages with. To find out if your broker is regulated check the Financial Regulator's Registers website or contact the Financial Regulator on Locall 1890 77 77 77.
What's a redemption fee?
A redemption fee is a fee to redeem or pay off your mortgage. It is prohibited under the Consumer Credit Act. A fixed-rate redemption fee is different. It is a fee for breaking a fixed interest contract, whether or not you redeem your mortgage.
If your mortgage is a "fixed-rate" type rather than variable rate, you will have to pay this charge for terminating a loan agreement early (which you would be doing if switching to another lender). This fee can be quite hefty, so take account of it in working out whether to make the switch.
Also, if your old loan was a variable-rate one, think twice about moving to a fixed-rate one because you could face these redemption fees further down the line.
While lenders aren't allowed to charge a redemption fee or penalty for switching from a variable rate mortgage, some do try to claw back discounts or "free fees" if you switch within a specified time after taking out your old mortgage, so check the terms and conditions.
Which is better then, fixed rate or variable?
A variable rate can sometimes work out cheaper over the term of the loan, and is far more flexible. There are no penalties for early repayment, and the lender should not charge you for switching to another lender.
But a fixed-rate loan can have advantages when interest rates are low. It may also be suitable if you have borrowed to your absolute limit and can't risk an interest rate increase.
Besides a redemption fee, are there other costs if you switch your lender?
Yes, and these may apply in the case of both fixed and variable mortgages. You may face valuation fees, legal fees and other charges such as a "deeds release" fee from the Land Registry. Your new lender may offer to subsidise some of these costs or even absorb all of them, though one condition may be that you have to use one of the lender's own recommended solicitors.
If you want to use your own solicitor, remember that the one who originally did your conveyancing will already have all your details on file and may offer you a special rate.
What do lenders mean by "consolidating your debt"?
This means grouping together several existing loans in order to pay them off as one single, "consolidated" loan. Some companies promote this consolidated loan in the form of a mortgage. It sounds simpler and more attractive because you can pay off higher-rate loans using a mortgage at a lower interest rate, though there may be a catch.
But surely a lower interest rate means lower repayments?
Yes, you may have a lower repayment each month, but you may end up having a lot more repayments, spread over a much longer time.
This consolidated loan could end up costing you far more than the total cost of all your original loans. You could be extending your debts too far into the future, and putting your home at risk. So remember: additional loans at mortgage rates can sometimes be beneficial, but only if used wisely.
Besides switching to another lender, are there other ways of cutting down the cost of my home loan?
Yes, there probably are. Your bank or building society will insist that you take out various forms of insurance as part of the condition of the loan. But if they offer you one of their own insurance products you don't have to take it. You are free to shop around for the best value in terms of:
- Home insurance
- Your mortgage protection policy. This insurance is designed to pay the balance of your mortgage if you die. You are legally obliged to have adequate mortgage protection cover on your home loan. So review the premium of your existing policy on a regular basis to make sure you are getting the best deal.
Learn more
Check our consumer financial information website itsyourmoney.ie
Read discussions about mortgages on the online discussion forum Askaboutmoney.com
If you are having trouble paying off a loan, check the Money Advice and Budgeting Service website. MABS gives free advice to people having trouble paying off mortgages and other loans.