Making Cents column

Liam Croke advises on how to save on mortgage repayments

"You needen't necessarily switch mortgage providers to save money!"

Rose O'Donoghue

Reporter:

Rose O'Donoghue

Mortgage To Rent cases on the rise in Waterford

You could save on your mortgage repayments

The chances are good, that you spend very little time thinking about your mortgage. Which is strange because, if you have one, it’s likely to be your biggest monthly outlay.

And if you don’t know how healthy yours is, you could be paying thousands more in interest payments and more years paying it, than you need to.

We can become very complacent with our mortgage - a fact borne out in a study carried out by the Competition and Consumer Protection Commission (CCPC) which discovered that a little under 50% of mortgage holders knew what rate they were paying.
That’s pretty shocking, because if you don’t know what it is, you have no reference point to measure whether it’s good or bad against. And no idea, whether you need to move providers or stay with your existing one and just get a better deal from them.

I was watching Operation Transformation recently, and thought losing weight and reducing your mortgage rate weren’t that dissimilar, and we could learn some lessons from the leaders of the programme.
The first being how they begin their weight loss journey, and that’s to stand on the weighing scales. It’s their starting point and it should be yours as well. If you want to lose interest and loan repayments, you need to step up on the mortgage scale and weigh your interest rate.

Are you in the fit and normal range with a rate of between 2.3% and 3.2%, or is your mortgage mass index (MMI) in the overweight range which is above 3.2% but below 4%, or is it obese at a rate above 4%? Regardless of what range you fall into, now’s the time to review your mortgage.


I heard a radio advert last week from a mortgage broker encouraging people to consider moving their mortgage to a different provider, something they would obviously help them with. In the advert they suggested the process was a very simple one which surprised me because, my experience of moving your mortgage from one lender to another is anything but.
That’s not to say you shouldn’t - it may make perfect sense, and you could have a very good experience if you do - but it’s important to know what the process is like, what’s involved, what the timeline involved from start to finish is etc.

According to the Central Bank, the number of mortgages being switched as a percentage of total outstanding private dwelling mortgages is less than 1%. If it’s very easy to move providers, why is this number so low?
There are a number of reasons why people see the move as a big complex undertaking, e.g. uncertainty over the savings achieved over the lifetime of their mortgage; time spent involved in the process, like gathering documents, getting their property revalued, employing a solicitor to deal with legal work and so on.

Regardless of whether it’s easy or difficult moving lenders, it has the potential to save you thousands of euro and fast-track your ability to become mortgage-free and one you shouldn’t discount. I believe your starting point about whether you should stay with your current provider or not, will come down to what they can offer you and how does that match against others?
Yes, you could trim your rate by moving lenders, but your existing lender could also help with some interest rate loss as well, particularly if your rate is a variable one.

If you’re one of the c. 227,500 mortgage holders in Ireland who have a standard variable rate you are probably paying more than you need to. And you don’t have to look past your existing lender because they probably have much better fixed or loan to value rates.

Let’s take an example of one lender - Bank of Ireland. They have a standard variable rate of 4.50% if your loan to value is >80%. But they have a five year fixed offering of 3.90%. The difference in monthly repayments between both on a loan amount of €400,000 over a 25-year term is €205.

That’s an annual net saving of €2,460. The difference in total interest paid back between both is €40,202.


If you didn’t need that saving of €205, because you work a cash flow surplus each month, if the savings were applied as an overpayment each month, you would reduce the term on this mortgage by three years five months, reducing your interest payments a further €35,570.


By adopting this strategy, you are also reducing the effective rate of interest you are being charged to 3.35%.
So, you’re not just reducing your mortgage rate by .60%, you’re reducing it by 1.15%, and saving c. €75,772 in interest repayments in the process.

How long will it take to complete a form to move from a variable to a fixed rate and set up a standing order for that overpayment? I’d say about 15 minutes. It’s really not difficult.


And if you can save €75,772 by doing something that takes 15 minutes, I think that’s time well spent. You’re saving €5,051 for every minute it takes you and if you can find a better return than that, please let me know.

There’s potentially big savings up for grabs with your mortgage. Your starting point is knowing what your current rate is and seeing if it’s fit for purpose or not? And is that purpose wanting to pay your mortgage off faster because of the lower rate, or is it because you need to relieve some cashflow pressure?

Your current lender maybe able to offer you a better rate that satisfies whatever your goal is, and when you know what it is, compare it against other lenders, and run the numbers. Unless there was a significant difference, I don’t think you need to go to the trouble of moving lenders and all that’s involved with that, but if there is and it’s significant enough for you, then take action sooner rather than later - Liam Croke

Email: Liam @harmonics.ie  Twitter: @liam_croke  Linkedin: liamcroke    Facebook: liam.croke96