A study conducted by the Central Bank in 2020 showed mortgage holders could save €1,000 within the first 12 months of switching, despite a record In an era of low interest rates, mortgage holders paid little attention to switching.
That all changed this year as inflation weighed on disposable income and people sought to save.The European Central Bank (ECB) began raising interest rates for the first time in 11 years, and the KBC and Ulster Bank prepared to exit Ireland.Banking and According to the Payments Federation, the value of non-purchased mortgages (mostly from conversions) was €441 million in July, 148% higher than in the same month last year.
In fact, mortgage switching is now the main driver for new mortgages as more homeowners look to lock into fixed rates to protect themselves from further rises in interest rates. The ECB raised lending costs on Thursday and is expected to do so twice more by the end of the year. The surge in switching volume means lenders and their mortgage brokers will be hit hard with applications from mortgage holders looking to secure a fixed rate before his next ECB rate hike. Gerry Hinney, managing director of Switch My Mortgage and Park Financial Planning, said the process takes about eight to nine weeks for some lenders.
“I’ve been in this business for a long time, and I’ve never seen a huge amount of business. “Switchers are in a race against time, non-pillar banks have raised interest rates and pillar banks have not, so all cases are urgent, but it is only a matter of time before that happens. The appeal of is that the repayment amount remains the same no matter which term you choose.”
In these times of tight finances, it’s very important to have a solid grasp of your highest household expenses. His one-third of low-income mortgage holders could be forced to pay off their loans and face financial hardship if recent inflation rates hold up. A recent central bank paper cautioned. But with another ECB rate hike on the horizon, is it too late to start switching mortgages now? Here are some factors to consider in order to keep your monthly repayments as low as possible.
How much will my mortgage payment increase if I do nothing?
Until recently, the ECB was expected to repeat its 50 basis point (0.5 percentage point) rate hike next week in July. But many policymakers have argued for a 75 basis point rate hike as the inflation outlook worsens, and Wednesday’s report that inflation in the euro zone has accelerated to a new record strengthened their position. rice field. Also, the Bank of Ireland, permanent TSB and AIB postponed a floating rate hike after the ECB raised his rate in July, but are unlikely to absorb another hike.
“If there is a rate hike next week, it could trigger the three major lenders to start raising their own rates,” Mr. Hainney said.
If you are one of about 240,000 holders of a tracker mortgage for your primary residence, with a €200,000 mortgage, with 25 years left on the term and a 1 percent margin to the ECB rate , the interest rate will automatically appear. If the ECB raises interest rates by 75 basis points, it will increase from 1.5% to 2.25%. According to the calculations of Joey Sheahan, credit officer of the online broker MyMortgages.ie, the monthly repayment amount he increased by 72.39 euros to 872.26 euros. A variable rate customer who pays a rate of 3.15pc will have his monthly payment increased by €80.56 to €1,044.66.
Give up your tracker?
Trackers were offered during the Celtic Tiger era and withdrawn for new customers when the financial crisis hit. You pay margin for that refinancing rate. For years there was advice to keep trackers for the rest of your life. But that advice is now more nuanced.
“Generally, we expect tracker margins to be 1 percent or less, but there are some higher margins,” says Sheahan. “Some of them are as high as 3pc. If the margin is less than 1 percent, you should keep using the tracker, and if the margin is more than 1.5 percent, you should consider fixing it. Between those numbers.” So, it’s hard to call, if your tracker is 2pc or more, you’re paying more than you can fix it before the price goes up even more.”
Is it too late to fix it now?
It’s usually best for floating rate borrowers to use a fixed rate when interest rates are rising. This is because the cost of floating rates rises when ECB rates rise. His non-bank ICS raised his floating rate by 1.25 points on Oct. 1. An ECB rate hike also means new fixed rates will be higher. So is it still worth fixing now? It depends on a number of factors, including the remaining term of the mortgage and its value.
“Being able to lock in for the entire term of the mortgage can potentially save you money,” says Sheahan. “It makes sense for everyone to contact their broker and check their rates.”
Mr Haney said:
He found that most people who took out a mortgage in the last five to seven years took out a fixed-rate mortgage, while variable mortgages tended to be older and often had lower outstanding balances. pointing out.
My advice is to check your lender’s interest rate first
“With an outstanding variable mortgage of 90,000 euros, we are currently paying 3 percent, have 10 years left on the mortgage, and have monthly payments of 869 euros,” he says. “If interest rates rose by 1%, your repayments would be 911 euros, an increase of only 42 euros. Please. When people calculate the sum of the old floating rates, they calculate that ‘it costs about 1,100 euros to switch’.”
Those wishing to switch should also consider whether any delay in switching to the current fixed rate will reduce the potential savings from the process.
Hiney said: But it took him six weeks for the lender to process the application, and if that rate went up on his October 1st, your application wouldn’t be in time to take advantage of the existing interest rate. It could take him another two weeks due to legal work. Also, please note that the applicable interest rate is from the date you withdraw the funds, not from the date of application.
“My advice is to check the interest rate of your lender first. Some offer new business rates to existing customers. We still have a huge number of customers, and we will contact existing lenders to see what options are available and see if they can move out of their current fixed rate and into a new fixed rate. .
“For customers of other institutions, if you have not started the switching process, start now. There are good rates available now that may not be available in two months.”