Homeowners increasingly opting for top up mortgages with their existing bank may be costing themselves thousands in needless charges and repayments according to the Q2 Irish Independent doddl.ie Mortgage Switching Index.
As the value of mortgage switching reaches record levels with a 25pc yearly increase, top up mortgages have also reached a 16-year-high.
However, those opting to stay with their own bank to release equity from their homes instead of switching could be missing out on interest savings on their entire mortgage balance as well as cashback offers.
The average mortgage amount of €141,624 indicates that many top ups are for home improvements, with a shortage of family homes meaning many households are renovating rather than relocating.
Only 2% of Ireland’s 2.2 million homes are changing hands each year, meaning the average home is sold only once every 50 years.
With limited supply and high transaction costs, spending €100,000 on improving an existing home can make more financial sense than moving.
“Mortgage holders are making a mistake by sticking with their current lender to fund home renovations rather than before researching the market,” cautions Martina Hennessy, CEO of doddl.ie.
The process to top up is broadly the same as switching – there is an application process, a valuation process and a legal process.
“Every homeowner considering a top-up should ask themselves if their current lender still the best place for their mortgage,” said Ms Hennessy.
“Rates vary significantly by lender and you can potentially secure a better rate on your entire mortgage by switching. You will also have a cost to complete a mortgage top up so borrowers are already down around €2,000 if they don’t opt to switch.”
Mortgage cashback offers of up to 2pc of your mortgage back in cash are available from five lenders in the Irish market, negating the costs to switch and leaving a surplus in many cases.
We are increasingly becoming aware of the benefits of switching. The overall value of mortgage switching has risen by almost 25pc year-on-year to reach a record high point since records began in 2003.
Average Switcher value in Q2 was €309,666 and there appears to be no slowdown in demand as approvals grew almost 66pc in the year to June.
“We are borrowing more to fund the purchase of our homes and as a result the benefit of reviewing your mortgage rate regularly and switching where it makes sense to do so is even more pronounced,” said Ms Hennessy.
The Irish Independent doddl.ie Mortgage Switching Index shows the value of the average switcher mortgage has grown by €63,696 in just two years. The gap between the highest and lowest mortgage rates in the market stands at 3.15pc.
For a borrower with the average mortgage of €358,212, this equates to a saving of €642 per month – or over €7,706 per year by switching from the highest to the lowest rate.
According to Ms Hennessy, borrowers are sticking with their current lender based on an assumption that it might be easier to do so or because they believe they cannot release equity with an alternate lender.
Many borrowers lack rate focus when making refinancing decisions, which leads them to stay with their lender for convenience.
“When someone wants to borrow for an extension, they are often focused on ‘can I get €80,000?’ rather than ‘what is the cheapest way to finance this?’” said Ms Hennessy.
“Many mortgage holders see a top-up as an administrative task rather than an opportunity to review their mortgage terms and potentially save on interest.
“This can mean overlooking whole of market options and savings that can be made on the full outstanding mortgage.
“The switching process is one where the mortgage holder is in control, there is no home purchase involved, it is a transaction to move your mortgage from one lender to another to save on interest.”
Recent doddl switcher example –
C-rated property
Term 33 years
Value €830,000
Current mortgage balance €427k. Rate 3.4% fixed for another year. Repayment €1790 per month.
Top up for works €230k. Rate offered 4 year fixed at 3.2%. Repayment €941.
Switch lender – 5 year fixed at 3.35%. Repayments €2,756 per month
Cashback 2% €13,200 and monthly cashback €55 per month
Final comparison:
Total repay with existing lender = €1,790 + €941 per month = €2,731
Total repay when switching = €2,756 per month less monthly cashback €55 per month = €2,701. Plus €13,200 cashback. No break penalty applicable in this case.
Could you save by switching? Find out here -> Switch my mortgage with doddl
