The Doddl Mortgage Switcher Index Q2 2020
People who face a future of working remotely could save an average of €28,000 by using their monthly commuting savings to overpay their mortgage according to the latest Irish Independent doddl Mortgage Switching Index.
And mortgage holders taking out increasing popular fixed rates should ensure they can overpay if they have the means to do so.
If opting for a fixed rate this may mean that they need to split their mortgage part fixed and variable to be able to overpay on the variable element.
Households which would have spent €150 per month on commuting and lunches would cut six years off the average mortgage term by overpaying,
This is based on the average purchase mortgage drawn down in Q2 2020 of €230,943, assuming a 30-year term and the variable mortgage weighted average interest rate of 3.2%.
The impact of the overpayment would be to reduce the mortgage term by six years and the total cost of credit would be reduced by just over €28,000.
“Mortgages are calculated on an annuity basis and the more you can overpay to decrease your capital balance the more you reduce the overall interest you repay over the mortgage term,” said Martina Hennessy, Managing Director of doddl.ie.
“Interest adds no value to your mortgage, and if you are paying a higher rate than you should, then this is simply dead money that is being handed to your bank
“It is extremely important that mortgage holders understand what interest rate they are repaying and if they could reduce this by either moving to another product with their existing lender or by switching mortgage provider.”
The average Irish homeowner is needlessly paying up to €3,439 in extra mortgage repayments per year by not switching lenders, according to the Irish Independent doddl mortgage switching index.
The spread between the highest and lowest interest rates available on the market is currently 2.3pc – working out at a saving of €122 per month for every €100,000 owed on a 25-year mortgage.
The Irish Independent doddl Index looks at the total number of switcher transactions per quarter as a percentage of all home loan transactions, excluding Buy To Let mortgages, to give an accurate picture of principal private dwelling house credit.
The Index is based on the average mortgage for new lending in both the first-time buyer and second-hand mover markets.
“It is important that we educate ourselves on the importance of overpaying mortgages if at all possible – even when we are dealing with fixed rates which carry early repayment penalties,” said Ms Hennessy.
75% of new mortgage customers are now opting for fixed rates which are generally lower than their variable counterparts but have limited or no options for overpayment without penalty.
“Some lenders allow overpayment while on a fixed rate of up to 10% of the capital balance outstanding each year during the fixed period, other lenders allow for no overpayment while on fixed.
“If your lender offers options on overpayment and if you have the means to overpay, then the savings on the overall cost of credit are huge.
“If you want to fix but your lender does not allow for overpayment then you can look to split your mortgage, part fixed and part variable and overpay on the variable element without incurring a penalty.”
The percentage of switching as a total of all residential home loan lending increased from 14.23% in Q1 to 17.3% in Q2 with an average switching value of €243,074.
Customers are increasingly using independent mortgage brokers, particularly when it comes to switching, with the broker share of the total FTB, mover and switcher mortgage market increasing to 32.2% in Q2 to from 27.7% in Q1.