Potential mortgage saving of €6,000 per year by switching, data suggests

Some homeowners may be paying over €6,000 more than they need to each year in mortgage repayments by not shopping around, according to a switching index published by online brokers doddl.ie.

With average rates set to rise above 5 per cent over the next six months, mortgage holders coming to the end of their fixed rates are being urged to act now to secure deals at below 4 per cent or face shock repayment rises overnight.

According to data from doddl.ie, Ireland’s “accidental green army of home improvers” could be missing out on even higher savings because they do not realise they are eligible for lower mortgage rates.

The index is based on the average new mortgage drawn down in the last quarter of almost €303,306 and a rollout variable rate of 6.65 per cent versus the lowest non-green 90 per cent loan-to-value rate on the market – currently 3.8 per cent.

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The gap between the highest and lowest rate on the market is now 2.85 per cent – representing the highest potential savings that the index has recorded of €508.81 per month, compared to €298.97 at the end of the first quarter of the year.

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And there are even cheaper rates available for those eligible for green rates or who have lower loan to values.

Thousands of mortgage holders are unaware they are eligible for green mortgage rates after carrying out home improvements which earned their homes a B3 rating or above, according to Martina Hennessy, managing director of doddl.ie.

“Homeowners are increasingly now seeking loans to reduce the energy costs of their home becoming eligible for green rates which are some of the lowest on the market at 3.65 per cent currently,” said Ms Hennessy.

“As an example, AIB’s five-year fixed green rate is 3.75 per cent, whereas their standard rate is 4.8 per cent, which would represent a saving of €8,820 in interest in five years on a €250,000 mortgage.”

She said people on tracker mortgages have seen incremental increases in their mortgage repayments over the last 12 months, something which has already prompted many to relinquish their tracker and secure their repayments with a fixed-rate product.

Over 90 per cent of new mortgages are on fixed rates, the vast majority with durations of five years or less, leaving them highly exposed to extreme repayment increases.

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About 50,000 of the 285,000 borrowers on fixed rates are due to roll off these in the next three years and will be hit by high rises overnight.

This will mean immediate repayment increases of €3,360 per year for those on a €250,000 mortgage.

Ms Hennessy urged mortgage holders not to take a wait-and-see approach as rates continue to rise.

“Your mortgage is your biggest outgoing and, if you switch, you will save. This is true in both rising and falling rates environments if you get market-based advice to ensure you find it,” she said. “All rates are going to be over 5 per cent in the next six months, but there is still an opportunity for people to lock into a value rate if they act quickly.”