I wonder if you could give me a little advice? We currently have a variable mortgage of 2.95 per cent with AIB with a balance of €187,610 remaining over the next 13.5 years.
We are considering Avant for switching our mortgage as they have an attractive rate of 1.95 per cent. I am finding it very hard to calculate the difference, minus the solicitor fees, revaluation etc. Would you be able to advise on how I can do the maths?
Ms K.R., email
I’ve just run the figures on your situation – or at least I’ve got a mortgage calculator to do it for me – and it is a classic example of why switching makes sense for so many people.
You are paying around €1,400 a month on your mortgage at present. I say “around” because all the calculators I’ve been looking at operate on full years, not partial ones. With 13 years to go, your monthly payments would be €1,449.40 and, at 14 years, it would be €1,364.51. So you’re somewhere in between.
When you switch mortgages, there are two considerations: lower monthly payments and what you save overall in interest payments over the remaining life of your loan.
At the current AIB rate, you will be paying the bank interest of somewhere between €38,500 and €41,600 in round figures by the time it is fully paid back in 13½ years’s time. You could, of course, reduce that by paying off lump sums as resources allow, but that’s a conversation for a different day.
Avant, as you say, has some very attractive rates on offer. The latest arrival into the Irish mortgage market, it will charge from 1.95 per cent on mortgages. That rate is only available for people with a loan to value of under 60 per cent so, given your outstanding mortgage balance, your home will want to be valued at about €320,000.
Avant’s rates are also fixed-rate loans, over periods of three, five or seven years.
So how much would you save?
On a monthly basis, the savings would be around €87. That might sound modest but it amounts of €1,044 a year – or around €14,094 over the remaining life of the loan. And, of course, that’s all from after-tax income, so you can see the benefit straight up.
But things can change. This loan rate is for a maximum period of seven years. What happens if it is no longer competitive at that stage? Well, you change again. In the meantime, over those seven years, you will have saved around €7,300 compared to what you are paying AIB at present. That’s a bigger saving than you are likely to make from any other household budget measure over that time.
But what about those dreaded legal fees? One of the things that puts people off switching is the prospect of incurring fees that no longer make the whole exercise worthwhile. Clearly, it depends on the interest savings – and the scale of fees – but it is nearly always still worthwhile.
Legal fees should cost you no more than around €1,500 on a mortgage switch; you could well pay less and it is certainly worth shopping around. This is a routine legal exercise and much more straightforward than buying a new home in the first place.
Yes, there will be VAT (at 23 per cent after the end of February when the Covid-discounted rate of 21 per cent expires) and there will also be a separate valuation fee of around €150.
But when you tot that all up, it comes to around €2,000- €2,050, well shy of the €7,300 savings you will make over the next six years, never mind the saving over the full outstanding term, assuming the rates stay the same as now.
But what if you don’t qualify for the 1.95 per cent rate because your outstanding balance is slightly above the 60 per cent threshold? It still makes sense. Avant is offering a rate of 2.1 per cent over three or five years (2.3 per cent over seven years) for people whose outstanding mortgage is more than 60 per cent of house value but less than 70 per cent. The savings (at the 2.1 per cent rate) would still be just shy of €900 a year.
The only possible fly in your ointment is that Avant is lending only through a small number of brokers, who are listed on their website, and focusing on large urban centres so, depending where you live, you might struggle to secure an Avant loan.
If you want to run the figures yourself, there are any number of mortgage calculators, but I find the bonkers.ie calculator (bonkers.ie/compare-mortgages/) one of the more flexible ones to use.
Please send your queries to Dominic Coyle, Q&A, The Irish Times, 24-28 Tara Street, Dublin 2, or email email@example.com. This column is a reader service and is not intended to replace professional advice. No personal correspondence will be entered into