Will banks penalise us for switching our mortgage several times?
Q&A: Dominic Coyle answers your personal finance questions
As long as you pay your mortgage in full in line with your agreed contract, there should be no reason not to change a fourth time or more as circumstances dictate. Photograph: iStock
We have switched our mortgage twice already in the past and are about to switch again. There is an attractive cash-back offer that we could go for that would tie us into a mortgage for two years.
We would then roll onto a higher interest rate so would look to switch a fourth time.
Do you think we will find it difficult to find a lender considering how many times we will have switched? Are you penalised for moving so many times?
Ms RM, email
Good on you. People are far too reluctant to make the jump when it comes to mortgages, which is odd. Given the sums involved, they stand to make far greater savings than they would by moving energy supplier or home insurer, and people will spend days chasing multiple insurers for quotes to save €50.
As my colleague, Fiona Reddan, noted recently, switching from a 3 per cent rate to a 2.5 per cent rate on a mortgage of €300,000 will save €80 a month, or almost €1,000 a year.
And when you consider that Spanish lender Avant entered the Irish market last year with a rate of just 1.95 per cent for those with a loan that is equal to or less than 60 per cent of the value of their home, the savings can be even greater – depending on your current mortgage interest rate.
In fact, a Central Bank report last year said Irish homeowners were sacrificing up to €10,000 by sticking loyally to their mortgage provider.
Just as you would with any other service, it makes perfect sense for you to weigh up the options on financing your home loan on a regular basis
Having studied the mortgage market, it found that 61 per cent of eligible mortgageholders stood to save €1,000 in the first year after a switch and more than €10,000 over the remaining life of their home loan.
Yet the same report found that just 2.9 per cent of people in a position to switch providers – or even rates within their current provider – did so in the second half of 2019. And that figure is higher than previous years.
It’s clear that people are reluctant to switch. Presumably, because it is by far the biggest financial decision for most people, they are happy to lock in and just move on. Some, however, also have some misguided sense of loyalty to the lender that “took a chance on them” when they were looking for the loan – something banks are only too ready to encourage.
A quick reminder of the tracker mortgage crisis should be more than enough to put any misplaced sense of loyalty to bed.
Just as you would with any other service, it makes perfect sense for you to weigh up the options on financing your home loan on a regular basis.
And when you do switch, as you are currently planning to, both sides are being upfront about the commitment in what is purely a contractual discussion – just like you would have with Sky or Virgin, or whoever. The bank agrees to offer you rate X as long as you agree to be locked into that rate for a set period, in this case two years.
You are one of the rare ones, determined to stay on top of the mortgage and secure the best rate at all times. There’s nothing wrong in that
After that, all bets are off. The bank is telling you that, after the two years, you will move on to a higher rate. It knows this is not the best rate on the market but is working on the principle that close to 100 per cent of customers will do nothing about it – for a while at least – allowing it to profit from greater profit margins.
You are one of the rare ones, determined to stay on top of the mortgage and secure the best rate at all times. There’s nothing wrong in that.
The banks are making a commercial proposition; you are abiding fully by the terms of the contract you sign with the lender. The bank knows this. For them, it is not personal – no matter how much their soft focus advertising might like to have you believe.
They are not going to penalise people for playing the system in exactly the same way the banks themselves are doing. There is no reason why you should be penalised by the banks for availing of the offers they make. Nor do I think you should have any difficulty finding a bank that will accommodate a further switch down the line.
As long as you pay your mortgage in full in line with your agreed contract, there should be no reason not to change a fourth time or more as circumstances dictate.
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