Many homeowners topping up their mortgage loans to fund renovations or upgrades are paying more than they should by staying with their existing lender, according to mortgage adviser doddl.ie.
The number of people topping up their home loans has jumped to a 16 -year high, according to doddl.ie chief executive Martina Hennessy.
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, she says.
Hennessy said the average mortgage top-up amount of €141,624 indicates that many families are looking to release equity for home improvements, with a shortage of family homes meaning many households are renovating rather than relocating.
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“Only 2 per cent of Ireland’s 2.2 million homes are changing hands each year, meaning the average home is sold only once every 50 years,” she said. “With limited supply and high transaction costs, spending €100,000 on improving an existing home can make more financial sense than moving.”
Borrowers are approaching their existing lender when they want to top up their mortgage, in part based on an assumption that it might be easier to do so, she says, or because they believe they cannot release equity with an alternate lender.
“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 Hennessy.
The gap between the highest and lowest mortgage rates in the market stands at 3.15 percentage points, according to doddl.ie. The difference in cost to the borrower could run into thousands of euro over the course of a loan, not least because the companies that offered the best value when you first took out your mortgage might not be the most competitive now.
“Every homeowner considering a top-up should ask themselves if their current lender is still the best place for their mortgage,” said Hennessy.
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The process to top up is broadly the same as switching. Alongside the application, there will be a valuation required and legal costs.
“The circa €2,000 cost to cover solicitors, Ber and valuation fees is the same whether you top up with your existing lender or opt to switch to another lender on the new combined mortgage,” said Hennessy.
She notes that five lenders in the Irish market are offering mortgage cashback offers of up to 2 per cent, which would cover the costs of switching to a lender offering better rates.
