Key Post How to evaluate the decision to switch lenders

Hi Sarenco

The point of the thread was to show people how to evaluate the offers. I included the deals offered by lenders as I thought that they were useful.

As the approach confused you, I am sure it must have confused others as well. I will look at the layout again and do some worked examples.

The 20 year calculation is the one most people do and it's wrong. Most people compare repayments and it too is wrong.

Brendan
 
Hi Brendan

I really don't think I was confused - I simply disagreed that looking at the savings over the life time of the loan, as opposed to some other time period, was misleading. I obviously agree that it doesn't give you the full picture but neither does simply calculating the payback period - it seems to me that both are relevant considerations. You can certainly take this a step further and start working up NPV calculations if you feel this adds significant value.
 
on a 300K mortgage 2% cashback is 6K - switching costs are about 1.5K so you're making 4.5K.

Lets say your term is 25 years:
Monthly repayment on 300K @ 3.6% is 1518
4500/36 = 125 cashback per month so your effective monthly repayment for the 3 year term is 1393
This makes your effective rate for those 3 years closer to 2.8%

(note: BOI state "The Bank reserves the right to seek refund of the payment from the customer if the mortgage is paid back within 5 years." so you may need to redo the maths over a 5 year term.)

I'm already with BOI - maybe I should ask them to pay me 2% not to leave?
 
gnf_ireland said:
So my personal view, for what its worth, look at a 5 year view and what the return would be over a 5 year period and assess the switch based on that. Also consider if you can overpay the mortgage by the amount your mortgage reduces by.
Click to expand...

Great advice there in all of your post. Agree in particular with the 5 year view and with the overpaying of the mortgage. I've done that a couple of times in order to reduce the term of the mortgage by using the savings from the switching. It's great to see the end of the road coming sooner.
 
How is the cashback considered from a tax perspective? Surely this would be seen as an income, and thus taxed at around 50% in most cases?
 
I don't think it would be income. Funnily enough I asked about the tax implications of this on here yesterday.
 
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