What is the minimum gain to switch mortgage

[gnf_ireland]

I am wondering what people consider the minimum gain to be to warrant switching provider?

Switching provider takes time, effort and of course cost. In certain cases, these costs are funded by the provider, but there is then a cost if you wish to switch again within a window of time.

I switched from BOI to KBC gaining 0.8% ....and waiting on KBC to respond to a complaint regarding overpayments to decide if its time to move again.

Would people consider 0.5% of a difference to be the magical figure, or what would it be?

 

[Sarenco]

I suppose it really depends on the outstanding amount and term.

Personally, I would switch for a projected net saving of anything over €1,000 over the first 12 months.

 

[gnf_ireland]

@Sarenco Thanks for that response. That was the rule of thumb I used 15 odd months ago when I moved from BoI. Sadly to get that sort of savings down I would need to be down around the 2.75% rate or lower. We will not see rates like that until Frank Mortgages come on board, and that could be a while off yet.

I have a slightly different way of calculating the benefits. My policy is to aggressively overpay the mortgage by the same set amount each month, no matter what the interest rate would be. If the interest rate is reduced, I just increase the overpayment accordingly. I then look at what the balance on the mortgage would be in 5 years time, all things remaining equal.
If I compare my current situation with KBC and what a 3.1 situation with AIB would look like, in 5 years time, I would be ~2000 euro better off - so 400 euro a year.

As I said before, the redraw facility on KBC really attracts me to their mortgage, and supports the aggressive overpayment strategy. That said, I have now been advised the lump sum redraw facility no longer exists. If AIB had a redraw facility, it would be so much more attractive for me personally.

Lots to think about as the new season of mortgage discussions kick off again.... a few more weeks will tell a lot, especially if Frank Mortgages could enter the mix !

 

[Sarenco]

If you are planning to pay off your mortgage over a very short timeframe then switching to PTSB's discounted variable offer (coupled with their 2% cash back offer) might make sense.

Regardless of what happens re Frank, I would be surprised if we don't see variable rates of less than 3% for very low LTV/LTI mortgages at some point this year so I agree that it probably makes sense to hold fire for the moment.

 

[gnf_ireland]

@Sarenco That was an option I had not looked at. It comes in marginally cheaper than AIB, but I would feel more comfortable with AIB passing on any further rate cut than p-tsb

That said, I will give it a few weeks or so to see what is happening, and then start the process and see where I end up. Last time it took ~5 months to switch (joys of being self employed). Thanks again

 

[Dauhee]

I'm a miser with a very simple equation: 1 hour of my time is worth 10Eur in my pocket (Figuring 20Eur hour in work yields me 10Eur Net). So if it took me 10 hours to complete a switch, I'd be happy to save 100Eur over the short term (1-2 years).

In saying that there are a lot of other factors to take into account like:

• overpayment draw down
• cash back
• lock in clauses (due to cash back)
• likelyhood of future rate reductions (downside of KBC)
• etc

The way I see it, money is better in my pocket than theirs.

I negotiated an unlisted SVR with my provider 2 years ago when moving house. Played a couple of banks against each other. Don't underestimate the power of developing rapport/working relationships with mortgage advisers. They want your business badly.

I would recommend to anybody to perform what-if analysis on the effect of overpayment on their loan. A useful tool I use is the bankrate website where you can check the amortization-calculator page - I cannot overemphasise how much of a saving you will make in reduced interest payments by overpayment. Another crude rule of thumb I have is for every 100Eur of overpayment, an additional 100Eur is saved on interest payments.

 

[Brendan Burgess]

I suppose it really depends on the outstanding amount and term.

The amount outstanding is the key factor.

The term is only relevant, if it's very short e.g. less than a year or two.

Most people do their calculations on "how much will I save over 20 years?" That is not the way to look at it, as you can review the decision every year or two.

You can switch from BoI to AIB today and cut your SVR from 4.5% to 3.1%. AIB will give you €2,000 to cover your costs.

So the only real cost is your time and effort.

If Frank comes in a lot lower than AIB, then you could switch to Frank.

It's absolutely critical when switching during a time of falling mortgage rates, that you do not switch for any incentive which ties you to that lender. For example, BoI and ptsb will claw back the 2% cash payment. So that really rules them out.

You should not fix during a time of falling mortgage rates, unless the fixed rate is very much cheaper than the variable rate.

 

[qwerty5]

So the only real cost is your time and effort.

And realistically, while it's a slow teeeeeedious process it doesn't cost you much time.

E.g. It may take a week to receive your statements from your current bank and it may take a week or two for the new bank to read them, but the work you have to do to get them and send them on is about 30 mins work (i.e. ring your old bank and request them, then get the statements and put them in an envelope and deliver to your new bank).

There's more than that but if you look at it like that it's only about 5 hours work with weeks and weeks in between

 

[Brendan Burgess]

And realistically, while it's a slow teeeeeedious process it doesn't cost you much time.

That is a very good point.

But you do have to spend some time researching the best rates, filling in the forms, talking to your solicitor, etc.

But maybe 5 hours is about right.

So the switching campaign should focus on the 5 hours and not the two months.

I feel an advertising slogan coming up...

Brendan

 

[gnf_ireland]

Most people do their calculations on "how much will I save over 20 years?" That is not the way to look at it, as you can review the decision every year or two.

Interesting concept - do any of us know people who genuinely switched providers every 1-2 years for the duration of the mortgage? I am guessing many 'threatened' to do so, but would be interested in hearing anyone who genuinely did this.

But maybe 5 hours is about right.

I am thinking maybe higher than 5 hours to be honest. Maybe if you have all your business, including savings, with a single bank - but I imagine most people have some level of distribution of assets (I hope!!)
Also, I would hope people would invest more than 5 hours in a decision as big as this - we are talking hundreds of thousands of euro in most cases.
Hell, it would take more than 5 hours to read half the comments on this forum alone

As I said, being self-employed, its always going to take me much longer to assemble that type of detail

So the switching campaign should focus on the 5 hours and not the two months.

I am guessing that once someone commences the switching initiative, they either switch, get a new rate from their bank or find out they cannot switched. These are not the people any campaign needs to focus on - its the ones who never even consider switching in the first instance.

Any switching campaign should focus on the money to be saved in the short term - because if saving money cannot encourage people to consider switching, nothing will ! And those people are not really going to switch - ever !

 

[qwerty5]

I am thinking maybe higher than 5 hours to be honest. Maybe if you have all your business, including savings, with a single bank - but I imagine most people have some level of distribution of assets (I hope!!)
Also, I would hope people would invest more than 5 hours in a decision as big as this - we are talking hundreds of thousands of euro in most cases.
Hell, it would take more than 5 hours to read half the comments on this forum alone

I don't know. We have probably no more than 10 mortgage providers in Ireland. I only compared about 6. That's an hour (max) of checking each site for each bank to get their rates and offers.
To create a spreadsheet with all this info for comparison is another hour. This may take longer obviously but even if you didn't do this bit I can see that a 3.2% SVR with Ulster Bank is less than a 4.25% rate with KBC.

To ring the mortgage providers and get the ball rolling with a couple is another hour.

Meeting the providers is an hour each per application.

Getting old statements and bills & ID and salary certs takes weeks but the work you have to do to get it is no more than an hour.

House valuation. 5 minute phone call. 20 minute visit by valuer.

Moving interest on Life policy & house insurance to new bank. 15 mins call each then fill in whatever forms they send you.

You may have your assets all over the place but the bank asks for a copy of all statements, credit card bills, savings. I provided mine with the minimum of what they asked for and no more.

I've spent 15 minutes talking to my solicitor so far. Now that my mortgage pack has finally gone to them I've got to spend another half an hour visiting them and signing documents (I'm basing this on the time spent before when I originally got the mortgage).

There's a bit more fluting about but I'd say deffo less than 10 hours altogether.

Edit: Actually I forgot a bit. Repeatedly ringing, emailing your mortgage advisor for an update or an answer to a simple question or having to repeat one of the steps above because they've lost a document or been so slow that it's gone out of date: Infinite.

This 10 hours is spread around about 2 or 3 months though so it seems like forever.

Reading this site and the comments in it. You're right. 10's of hours. But it's technically not part of the application process. I wish I did it before I got my original mortgage though

 

[stephnyc]

great summary qwerty5

For me it's not just the 10s of hours (and I certainly dont have anything like that level of "free time"), it's also the 20+ steps that are needed. It's daunting and mistakes are made and steps have to be repeated. Also most people dont know how much it could save them so it doesnt seem worthwhile.

Let's not underestimate how boring it is too. Bank meetings, phone calls, paperwork - throw in a fulltime job, a couple of kids etc. I see why people dont do it.

 

[gnf_ireland]

Let's not underestimate how boring it is too. Bank meetings, phone calls, paperwork - throw in a fulltime job, a couple of kids etc. I see why people dont do it.

I often wonder why people who can don't switch. I had put down apathy as a reason, but never the job is boring !

The reasons I come up with in my head are:
1. Cannot - due to poor LTV or changes to income or employment status
2. Life circumstances have changed, and therefore afraid they would fail the application process. This is predominately around kids and the costs factored into the calculation
3. Don't realise how much they could save by doing it
4. Desire to avoid banks and solicitors as much as possible *I can understand this one*
5. Don't have a desire to get the finances 'mortgage ready' again. Some people 'clean-up' their accounts/spending patterns for 6/12 months in advance of a mortgage application to give the best possible picture - no desire to do this again
6. No time - work is too busy and kids take up what is left of it. As any parent with small kids will tell you "no idea what we done with our time before we had kids"
7. Original Bank negotiates meaning the main benefit in switching has been removed

Any others people can think of?

 

[gnf_ireland]

@qwerty5

Interesting split out of time. I did not really track the time spent on that last year, as I also done a full financial review at the same time, and used the time to file away about 2-3 years of paperwork.

I also used to call down to the KBC hub at the time as well, and that added a little extra time in the process.

 

[Dauhee]

Its not that hard really. That's what your solicitor is for after all. The only thing to worry about is making the right bank move i.e. rate + terms

 

[Switchornot]

For a slightly different perspective for somebody considering the gain to be made from switching, it is also worth considering paying the same monthly amount to the new bank (if affordable) but reducing the repayment term of the mortgage.

I am currently in the process of my second switch in 2.5 years - first switch from UB (4.1%) to KBC (3.55%) and am currently starting the process of switching to AIB (3.1%). I maintained the same monthly repayment amount when I switched last time around but knocked 8 months off my repayment term and am planning to take another 8-10 months off the repayment term this time around.

I haven't done any detailed calculations proving out the saving but I felt that knocking time off the mortgage term would generate more of a saving than taking the monthly saving that was available up front. I am happy to be corrected if my assumption on this was wrong.

I will switch again 12 months after moving to AIB if there is a better offer on the market and hopefully continue to reduce my repayment term.

 

[Brendan Burgess]

Hi Switchornot

It's very interesting that you switched to KBC and now have switched again.

Can I ask why?

Can you tell us how hard or how easy it was?

Brendan

 

[gnf_ireland]

I am currently in the process of my second switch in 2.5 years - first switch from UB (4.1%) to KBC (3.55%) and am currently starting the process of switching to AIB (3.1%).

Hi Switchornot - just to confirm the dates of the switches. I assume that to get the 3.55% rate with KBC you switched between say October 2014 and September 2015? I think the KBC rate before October was 3.65% and after September 2015 it dropped to around 3.5% or 3.45% if memory serves me correctly. I switched in May 2015 and am on the 3.55% rate

I see you have said you have started the switching process to AIB - you are quick off the mark given it was only announced on Monday - fair play to you. Have you contacted KBC to see if they will budge at all, or have you decided you are going to switch no matter what? Have AIB confirmed to you any rules around the 2k professional fees and any associated claw-back on that if you switch again within x period?


BTW, I fully agree with paying the same amount and reducing the term of the mortgage. As you can see from some of my posts I am pursuing an aggressive overpayment strategy at the moment myself - with the aim of reducing the term dramatically !

Can I ask why?

@Brendan Burgess I think you know the answer to that one I think you have a thread somewhere asking people who switched to KBC if they would switch away from them again based on recent events !

 

[Switchornot]

Hi Switchornot

It's very interesting that you switched to KBC and now have switched again.

Can I ask why?

Can you tell us how hard or how easy it was?

Brendan

Hi Brendan - I am leaving KBC because I switched to them under the impression I was getting a variable rate but in reality, am on a fixed rate of 3.55%. They have advised that they have no plans at present to reduce their rates for existing customers. It hasn't cost me anything to switch to date and I don't expect the switch to AIB to cost me anything either.

I didn't find it an ordeal to switch but everyone is different - payslips, bank statements etc. are all available on-line so it was just a matter of printing them off and attaching them to the KBC application form. I agreed a fixed fee with my solicitor (100eur or so less than what KBC paid for legal fees at the time) and KBC organised the valuation. That was pretty much it - process took 5/6 weeks in total but definitely less than 10 hours of my own time.

 

[Switchornot]

Hi Switchornot - just to confirm the dates of the switches. I assume that to get the 3.55% rate with KBC you switched between say October 2014 and September 2015? I think the KBC rate before October was 3.65% and after September 2015 it dropped to around 3.5% or 3.45% if memory serves me correctly. I switched in May 2015 and am on the 3.55% rate

I see you have said you have started the switching process to AIB - you are quick off the mark given it was only announced on Monday - fair play to you. Have you contacted KBC to see if they will budge at all, or have you decided you are going to switch no matter what? Have AIB confirmed to you any rules around the 2k professional fees and any associated claw-back on that if you switch again within x period?


BTW, I fully agree with paying the same amount and reducing the term of the mortgage. As you can see from some of my posts I am pursuing an aggressive overpayment strategy at the moment myself - with the aim of reducing the term dramatically !



@Brendan Burgess I think you know the answer to that one I think you have a thread somewhere asking people who switched to KBC if they would switch away from them again based on recent events !

Hi gnf_ireland - yes, I switched sometime around June 2015 when the rate was 3.55%.(I only took out the mortgage with UB 2.5 years ago so I suppose this is really 2nd switch in 12 months!).

I spoke to KBC yesterday and they confirmed there is no movement expected at present on rates for existing customers.

I met with AIB on Wednesday and am going to get approval forms submitted next week. Once that is done, I may need to wait until 1st July to switch over in order to avail of 2k offer but that isn't an issue. I didn't get into discussion around claw-back of 2k - I'm not even sure if KBC can claw back the 1k they allowed for last year. If they do, the AIB contribution will cover that plus the legal fees. If not, I am up 1k.

I believe the only way the banks will start dropping rates is if more people start switching frequently - that will drive competition. I appreciate that the option isn't available to everyone but it seems there is a lot of inertia out there at the moment too.