I finally switched my mortgage!

I have been trying to switch my mortgage for over a year now and I have finally achieved it! The first few attempts were through brokers and another bank. The first attempt failed because my income was so low it was described as “below threshold”. At that point I was on just under 18K a year. The second attempt failed because of the nature of my contract, the bank wanted the fixed-term contract to be renewed at least twice before they would approve it. I had my employer change the contract but then there was one document that prevented the third application being finalised. I needed to wait just a little longer to get that in place for my forth and final attempt. 

When I bought my home in 2012 I took out at 20-year, owner-occupier mortgage with AIB. The variable rate fluctuated a little in the first few years, going up once but then coming down slightly after that. At the time of switching, I was on a variable rate at 3.15% with AIB. As of October 2019, I have now switched my mortgage to KBC and I am enjoying a 2-year fixed rate of 2.3% with a 15 year term. I was able to get the extra 0.2% off their standard 2.5% fixed term mortgage by switching my current account to KBC and mandating my salary.

Was Switching My Mortgage Easy?

The failed attempts aside, when I finally had everything I needed the process was comparable to getting a mortgage in the first place. You just have to provide all the same documentation and ensure all the required insurances are in place. I went about dutifully organising all the documents I needed.

Timing can be something to bear in mind. I got an Approval in Principal letter for the switch that was good for 6 months but be aware that your valuation report expires after 4 months and a Letter of Redemption from your original bank expires after 10 days so its best to all your homework done to avoid delays.

  • Current account, savings account, credit union and  credit card statements for last six months
  • 12 months of payslips, salary statements (stamped and dated) and P60s/P21s for the last two years from my employers/revenue
  • A valuation of the property and proof of house insurance to match the updated valuation reports on rebuilding costs
  • Updated life assurance on the new mortgage amount and new term of cover required
  • Completed application forms and salary mandates

Unexpected Problems when Switching My Mortgage

KBC’s customer service was very good. Although right at the end it was more difficult to get timely responses and there were a few hiccups. For example, I spoke with my solicitor when I met her to sign the mortgage pack. She advised me to contact KBC and double check that everything was in order on my end to ensure a smooth switch (this is where the Letter of Redemption comes in to play). So I asked them to check that all was in order and KBC actually rang me a day after that to ask when I was planning to draw down which I took as a sign that everything was in place. Then when it came to it, they noticed that:

Problem 1

My rebuild amount on my home insurance was less than what their valuer had 

I guess that is to be expected seeing as costs have risen since I originally purchased in 2012. This problem was easily and quickly solved by putting in a call to An Post Insurance. There was no charge to increase the cover slightly and they send me the updated documentation by email while on the phone. Fair play to you An Post Insurance. 

Problem 2

My mortgage insurance cover didn’t match up to the new term and needed to be extended by two years.

This one took longer to solve. I rang Acorn Life who said I couldn’t amend the policy and would need to get a new one. They referred me to a member of their sales team who called me that afternoon and asked me when I would be home so he could come meet me at my house. Wait, what?! You’re physically coming to my house to do this? Technically, I am a millennial so I expected all this to be done online without having to interact with a human. Shite… now I have to go and buy biscuits and get home early so I can hoover! Their sales guy showed up on time and a few minutes later we had gone through the litany of health and lifestyle related questions and signed all the boxes. A few days later I got the document I needed and sent it off to KBC.

The annoying thing was, that these two problems weren’t noticed until the end of the process and they were not noticed at the same time. It was one, then the other. This delayed the entire process by up to a week. But once everything was in place it was a smooth transition. 

The Cost of Switching Your Mortgage in Ireland

Solicitor Fees – €1,256.53

Solicitor fees are the single largest cost in switching your mortgage but this cost is mitigated. In my case, by the €3,000 switcher bonus offered by KBC and, in general, by the fact that you save thousands on interest when you switch to a better rate. I went sniffing around various solicitors I found on Google to see if I could get some good value for money. I was surprised to find the range of quotes provided for switching a mortgage. The average was around €1,250 (including VAT and outlays), one city centre firm quoted €3,000. I went with Seamus & Maguire Solicitors as they provided the most competitive quote. They proved to be efficient and responsive in every dealing I had with them. However, the final cost went up due to the outlays costing more than initially quoted. 

Valuation Fee – €126.97

KBC didn’t cover the cost of the valuation and it had to be done by their preferred company. The guy who came out actually sat down and asked me loads of questions, he measured the space and did a very brief inspection of the rooms. There was a very interesting result from the valuation which I discuss below.

Security Release Fee – €60

I didn’t know what a security release fee was or that it was going to happen so I queried it with AIB and they said: “The €60 charge is a standard Security Release Fee, included in every redemption letter for the administration cost of the release of the mortgage charge on the property when a load in redeemed before its normal expiry.”

 

€3,000 Switcher Bonus to Cover Mortgage Switching Costs

I recieved the €3,000 switching bonus from KBC before I even made my first mortgage payment. They say in their terms that it can take up to 30 days from draw down. I think it was a week after I got the notice to say everything was setup and the money just appeared in my current account. 

€ 0
Switching Bonus
€ 0
SWITCHING COSTS
€ 0
FREE MONEY!

A Surprising Valuation

I mentioned that I had a few failed attempts to switch my mortgage and one of them got as far as the valuation stage before falling through. In that case the bank paid for the valuation which was carried out in spring 2019. I posted all about what my house is worth here but the upshot was my house was valued at €240,000. This time round with KBC the house was valued at €275,000. Both of these valuations were carried out in 2019 and at the time of posting this article the reports show a decrease in house prices nationwide. It seems unrealistic to me that my house increased in value by €35,000 in the space of a half a year. The property price index for similar properties recently sold in the area shows an average of €269,000. 

How does the mortgage switch affect my early pay off plan?

So now I need to decide what to do. I am currently overpaying my mortgage by €500 per month. This has had the effect of reducing my monthly repayment as the principal amount reduces with each overpayment. I had gotten my monthly repayment amount down to €574.94 but now that I have switched to the lower interest rate and changed the term,my monthly repayment this month (October 2019) will be €484.76. I have two ideas in my head. 


Option 1

The first is to simply reduce the amount that I overpay my mortgage each month from €500 to €308.33 (€7,400 divided by 24 months) and continue as normal. In this case I would do something with the difference of €191.66 such as save it, invest it or use it to buy health insurance (which I currently don’t have).

Option 2

The second is to take the €3,000 and pool that with a €4,400 loan from the Bank of Mam and Dad and just pay the 10% off right away. I believe that would lower the monthly repayment amount a little and instantly give me a €2,845.86 saving on interest while also reducing the term of the mortgage by one year and nine months. I could then forget about it until the fixed-term ends and busily go about paying back my folks for the interest free loan. 

I have made no secret about it. I am on what many FIRE people say is the wrong side of the fence when it comes to the argument about paying off my mortgage early. I can’t stand his preachy shite, but I share Dave Ramsey’s viewpoint. I want to pay off my mortgage early. But no I am on a fixed-rate for two years. How does that affect me?

Turns out that you can pay 10% of the principal on a fixed-rate without incurring penalties. But that accoridng to KBC customer service 10% applies to the duration of the fixed term period. So essential, over the next two years I can only make an overpayment of €7,400. This is what they told me when I asked their customer service:

The 10% overpayment applies to a fixed rate mortgage. If your mortgage was fixed for example for 2 years. That means you can only make 10% overpayment of the principal within a 2 year period (10% in 24months). Same for 5 years, within 5 year period 10% overpayment and so on. But if your mortgage was on variable rate, then the 10% does not apply. You can make as much overpayment as you can afford.

I can already hear the FIRE community screaming at me to invest rather than paying off the mortgage early but I can’t help myself. I detail all the reasons here  in this post. That said, I would love to hear anyone’s views and insights into the argument or indeed, about your experience with switching mortgage in Ireland. 

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