WHAT RISING HOUSE PRICES MEAN FOR MORTGAGE HOLDERS IN DUBLIN
Category : Mortgage News
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Rising house prices are a concern for many. But they may bring relief to thousands of people who are currently paying too much on their mortgages.
Mortgage holders are fully aware that they must make regular repayments on their mortgage. What most of them don’t know is that they don’t have to stay with the same mortgage provider for the duration of their loan, and that switching their mortgage provider can save them thousands over the course of their mortgage.
What’s more, for people who took out mortgages after 2011, rising house prices make it very likely that they can now get a reduced rate by switching.
This is because the amount you pay on your mortgage is largely determined by the value of your house.
Loan to Value Ratio (LTV)
Banks use a variety of methods to calculate how much interest you pay on your house. While different banks use different methods, most banks use a figure called the loan-to-value ratio (LTV for short). The loan to value ratio is simply the ratio between the size of your loan and the value of your house.
For example, if you have a house valued at €100,000 and your mortgage is €80,000 your LTV is 80%. If your house is valued at €100,000 and your mortgage is €70,000 your LTV 70%. The higher your LTV, the higher the interest rate you pay. Likewise, the lower your LTV, the lower the interest rate you pay.
If you can reduce the size of your LTV, it’s likely the banks will offer you a better interest rate.
Now that we know what LTV is, let’s look at an example of how it could affect your mortgage rate.*
Let’s say, you took out a mortgage, in 2013, for €90,000 on a house worth €100,000. Your LTV was 90%.
5 years later, it’s now 2018. You’ve paid off €20,000 on your mortgage, so if your house price stayed at €100,000 your LTV is now 70%. You can now switch banks and get a lower rate.
But what if your house has increased in value? What if it’s worth €140,000 now? Your mortgage is still €70,000, so your new LTV is 50%. Now, you’ll get an even lower rate if you switch banks.
(*This example is for illustrative purposes only)
So rising house prices mean a lower LTV for mortgage holders. And a lower LTV means a lower interest rate.
How have house prices changed since 2011?
Here’s a graph showing the change in house prices from 2005 to November 2017.
From the graph:
Since 2011, average house prices in Ireland have increased by 42.5%.
Since 2013, average house prices in Ireland have increased by 61.3%.
Since 2015, average house prices in Ireland have increased by 24.6%.
While these are nationwide figures and not all house have risen this quickly, if you took out your mortgage between 2011 and 2017, there is a good chance your house is now worth more than when you took out your mortgage.
If your house has increased in value by more than 10%, it is likely that you now qualify for a lower interest rate and could save thousands if you switch banks.
How to switch banks?
Many people think switching banks will be a stressful and time-consuming process. While it does take some time and effort, it’s often much less than people think. If you follow the steps below, you could be enjoying lower monthly repayments in less than four weeks.
You’ll be saving hundreds per month (Average is €175 per month) and the only difference for you is the name of the bank that appears on your current account statement.
Before you go ahead and start switching mortgage providers, there are two points you need to tick off your checklist.
1 Do you have a good credit history?
When a bank offers you a new mortgage, they want to know that you can pay it back. If you have missed any payments in the last 6 months, such as electricity bills, television or mortgage repayments, it makes it unlikely you will be approved for a lower rate.
If you’ve only missed one payment but it was for a good reason, such as your electric company overcharged you by mistake, you may still be able to get approval.
If you’ve missed two or more payments in the last 6 months regardless of the reason, your best option is to wait it out until your 6 month statement is clean.
2 Is your LTV less than 90%?
Most banks will only give you a mortgage if your LTV is less than 90%. If your LTV is higher, you’re going to have to wait until your LTV drops below this point. This can happen if property value rises, or if you pay off more of your loan.
If you have these two points sorted, you can move forward with switching your mortgage provider.
The next step is to find out if you qualify for a lower mortgage rate.
The easiest way to do this is to call a mortgage saving expert 01 5242065.
They’ll ask you a few simple questions and give you personal advice on where you stand with your mortgage. If all goes well, you will have provisional approval for your mortgage in under 5 minutes.
“Why should I use a mortgage saving expert?”
The main benefits of using a mortgage saving expert are:
- If you don’t qualify for a lower mortgage, it can save you hours of time preparing for a switch that won’t happen.
- They will be able to spot all the little details that if missed can cause a rejection of your application.
- They talk to all the banks and find the best offer for your unique situation, so you get the best deal available on the market.
- A mortgage saving expert works on your behalf, a mortgage consultant in a bank works for the bank.
- A mortgage saving expert is regulated by the central bank of Ireland, so they are required by law to work in the best interest of their customer (That’s you), and not the bank.
“How much can I save by switching my mortgage?”
“A reduction of just 0.1%* on a 25 year mortgage loan of €150,000 will save you €2,477.64 over the course of your mortgage term.”
*(From 4% to 3.9%)
“A reduction of just 1%* on a 25 year mortgage loan of €150,000 will save you €24,131.09 over the course of your mortgage term.”
*(From 4% to 3%)
“Where do I go from here?”
Thank you for taking the time to read this article. I hope you found it informative and useful.
If you know someone who would benefit from reading it, click here to like it on Facebook or share it with a friend.
If you want to find out if you qualify for a lower mortgage rate call 01 5242065. You could have provisional approval for a lower mortgage in just 5 minutes.
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