Switching from from KBC to BOI to avail of the 2% cash back

With the recent announcement by KBC that customers can move their rate from variable 4.5% to fixed 3.9% I started looking around. If I fix with KBC obviously I can't move again for another couple of years.

I rang BOI and they offered me a fixed rate of 3.6% and 2% of the mortgage value back in cash (which covers the fees of switching and gives me a reasonable bit of cash).

So is it a no brainer or am I missing something?
It seems the BOI deal will save me €1500 over 2 years in interest and give me €3000 in cash (after solicitors fees).

I have no allegiance to any banks. If after a few years KBC offer a decent deal that saves me money I'll switch back.

Here are my figures. I'm open to correction if I'm doing anything wrong.

Our mortgage is currently €250k. I haven't gotten our house valued yet but with a best case scenario (assuming it's worth €380K) we'd be 66% LTV and worst case we'd be 79% LTV (assuming €315K). If it's worth more than €315K then we can get the 3.6% rate. It should be worth more than that. Similar houses were going for more than that last year.

I don't know what the legal and valuation fees are but for the post above I assumed that both together would be less than €2000 and I'm hoping for less.

So with KBC on my current 4.5% I'm paying €11250 in interest
If I go down to the 3.9% fixed with KBC I go down to €9750 in interest.
If I go to BOI fixed at 3.6% to €9000 in interest and they will give me 2% cashback which is €5000

So if I go to BOI I'll save €9750 (KBC fixed) -€9000 (BOI fixed) + €5000 (cashback) - €2000 (fees). So that's €3750 in year one and €750 afterwards.

I know I'm not taking into account the mortgage going down each year as it gets paid off so the amount of interest reduces but for this, I think it's good enough to give a rough idea.

Is there any major flaw in my thinking above?

Hi Mick

10/10!



1) You have used the interest charged rather than the actual repayment, which is correct.
2) There is no need to factor in the fact that the balance will be reducing - it won't have a material impact on the decision.
3) Ignore the APR - it is misleading for fixed rates as it assumes you will revert to the SVR and stay with the lender for the full term of the mortgage.

The main factor to consider is whether some other lender will reduce variable rates further in the short term

In effect, BoI is charging you a rate of 2.6% for two years when you factor in the cash back. I think that variable rates will fall further, but I think it's unlikely that they will fall below 2.6% for an 80% LTV mortgage.

Ulster Bank has yet to make its announcement on mortgage rates, so you should not sign up for anything until you see what they do. Of course, you can start the process of moving to Bank of Ireland and abort it, if UB comes up with a better deal.

Should you worry about what the interest rates will be after the two years fixed term is up?
I don't think so. Bank of Ireland is trying to be competitive and so I would expect them to offer you a competitive deal at that stage.
There is no reason at all to believe that KBC might be cheaper then than BoI.
You will default to an expensive rate, so it's important to make sure to review those rates when the fixed term expires.

You should ask KBC to give you a better deal
You have nothing to lose by doing so. Given the importance of the €5,000 cash back, they would have to offer you cash to stay.

Should you consider fixing for a longer term?
This is a real issue. I would expect the ECB rate and interest rates generally to be higher after two years. Should you consider fixing for 5 years at 3.8%? That would dilute the effect of the 2% cash back from 1% a year, to 0.4% a year.

I just don't know the answer to this.

Thanks for that reply Brendan. That's great.

Yeah, I'll get the ball rolling with BOI but won't sign on the dotted line for a few weeks until we know what's happening with the other guys.

I've contacted KBC yesterday. No response so far. Will ring them as I move along. I asked them last year something similar and their response wasn't positive.

As for the fixing term I'm leaning towards 3 years. The lady in BOI said something about being able to make extra repayments during the fixed term and this wouldn't affect anything as long as the repayments were less than 10% . I have to flesh this out. I would like it but it sounds like it defeats the purpose of a fixed rate for the bank. I don't care too much though. I could save the extra repayments (if any) elsewhere and then just dump them on once the rate went to variable. The major risk there is my other half. If she knows we have a bunch of money saved, she starts spending it in her head

I like your last line. If you did know the answer to that you'd have a crystal ball.

Brendan Burgess said:

Hi Mick

Should you consider fixing for a longer term?
This is a real issue. I would expect the ECB rate and interest rates generally to be higher after two years. Should you consider fixing for 5 years at 3.8%? That would dilute the effect of the 2% cash back from 1% a year, to 0.4% a year.

I just don't know the answer to this.

Click to expand...

BofI have a 5 year claw-back on the 2% offer so it makes sense to calculate the savings over this period anyway.

Mrs Vimes said:

BofI have a 5 year claw-back on the 2% offer so it makes sense to calculate the savings over this period anyway.

Click to expand...

I had completely forgotten about this!

Sorry Mick, I have to reduce the marks to 4/10 for both of us for missing this key point.

Back to the drawing board...

Brendan