Does it still make sense to switch to KBC?

J

JamieO

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I have AIP with both Avant and KBC and my intention was to progress with 7 year fixed with Avant at 2.25%, however I don't have a loan offer yet and the increased rates on 15th August mean I now have to reconsider.

KBC 10 year fixed at 2.85% or 5 year at 2.4% looks a more appealing option now vs the increased 7 year rate of 2.95% from Avant.

Does it make sense to switch to KBC? I am worried about KBC exiting the marketing and the increase when BOI take over at the end of the 5/10 year fix term. I don't intend to move within next 10 years. Any guidance or thoughts much appreciated.

Summary of Current Mortgage:
  • Current lender : PTSB
  • Outstanding mortgage balance : €580,000
  • Approximate current value of your property : €975,000
  • The date you started your fixed-rate mortgage (month and year) : September 2020
  • How many years you fixed for : 3 years, 1 year remaining
  • Your current mortgage interest rate : 2.5%
  • Your current monthly repayment : €2271
  • Your property's BER (Building Energy Rating) – C2
  • Are you due to get extra cashback from your current lender in the future : No
 
JamieO said:
I am worried about KBC exiting the marketing and the increase when BOI take over at the end of the 5/10 year fix term.
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That's the issue. Certainly don't fix for 5 years. 10 years is a possibility. How long will you be at the mercy of Bank of Ireland's predatory rates for existing customers after that? And what will the balance be?

Brendan
 
Brendan Burgess said:
That's the issue. Certainly don't fix for 5 years. 10 years is a possibility. How long will you be at the mercy of Bank of Ireland's predatory rates for existing customers after that? And what will the balance be?

Brendan
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BoI customers can fix at rates offered to new customers, no? I just broke out of a 1yr with BOI and fixed fro 5 years at 3% which is what they offer to new customers.

It looks based on the latest Avant increase that the gap has narrowed at the 5 year 80% LTV with BOI. BOI might even be cheaper for a switcher over 5 years given the cashback?
 
Hi Dublin Bay

You are paying a very high rate which is not subsidised by cash back.

New customers pay much lower effective rates because they are subsidised by cash back.

Brendan
 
JamieO said:
  • Current lender : PTSB
  • Outstanding mortgage balance : €580,000
  • Approximate current value of your property : €975,000
  • The date you started your fixed-rate mortgage (month and year) : September 2020
  • How many years you fixed for : 3 years, 1 year remaining
  • Your current mortgage interest rate : 2.5%
  • Your current monthly repayment : €2271
  • Your property's BER (Building Energy Rating) – C2
  • Are you due to get extra cashback from your current lender in the future : No
Click to expand...
@JamieO Your break fee should be zero at the moment – but it is volatile because wholesale interest rates are volatile, so confirm it with Permanent TSB. If it is higher than zero, please post it here when you receive it, including the date of the letter.
  • Switching immediately to AIB's 4-year fixed rate (2.2% with €2,000 cashback) will save you about €12,680 over the next 4 years

  • Switching immediately to KBC's 5-year fixed rate (2.4% with €3,000 cashback) will save you about €9,160 over the next 4 years
    • Note that if you decide to do this, your interest rate won't change for 5 years but your mortgage will soon move onto Bank of Ireland's books, and they discriminate between new and existing customers, i.e., their best rates are not available to existing customers
    • For example, if you were an existing Bank of Ireland customer right now, the best rate you would be able to switch to today is 3.0%
    • So if you switch to this KBC offer now, you will probably not be eligible to switch to one of Bank of Ireland's low rates in the future and you will end up on a higher interest rate. When that happens, you may want to switch again to another lender, which will incur costs (and it might be impossible to switch if your financial situation has deteriorated).

  • Switching immediately to Haven's 7-year fixed rate (2.65% with €5,000 cashback) will save you about €5,520 over the next 4 years – but with the longer security of 7 years on a fixed rate

  • Switching immediately to Avant Money's 4-year fixed rate (2.45% with no cashback) will save you about €5,000 over the next 4 years
    • You would have to shorten your mortgage term to 30 years to be eligible for this rate
    • The monthly repayment would be €2,277

  • Switching immediately to Haven's 10-year fixed rate (2.85% with €5,000 cashback) will save you about €1,000 over the next 4 years – but with the longer security of 10 years on a fixed rate

  • Switching immediately to Avant Money's 5-year fixed rate (2.65% with no cashback) will save you about €480 over the next 4 years
    • You would have to shorten your mortgage term to 30 years to be eligible for this rate
    • The monthly repayment would be €2,337

  • Switching immediately to KBC's 10-year fixed rate (2.85% with €3,000 cashback) will leave you worse off by about €1,000 over the next 4 years – but with the longer security of 10 years on a fixed rate
    • The same warnings as above regarding higher Bank of Ireland rates in the future apply

  • Switching immediately to Finance Ireland's 10- or 15-year fixed rate (2.9% with no cashback) will leave you worse off by about €5,160 over the next 4 years – but with the longer security of 10 or 15 years on a fixed rate
    • This product has a benefit in relation to moving home in the future that is explained below

  • Switching immediately to Permanent TSB's 5-year fixed rate (3.0% with 2% monthly cashback) will leave you worse off by about €4,060 over the next 4 years. But it is very simple and quick to do (no bank statements, salary cert or solicitor, etc., needed).

  • Switching immediately to Permanent TSB's 7-year fixed rate (3.0% with 2% monthly cashback) will leave you worse off by about €4,060 over the next 4 years – but with the longer security of 7 years on a fixed rate. And it is very simple and quick to do (no bank statements, salary cert or solicitor, etc., needed).

  • Switching immediately to Avant Money's 7-year fixed rate (2.95% with no cashback) will leave you worse off by about €6,300 over the next 4 years – but with the longer security of 7 years on a fixed rate
    • You would have to shorten your mortgage term to 30 years to be eligible for this rate
    • The monthly repayment would be €2,430

  • Switching immediately to Finance Ireland's 20-year fixed rate (3.0% with no cashback) will leave you worse off by about €7,440 over the next 4 years – but with the longer security of 20 years on a fixed rate
    • This product has a benefit in relation to moving home in the future that is explained below

  • Switching immediately to Finance Ireland's 25-year fixed rate (3.15% with no cashback) will leave you worse off by about €10,840 over the next 4 years – but with the longer security of 25 years on a fixed rate
    • This product has a benefit in relation to moving home in the future that is explained below

  • Switching immediately to Avant Money's 10-year fixed rate (3.4% with no cashback) will leave you worse off by about €16,520 over the next 4 years – but with the longer security of 10 years on a fixed rate
    • You would have to shorten your mortgage term to 30 years to be eligible for this rate
    • The monthly repayment would be €2,572

  • Switching immediately to Avant Money's "One Mortgage" (a 3.5% fixed rate with no cashback) will leave you worse off by about €18,800 over the next 4 years – and the interest rate will remain fixed for the remainder of your mortgage term
    • You would have to shorten your mortgage term to 30 years to be eligible for this rate
    • The monthly repayment would be €2,604

The above Avant rates include their rate increases announced on 12 August 2022. While Avant's rates are not the lowest at present, it is possible that they will be amongst the lowest in the near future when other lenders increase their rates.

These savings estimates use for comparison the scenario of switching to the 2.95% rate with Permanent TSB when the current fixed rate ends. And that's assuming that Permanent TSB are even offering a 2.95% rate in September 2023 – it could be higher (or lower). You would continue to get the Permanent TSB monthly cashback in such a scenario. The estimates also account for any fees (solicitors' fees, valuation fee) that you have to pay and any cashback offered by the above lenders. (I am also assuming that you are currently receiving 2% monthly cashback from PTSB.)

You should call Permanent TSB and tell them that you have started the process of switching to another lender. Ask them what interest rates they will offer you to break and re-fix with them. Please post a summary of their response here.

All of Avant's rates, and Finance Ireland's 10-year and longer fixed rates, allow you to avoid any potential break fee if you move home in the future (as long as you take out a new mortgage with them, and subject to certain conditions). And in the case of Finance Ireland you can "take your mortgage with you" – meaning that you get to keep the same interest rate when you move (provided that at least 3 years have passed since you started the Finance Ireland fixed rate and subject to certain other conditions).

The estimates also assume that your loan-to-value ratio (LTV) really is below 60% so that you are eligible for the listed rates. Your LTV estimate is 580.0k/975.0k = 59.5%. If you get a valuation of less than €967k, you will need to make a few more monthly mortgage payments and/or a lump sum overpayment to get the LTV below 60%. But that is not a reason to delay the switch – i.e., you can start the switch immediately.

Bear in mind that interest rates could rise between now and the time that you complete any switch, so if you are thinking of switching you should apply simultaneously to two or more lenders for approval in principle (AIP).
 
Thank you @Paul F for the comprehensive response - very helpful.

I would have progressed with Avant 7-year fixed rate at 2.25% but with the rate increasing to 2.95% I think I am now better off completing with KBC. In hindsight I should have simultaneously applied to Haven, as their 7 years rate of 2.65% and 5K cash back would be superior now to KBC/Avant. However I fear rates will increase again soon, timing is of the essence and better close now with KBC.

I think I will progress with the KBC 5-year fixed at 2.4% rather than the 10 year at 2.85%. For context I will potentially have a lump sum in a few years that I would like to put against the mortgage and 10 years on KBC is restrictive and does not provide a lot of flexibility on overpayments. My understanding is I can only pay off 10% of the outstanding balance vs the 10% annually offered with Avant.

I know this goes against @Brendan Burgess advice as I will be stuck with BOI rates after the 5 years, however I hope to switch at that point to another lender and hopefully will have a lump sum to pay off some of the outstanding balance. Does this make sense or is my thinking too short term given we know rates will most likely be increasing over next few years?

I am going to call my existing lender PTSB to see if they will match the KBC terms but last time I spoke with them, they made no attempt to retain me and said I would be moving to their variable rate next year.

A few considerations:
  1. I have AIP with Avant, and they have my valuation report and all my information - I would be interested if they make any exceptions on 15th August due to backlog on their side or whether they will stick to only holding rates if letter of offer dated 15th August. I am going to call them to see if there will be any exceptions.
  2. Does anyone know how long it would take to complete application with Haven if I was starting this week?
 
JamieO said:
I think I will progress with the KBC 5-year fixed at 2.4% rather than the 10 year at 2.85%. For context I will potentially have a lump sum in a few years that I would like to put against the mortgage and 10 years on KBC is restrictive and does not provide a lot of flexibility on overpayments. My understanding is I can only pay off 10% of the outstanding balance vs the 10% annually offered with Avant.
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Your understanding of KBC's and Avant's overpayment limits is correct.

Bear in mind that overpaying your mortgage/reducing your balance may not be the best use of your money. Your priorities should usually be:
  • Paying off expensive debt (credit cards, personal loans, car loans, etc.)
  • Building up an emergency fund in a savings/current account (3 to 6 months' living expenses)
  • Saving money for any expenses you will have over the next few years (kids; childcare; adult children going to college, etc.)
  • Maxing out your pension contributions (very large tax relief is given)
  • Overpaying your mortgage
in approximately that order. Consider posting a thread about your situation in the Money Makeover forum.

If you end up doing something with the money other than paying a lump sum off your balance, the lack of overpayment flexibility won't matter. (Note that Bank of Ireland may withdraw the 10% overpayment feature when they take over your mortgage from KBC.)

Note also that it is possible for future break fees to be low or zero in certain circumstances. For example, if you fix for 10 years and the 4-year swap rate in six years' time is higher than about 1.8% (which is the 10-year swap rate today), you will not face a break fee. But those rates are almost impossible to predict.

JamieO said:
I know this goes against @Brendan Burgess advice as I will be stuck with BOI rates after the 5 years, however I hope to switch at that point to another lender and hopefully will have a lump sum to pay off some of the outstanding balance. Does this make sense or is my thinking too short term given we know rates will most likely be increasing over next few years?
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There are many reasons why you may not be able to switch in 5 years' time – basically, any major deterioration in your financial position or some of the reasons in this post. Nobody knows where rates will be in 5 years.

There is no single right answer when deciding how long to fix for but bear in mind the above points.

JamieO said:
Does anyone know how long it would take to complete application with Haven if I was starting this week?
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I'd say at least 3 months but that is just an educated guess.
 
very useful info @Paul F - thank you for your response and I agree there is no right answer.

I have thought about the opportunity cost of paying off mortgage balance and I will post into the Money Makeover forum. I am going to pay off 5% of balance now as well before I fix and the main reason is I am not overly comfortable with the large balance outstanding - given the ratio of mortgage to salary. Maxing out pension contributions is something I will prioritise going forward as my AVC is only 3% currently. I do have emergency fund built up so I am factoring that in.

My sense is still to proceed with KBC at the 5 year fixed at 2.4% vs the 10 year at 2.85% and take a risk that I will be able to get a decent switcher rate in 5 years time. Unless @Brendan Burgess thinks I am bonkers, I think I will try and close it out asap.

The lower repayment over the next 5 years will mean I can invest more of my salary in pension contributions going forward. Very frustrated that I missed the boat with the 7-year Avant as that felt like the best choice given the 2.25% rate and the ability to overpay 10% per annum - fair play to those that fixed earlier this year at low rates and no doubt the advise on this forum has been a blessing for people.
 
Just wanted to ask guys how do you instigate the break and refix process. Is there an online form or particular contact to be used for that process?
 
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