I switched from BoI to KBC

[shoegal]

Just read their "Important Information" where it says "50% Off only applies in the first year" so it must apply to the Home Insurance offer as Brendan said. Thank you.

 

[Fran]

hi We got approval in principle from KBC for 3.55% if we moved current account similar to above situation. BOI just called today offering a reduction from 4.25% to 3.9% rate with immediate effect which equates to €90 saving a month. If we went with the 3.55% offer with KBC we would save an additional €44 a month but we would have all the costs (roughly €1k) and hassle of moving and their rates may go up at any time also. I think I know the answer but am I better sticking with BOI at this stage and perhaps moving current account to another provider with free fees?

 

[Carmel]

Hi Fran
I started this post when we were thinking of switching to KBC. We went ahead with it and recently paid our first mortgage repayment to KBC, which was 100e lower than our monthly payment to Bank of Ireland. With regards to your query above, we didn't have costs anywhere near €1000. KBC offered us €1000 to cover our legal fees and we got half price home insurance with them. Our solicitor cost less than 1100e and we had to pay 127e for a valuation. So, it was nearly break even by the time we got the 1K back from KBC and took up their offer of home insurance. You do need a bit of cash flow though as the 1000K from KBC is provided within 30 days of the mortgage draw-down.

I know that there is a a bit of hassle doing the paperwork but when you add up the savings they are very good. I work in the public sector and haven't seen a salary increase for quite a while, so I consider 100e extra a month in my account quite a good payback for a bit of paperwork

 

[Sarenco]

Hi Fran
I started this post when we were thinking of switching to KBC. We went ahead with it and recently paid our first mortgage repayment to KBC, which was 100e lower than our monthly payment to Bank of Ireland. With regards to your query above, we didn't have costs anywhere near €1000. KBC offered us €1000 to cover our legal fees and we got half price home insurance with them. Our solicitor cost less than 1100e and we had to pay 127e for a valuation. So, it was nearly break even by the time we got the 1K back from KBC and took up their offer of home insurance. You do need a bit of cash flow though as the 1000K from KBC is provided within 30 days of the mortgage draw-down.

I know that there is a a bit of hassle doing the paperwork but when you add up the savings they are very good. I work in the public sector and haven't seen a salary increase for quite a while, so I consider 100e extra a month in my account quite a good payback for a bit of paperwork

Just to put Carmel's savings into context, €100 per month deposited in a simple deposit account with an interest rate of just 1.5% APR will result in a lump sum of €36,761.86 after 25 years. That's a pretty decent return for a couple hours of hassle.

There's no doubt about it - borrowers should refinance to the lowest possible rate as often as possible - over time the savings are really impressive.

 

[Brendan Burgess]

€100 per month deposited in a simple deposit account with an interest rate of just 1.5% APR will result in a lump sum of €36,761.86 after 25 years

It's well worth switching for the saving, but that is not the correct calculation.

1) The balance will be reducing over the next 25 years, so Carmel will not be saving €100 a month for 25 years.
2) Why would you put it on deposit at 1.5% when you could be using it to pay down your mortgage at 3.5%?

It is always better to assess these switching decisions on an annual basis. This year, Carmel will save around €1,200, so it's well worth doing.

Brendan

 

[Sarenco]

Brendan

I was simply making the point that a small amount saved over a prolonged period of time compounds into a significant figure.

The calculation is correct: start with €100 and add €100 per month over 25 years at a compound rate of 1.5% and you will arrive at the lump sum stated above.

I didn't say anything about the source of the €100 or the best investment option for the €100.

You can think of returns over whatever period you like - I prefer to think of returns over 25 year periods.

Why is it always better to assess these switching decisions on annual basis? Why not on a semi-annual basis or once every five years - what's special about 12 months?

 

[Brendan Burgess]

You were clearly commenting on Carmel's situation, so anyone reading it would think that you were calculating the benefit to Carmel of switching.

There are many reasons to assess these on an annual basis

• It prevents the type of error that you have mad, which is a very common error.
• Most people do not understand the value of money. Had your calculation been correct, what would the €36k represent? It would actually be 2040 euros which would need to be discounted back to 2015 euros to mean anything.
  
• People's circumstances change - they pay off their loan early, they remortgage.
  
• And Carmel can revisit the decision annually (or less often.) For example, she might well switch back to BoI in a few months if they introduce a rate for new business.

 

[Sarenco]

You were clearly commenting on Carmel's situation, so anyone reading it would think that you were calculating the benefit to Carmel of switching.

Sorry Brendan - you may have jumped to that conclusion but that was neither stated nor implied in my post. On the contrary, I was clearly putting a seemingly modest monthly saving into a long term context.

Carmel did not tell us the outstanding principal amount or term of her mortgage so how could anybody have thought that I was calculating the interest saving resulting from the refinancing (assuming the interest rate remains constant throughout the term and the loan is amortised in line with the original schedule)?

I also disagree with you that refinancing decisions should only be assessed on an annual basis (or any other regular interval). It seems obvious to me that borrowers should refinance their mortgages as soon as it makes financial sense to do so. In Carmel's case the refinancing appears to have been cost free (when the free house insurance is taken into account) so Carmel should refinance in the morning if a better deal comes along - if there's no penalty why wait?

 

[Brendan Burgess]

We went ahead with it and recently paid our first mortgage repayment to KBC, which was 100e lower than our monthly payment to Bank of Ireland.

Just to put Carmel's savings into context, €100 per month deposited in a simple deposit account with an interest rate of just 1.5% APR will result in a lump sum of €36,761.86 after 25 years. That's a pretty decent return for a couple hours of hassle.

Sorry Brendan - you may have jumped to that conclusion but that was neither stated nor implied in my post. On the contrary, I was clearly putting a seemingly modest monthly saving into a long term context.

Carmel said she was saving €100 a month.
You start your post by saying "Just to put Carmel's savings into context"

I must apologise Sarenco, it was totally unwarranted of me to jump to a conclusion that you were talking about Carmel or her savings. You just picked a round sum which coincidentally happened to be the amount Carmel is saving and some computer glitch typed "Just to put Carmel's savings into context" into your post.

Brendan

p.s. Please re-read the Posting Guidelines, in particular no 19.

 

[Sarenco]

You start your post by saying "Just to put Carmel's savings into context"

Exactly - I was simply putting Carmel's monthly saving of €100 into [some form of] context by using a simple hypothetical interest rate (as you no doubt know, 1.5% is slightly above the average, risk-free, real rate of return on gilts over the last century) and interest period. I wasn't trying to suggest or imply that the resulting figure reflected the interest that would be saved by Carmel from the refinancing but it would have been very odd to pick a figure other than €100 for the purposes of the example.

I didn't think anything in my post was particularly off topic but please feel free to delete same if you disagree.