Remortgage

hi guys,

Just a quick question on remortgaging. Was having a few beers over the weekend when one of my budies said he was going to remortgage his home.

With that one of my other friends said that unless you get with a lender known for always being low on rates you are never gonna make big savings on remortgaging. He went on to give an simple example as follows:

Old mortgage

I think you need to put a bit more info down there apollo!

I know but I pressed something that posted it before I was finished and now when I try to= edit it, it isnt coming through. Actually I'll finish it now.

This guy I know said that there isn't much savings to be made unless you get in with the correct lender from the beginning. He gave an example as follows:

Old mortgage 150
New mortgage 100
saving/month €50
switcing fees 900 for example
Payback time 18 months, 18 x 50 = €900

He then said that during the first 18 months of this new mortgage it itself would probably be undercut meaning to get the best deal on the market you would probably have to remortgage and go through the above process again. And even if you do that then 18 months after point you may have to do the same thing again etc..The result of this he said was that you would never really be able to enjoy the potential savings of the new mortgage as by the time they start to kick in, 12/18 months after you switch for example, the mortgage would have been undercut.

If you then choose to stay with the new mortgage you will indeed save money but only when you compare it to what you were paying 18 months ago.

He then said that the best you can do is just get on board with a lender right from the start who has a record of always being one of the top 3 cheapest lenders on the market at all times throught each year - maybe third cheapest for a few months per anum, second for another few per anum etc..

I'm not sure myself if there are stats around that give a yearly/10 breakdown of lenders who are consistantly cheap over given periods.

Is he right? The real reason I wanna know, as well as for my own personal interest, is because he was such an annoying bloody know all and I wanna be able to correct him the next time I see him.

I know its sad but I find anytime a discussion comes up about property, pensions or general financial topics there is always one git who thinks he knows everything under the sun about such things.

But to be honest I still can't see where his stance on this is flawed. Any comments highly welcome.


Thanks very much in advance people

There are a number of lenders offering fees free switchers or a contribution towards the legal costs AND good rates - Ulster Bank, NIB, EBS, IIB and Bank of Scotland so the savings should be immediate.

Sarah

www.rea.ie

I don't understand his logic if one one hand he says switching gives you no gain, but then on the other hand he says to go with one lender, then another for a couple of months??

Anyway, Sarah is right, there are a lot of lenders either paying legal fees or part of the full cost of switching. Next time he annoys you, just say OBVIOUSLY you'd go with one of these lenders.

It's a moot point really to suggest that a better deal might exist 18months down the road. Most people switch to avail of savings in the here and now. OBVIOUSLY they do their sums and if they don't add up...they don't switch!!

liteweight said:

I don't understand his logic if one one hand he says switching gives you no gain, but then on the other hand he says to go with one lender, then another for a couple of months??

Anyway, Sarah is right, there are a lot of lenders either paying legal fees or part of the full cost of switching. Next time he annoys you, just say OBVIOUSLY you'd go with one of these lenders.

It's a moot point really to suggest that a better deal might exist 18months down the road. Most people switch to avail of savings in the here and now. OBVIOUSLY they do their sums and if they don't add up...they don't switch!!

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Cheers guys.

Lightweight I take your point. The only way to make savings in the here and now is to do a free switcher. When he said to remortgage with 1 lender but then 18 months down the road you would have to switch he meant that it would take that long to recoup the legal fees, based on the example above, during which time the new mortgage may well be undercut.

The idea he had is that to take a mortgage/remortgage with a lender who have a solid track record for having low rates. His rationale for this was yes even this mortgage maybe undercut from time to time, but if the lender providing it remains a low rate lender, as in the top three, then you can't really loose out too much as opposed to going with a lender who is all of sudden cheap now for example but hasn't been in the past.

Do ya see what I mean or have I confused you even more?

I think I see where this guy is coming from. He seems to basically saying that people shouldn't go with the cheapest lender out there at the time they are taking out a mortgage or remortgage.

Instead they should do a background check, how I don't know..through a broker perhaps, on how low the lender in question has been on rates in the past. If it has been in the top three on average then that lender should be considered.

If it hasn't been compititve in the past, again I'm not sure how you would obtain this info, then I think your friend or whatever he is to you apollo is really just saying that it is only a flash in the pan and the lender is quite likely to be undercut strongly again.

For eg. abc lender is now the cheapest on the market at x% but in the past it has been, on average over the last few years, the 6th cheapest/most expensive whichever way you look at it then this deal should be ignored is what he is saying I believe.

But what if abc lender has turned a corner and stays highly competitive in the future? His approach would suggest that his anticipation of what future rates will be for a given lender is based on past rates, i.e. if it was dear in the past it will be dear in the future. You just never know how lender rates will play out in the future!

Tracker mortgages have, in the main, negated the need to look at a lender's history when deciding who to mortgage/remortgage with given that the margin over the ECB base rate is fixed for the life of the loan.

Sarah

www.rea.ie

Apollo said:

Cheers guys.

Lightweight I take your point. The only way to make savings in the here and now is to do a free switcher. When he said to remortgage with 1 lender but then 18 months down the road you would have to switch he meant that it would take that long to recoup the legal fees, based on the example above, during which time the new mortgage may well be undercut.

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Yep I get that, but it doesn't matter any more because you choose a lender who'll pay some, or all of the costs, thereby making savings from day one.

The idea he had is that to take a mortgage/remortgage with a lender who have a solid track record for having low rates.

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Always a good idea!

His rationale for this was yes even this mortgage maybe undercut from time to time, but if the lender providing it remains a low rate lender, as in the top three, then you can't really loose out too much

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You can lose a lot. Even quarter, or half a percent over the lifetime of a mortgage is a lot of money!!

as opposed to going with a lender who is all of sudden cheap now for example but hasn't been in the past.

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If the lender is cheap now, why bother about the past? Unless you're afraid he'll reel you in and then go up dramatically? Not likely really.

Good point Sarah.

I reckon thats the best answer you can give to that guy Apollo. Simple as it is, it doesn't matter what the past rates have been like for any lender when it comes to trackers.

Now you can stick it to him!

Thanks for all the responses guys. I appreciate it. The tracker option certainly seems to be the answer to any apprehensions a person has about rates going up. I never thought of that unfortunately.


Thanks again.