Switch from UB to KBC for 2 years

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DavDor

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I'm looking at options for switching mortgage from Ulster Bank.

Mortgage Balance: €262K
Home Value: €373K
LTV: 70%
Current rate: 2.6% (fixed, ~1 year remaining, haven't inquired about a break fee yet)

We can overpay a couple of grand to get into the <70% LTV bracket, so let's assume a balance of €260K

Options are:
Avant - 2.1% for 3/4/5/7 years
KBS - 2.3% for 2/3 years with €3000 cashback

I can see a tendency here to fix with Avant for as long as possible to avoid rate hikes when UB and KBC leave Ireland. However, KBC's offer seems tempting in the short term.

BankPrincipalInterest Rate SavingCashback1st Year Savings (before break fee and legal fees)
Avant260,0002.6-2.1 = 0.51300
KBC260,0002.6-2.3 = 0.330003780

In year 1, we'd lose a bit of money on fees if we went with Avant, but we'd save money from year 2. We'd save money from the start if we went to KBC.

The risk, of course, is that Avant might hike their rates over the next 2 years. But I'm wondering whether any hike would be significant enough to cancel out the immediate gain of going to KBC first, then to Avant (or whoever's most competitive) at the end of the 2 years.

Since no one can answer that question -- am I missing any other factors that might change the calculation?
 
You're right no one knows for certain what rates will be. There are yield curves, futures and swap rates that can point to current expectations about rates in the future but even if they're right there's no guarantee current lenders will follow them.

Apart from the possibility of an increase in interest rates there's also the cost of switching for a second time to consider.

It might help to look at the question a different way. Given whats on offer now (rates and cashback), how would future rates have to move to cancel out the benefit of the cashback.

Switch to KBC and at the end of year 2 you will have paid about €1025 more in interest then you would of you'd gone straight to Avant. In other words you will still be net up about €1975 after factoring in the cashback.

Ignoring the cost of switching, the Avant 5 year rate would have to rise by only 0.17% for remaining cashback balance to be effectively eroded by the higher interest payments.

Assuming a cost of switching of of say €1,000 and the rate would only have to increase by 0.08% to wipe out the remaining net balance.

In other words any rate increase would likely wipe out the benefits of the cashback.
 
skrooge said:
there's also the cost of switching for a second time to consider.
Click to expand...

This really is important. I would expect that cash backs will be gone in three years.

So if you are stuck with Bank of Ireland on a very high rate, you will have to pay €1,500 up front to switch to Avant.

Then you will say "Is it worth the hassle? I could switch to Avant then Bank of Ireland might reduce the rates. Ah, is that the time? I'll get back to it later."

A few years later, you realise that you have paid Bank of Ireland a multiple of what you got in cash back from KBC.

Avoid expensive lenders - and KBC is, in effect, an expensive lender as they will be taken over by BoI.

Go for the lender which looks most likely to be cheapest in the long run and that is Avant.

Brendan
 
Thanks, I'd completely forgotten to consider the cost of the second switch. It definitely changes the calculation.

Also, the news that Avant will now allow overpayment makes them a much more attractive option.
 
We're in an older house which won't meet the BER requirement for the Green rate, unfortunately.
 
Didn't know about that one, thanks. It seems a good middle ground, although I suppose the gamble on rate changes (due to lack of competition) becomes riskier over a 4-year term.

Right now, I'm leaning towards a 5/7 year fix with Avant (if they're going to allow reasonable overpayments). If for nothing more than the lack of two switches worth of paperwork. Will take a bit of time to mull it over (and shave a bit more off the principal to get into the <70% LTV bracket).

Thanks all.
 
Your OP suggested a KBC rate for 2/3 years.

You’ll pay fees to switch to Avant @2.1%. It’s free to switch to AIB @2.2% (2k cash back).
By going with Avant you’ll save €260 per year max (almost certainly less). How many years to make back your switch cost?
Currently, overpayments with AIB are free and unlimited. Currently, you can overpay 1% of the balance with Avant. They MAY allow you to overpay 10% in the future.
You want security of rate and are looking for an overpayment facility. Would you not pay down to 60% LTV and switch to Avant @1.95% for 7 years?
 
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