If you are looking to remortgage your property in Ireland, you have most likely come across an overwhelming choice of products. Whether your goal is to find a better mortgage deal as your current arrangement is nearing its end or if you are looking to release capital from your home to reinvest in another property or for another purpose entirely, there is certainly no shortage of products out there.
However, identifying the best option for your circumstances can feel like a mammoth task. So, if you are wondering if remortgaging is right for you, we’ve put together this definitive guide to help anyone who is considering remortgaging make a well-informed decision and to answer any questions you might have about the process.
What is Remortgaging?
Before we get into the details, let’s first ensure we all understand what it means to remortgage a property. A property owner can opt to remortgage any property they own. This can be done if they own the property outright or if it has an existing mortgage with another lender. Remortgaging means switching away from your current deal to a more favourable one. Again, a homeowner can do this through their existing lender or another provider.
Essentially you are using the new remortgage to pay off the existing mortgage using the same property as security. Remortgaging will mean changing the interest rate paid, possibly changing the mortgage term and may change the terms and conditions of your mortgage depending on your options.
Terms to Know
There are a few terms to be aware of when looking at remortgaging, that you may come across in paperwork or other documentation. Here’s a handy guide to some of the most common ones here:
- Administration fee – Some lenders will reserve an amount of the valuation charge to offset their own costs.
- Arrangement fee – The lender’s fee may be charged separately or added to the loan. It is essentially the cost of setting up the loan.
- ECB rate – This is the benchmark on which interest rates for loans and mortgages are based. Ireland align their base rate with the ECB Interest Rates | Central Bank of Ireland.
- Early repayment charge (or early redemption penalty) – is charged when a property owner settles a loan that was discounted when they took out the product.
- Equity release remortgage – A mortgage product that provides a regular monthly income or a lump sum cash payment.
- Fixed-rate mortgage – A fixed-rate mortgage features an interest rate that doesn’t change during the life of the loan.
- Flexible mortgage – A flexible mortgage is a loan that lets homeowners vary their repayments in line with their circumstances. Typically, you will have the option to take a payment holiday to underpay or to overpay without penalty.
- Standard variable rate mortgage (SVR) is the rate every lender charges when a borrower’s fixed deal ends. It can rise and fall with the ECB rate. Lenders usually charge about two points higher than the current rate, but this can vary.
Why should I remortgage?
The main reason homeowners remortgage is to switch to a better deal and potentially save a decent amount of money in the process. Others might opt to remortgage because they want to release the equity in their home to invest in another property or to consolidate other debts by releasing cash from the property.
There are several good reasons to remortgage your property in 2022, including:
- The property’s loan to value (LTV) may have changed. House prices across Ireland rose by almost 8% in 2021, so if you’ve been in your property for several years, there’s an excellent chance it’s worth more now than when the original LTV rate was assessed when you purchased the property. As a result, you may well be eligible for a better rate because your risk factor has reduced with your property value increase.
- As your family grows, you may want your property to grow with you. This might mean remodelling and extending your property to accommodate your family. However, it could also mean extending your mortgage term and spreading the costs into the future to give you more cash now.
- You want to add to your investment portfolio by remortgaging your residential, buy-to-let to release the equity built up in your existing mortgage to put a deposit down on another buy-to-let property or a second home.
- Your circumstances might have changed since you initially took out a mortgage. For example, if you’ve been promoted or had a salary increase, you may be eligible for a better mortgage rate in 2022 as you are considered a better risk to lenders than when you first took out the mortgage.
Is now a good time to remortgage?
Timing is an important factor when considering remortgaging for any reason. Also, at the time of writing, we have seen increasing interest rates across the industry, meaning there are fewer cheap mortgage deals available.
The best time to remortgage is when your current deal is coming to an end to avoid early exit fees, which could cost you more than you save in the long term. Also, when you let your initial deal end with your mortgage provider, you will automatically be transferred over to their standard variable rate. SVRs in Ireland are some of the highest around, at about 4.1%, so if you are on one of these, it’s definitely worth remortgaging to avoid overpaying.
Before deciding to remortgage, we strongly recommend reviewing your current mortgage terms and conditions concerning early exit penalties as well as charges and fees you have agreed to pay in the event you decide to switch.
Is it difficult to remortgage in Ireland in 2022?
Fortunately, applying for a remortgage is very similar to taking out a mortgage for the first time. You can apply online or through a broker. As with any mortgage product, you will need a solicitor to review your deeds and assist with the new mortgage arrangement. You’ll also need an estate agent to value your property, as it will have increased since the original mortgage rate was set. Lenders keen to win your business may cover your legal/solicitors fees when you switch.
Remortgaging is no more difficult than taking out an initial mortgage on the property. However, there are a few things worth considering before going ahead with a mortgage as they could improve your ability to obtain a more favourable rate when you do go ahead:
- Plan ahead: you can start shopping for remortgage offers 3-6 months before your current deal expires.
- Review your credit file and try to tidy anything up, close any old credit accounts, and pay down small debts.
- Try to cut down on unnecessary expenses to increase your disposable income as lenders will look at this favourably.
- Check with your existing provider if there are any exit fees.
Mortgage Rules in Ireland
To ensure financial stability Central Bank of Ireland has put in place a series of measures in Ireland relating to mortgages. These rules are in place to ensure lenders issue mortgages sensibly and to stop buyers from borrowing more than they can afford. In summary, the mortgage rules in Ireland are as follows:
- Loan to Income Limit (LTI) means you can only borrow a maximum of 3.5 times your annual salary. If there are two applicants, this figure is combined.
- LTV limit. In Ireland, first-time buyers need to have a minimum deposit of 10% and subsequent buyers need to have a minimum deposit of 20%. Finally, buy-to-let buyers need to have a minimum deposit of 30%.
Ireland is not the only country rolling out these measures, which are shared across the EU, to help control and protect the country’s financial health.
Can you remortgage to buy another property in Ireland?
Yes. Releasing the equity in your home and purchasing another property, whether as a buy-to-let, second home or other investment, is a common reason people refinance their home through a remortgage.
Things to consider before remortgaging
Because there are so many remortgaging products available today, it’s really important to find a product that best suits your circumstances. It’s a good idea to be aware of your specific needs before jumping into a new deal, as selecting the wrong one may cost you more in the long run. Think about the following before committing to a remortgage agreement:
How much is my home worth?
This will significantly impact the type of deal you can expect to get by remortgaging. You can gauge the value of your home by looking at other recently sold properties in the same street/neighbourhood or through online calculators to arrive at a rough estimate before calling an estate agent for an official evaluation.
How much do I owe on my existing mortgage?
We advise asking your existing lender for a redemption quote before starting your search for a remortgage deal. You can then compare the loan balance with the value of your home to get an idea of the equity you currently own. Generally speaking, a remortgage is not worth it if the value is 25% or less. Keep in mind the more value you have, the greater your chances of getting a good mortgage deal.
How long do I plan on living in the property?
If you are planning on moving on to bigger and better things, remortgaging might not be worth the hassle. There are fees involved in remortgaging which means you may not immediately see the cash benefits of remortgaging if you are not in it for the longer term. If you move shortly after remortgaging, it could cost you more in the long run.
How much could I save?
This can be difficult to work out due to the number of factors that have to be taken into consideration. Firstly, we suggest looking at the interest rate you would be expected to pay according to the current market. You’ll also need to factor in if you are releasing any equity from your home to give you cash, perhaps towards an investment property. Then finally, you need to review the fees involved in remortgaging to understand if you will benefit. If this sounds a bit complex, don’t worry. There are some online calculators to help, or a mortgage broker can point you in the right direction.
The Pros and Cons of Remortgaging
We’ve already covered many of the benefits of remortgaging in this article. Remortgaging can potentially reduce your monthly mortgage payments and give you better financial control if you opt for a fixed deal for 2-5 years, knowing your repayments will remain the same. In addition, if your home has increased in value, you can lower the LTV on your property and possibly qualify for more favourable rates.
Remortgaging can also present the opportunity to release equity from your property to provide you with cash for home improvements, consolidate debts or even invest in another property by using the money released as another deposit.
Whilst there are lots of benefits to remortgaging, there are, of course, some drawbacks. If you decide to change lenders for your new mortgage, you must complete a full eligibility check. If your circumstances have changed, whether you have been promoted or have gone self-employed since you took out the original mortgage, you will have to provide two years of accounts or other proof of income. Additionally, the rest of your expenditure will come under scrutiny, and any unnecessary expenses highlighted could negatively affect your remortgage offer. There are also several costs to consider involved with remortgaging, such as arrangement fees, redemptions, and valuations, to name a few. So it’s important to look at the total mortgage cost over the term agreed rather than just the interest rate.
How to Remortgage
The process of actually remortgaging your property is relatively straightforward. To get started, you need to:
- Speak to your lender or independent mortgage advisor. They will be able to advise if remortgaging is the right solution for your circumstances.
- If remortgaging is suitable for you, your lender or broker can advise on the most appropriate products for your situation. For example, this might be a fixed-term deal or making a move from a repayment mortgage to an interest-only deal.
Once you have chosen a deal, remortgaging typically takes between 4-6 weeks, but there is no set time, and it will depend on several unique factors.
If you are switching to a new lender, the new mortgage provider will arrange a survey of your property to confirm its current market value. Some lenders may carry out a desktop evaluation without entering your property. They will also need to carry out all the eligibility checks you would expect with a new mortgage product.
As part of the approval process, you will also be expected to provide the following documentation:
- Photo ID, typically a driving licence or passport.
- Proof of address in the form of a recent utility bill or credit card statement.
- Three months’ worth of bank statements.
- Your last three wage slips.
- For the self-employed, you will need to provide 2-3 years of accounts. However, some lenders will accept less if this isn’t available.
- Proof of any bonuses or other income.
Some mortgage providers will insist on seeing the hard copies of your ID, and others may accept digital copies. When you start the application, we advise sending everything together to speed up the process.
With interest rates set to rise further in 2022, now could be a great time to consider locking in a new remortgage deal before the next price rise. Remortgaging your home at the right time can be an excellent way to reduce your mortgage repayments or release equity in your home to purchase another property or improve your existing one. If you are considering remortgaging your property in Ireland, we recommend speaking to a whole market broker who will be able to advise on the best deal for you to get the most out of your remortgage deal.