Cutting the monthly mortgage bill is easy — and profitable

Cutting the monthly mortgage bill is easy — and profitable

Time spent reducing your debts, bills and tax will be the most profitable time you spend this year, writes John Hearne.

A credit union survey suggests it takes an average of eight-and-a-half weeks to get back to normal after the annual overspend.

If you’re carrying a large credit card balance into the new year, take a look at the range of providers that offer low-interest rates on balance transfers.

Permanent TSB’s ICE credit card will give you 0% on balance transfers for the first six months, as will Avantcard’s Mastercard and KBC’s Cash Reward card.

Bank of Ireland goes one better with its Classic card, which offers seven months of zero interest.

If you think it’s going to take a little longer to clear the overhang, Ulster Bank and AIB offer 3.9% and 3.83%, respectively, on balance transfers for the full 12. Be warned, however. Credit card rates go as high as 22.9% the second the promotional period is over, and if you miss a payment date, the penalties can be very ugly.

For credit card switchers, the key thing is to make sure to close your old account. When you do, you will be hit straight away with stamp duty of €30. In order to avoid being charged again on your new account, get a letter of closure from your old issuer which you then send to your new credit card company.

Credit card switching won’t work for everyone. If the sum owed is too large, it will make more sense to get a short-term loan from the bank or credit union. Check out the financial comparison section of the Competition and Consumer Protection Commissioner site, cpcc.ie.

Whatever you do, do not try to bridge the gap with a loan from a moneylender. Just before Christmas, Provident, one of the biggest licensed moneylending companies, did a festive mailshot offering loans of between €100 and €600, to be repaid over either six or twelve months, at an APR of 187.2%.

For those struggling with debt, the first call should be to Mabs, the money advice and budgeting service. Once there’s a plan in place for dealing with general debt, the next thing to consider is the mortgage. If you’ve got a tracker, great. Do nothing.

Tracker mortgages are perhaps the only positive legacy of boom-era banking. The ongoing tracker mortgage scandal, in which a number of banks unethically forced customers off trackers, is ample evidence of the fact that offering them in the first place has been a source of deep regret for bankers.

If, however, you are on a variable rate mortgage — and even if you are on a fixed rate contract — chances are there are thousands to be saved by switching provider.

Recent figures illustrate this point neatly. Suppose you’ve got a 30-year mortgage worth €250,000, which carries a rate of 4.2%. Your monthly payments will be €1,222, while over the life of the mortgage you will pay back a total interest bill of €190,115. That’s nearly €200,000 in interest to the bank. To look at it another way, on these terms, you will pay back the principal you borrowed, along with 76% of that figure over the life of the loan.

Switching mortgage provider and securing a new rate of 2.75% will reduce your monthly repayments to €1,020, while the total interest bill over the life of the mortgage will fall to €117,417, a saving of €72,698.

“If you are a fixed or variable rate mortgage customer you are definitely of interest to other mortgage lenders,” says Joey Sheahan of MyMortgages.ie. “This means you could potentially save thousands of euro over the remaining term of your mortgage by switching mortgage provider. Due to the current low cost of funds available for banks, in many cases, there is no early breakage fee for exiting a fixed rate. You just have to call your bank to check this.”

In the last three months, there have been 10 rate adjustments to the mortgage market as competition returns in earnest. Meanwhile, lenders are offering a range of cash incentives to new mortgage customers.

Bank of Ireland will hand back 2% of the value of the mortgage after drawdown. In addition, if customers have a current account with the bank when they apply for a new mortgage, they can qualify for a further 1% cashback after five years.

Permanent TSB and EBS are also offering 2% cashback to all new mortgage customers, while Permanent TSB recently added a further incentive: It will pay 2% of the monthly mortgage repayment into “a permitted PTSB account” at the start of each month.

KBC is offering €3,000 towards legal and other fees. There are also preferential rates for current account holders, together with a 50% reduction in the cost of home insurance for the first year.

AIB will give you €2,000 within two months, while Mortgage Store and Ulster Bank will give you €1,500 towards your expenses. Don’t get carried away by these offers. They will allow you to take care of the legal fees that are inevitable when you change mortgage provider, but when it comes to assessing the financial benefits of switching, the impact of introductory offers is negligible. Look instead at the rates and the payback timeline.

The other point to make here is that switching is easier than you think. A Central Bank survey released earlier this year found that 44% of people hadn’t switched because they thought it would be too complex. However, of those that did take the plunge, a huge percentage said that it was a positive experience.

If you switch mortgage, switching energy and telecoms providers will be a walk in the park. Mark Whelan at independent switching site bonkers.ie says that energy switchers save €337 per year on average, while broadband, TV, and phone switchers can save up to €300. Go to one of the switching sites, like bonkers.ie or switcher.ie, where the whole process can be effected in minutes.

No one likes thinking about tax, but reviewing your tax affairs is almost always worthwhile. If you’re a PAYE worker, there are a range of credits available that don’t get factored into your salary automatically.

In fact, Taxback, the tax repayment company, says that the average tax refund it secures for PAYE workers is €995. You don’t, however, need to hire anyone to get what you’re legally entitled to. A few receipts and a little form filling is usually all that’s required.

Taxback has estimated that taxpayers are forgoing as much as €150m in unclaimed medical reliefs, while estimates would also suggest that tax breaks on tuition fees are being left unclaimed by thousands of taxpayers. PAYE workers can claim both through Revenue’s online portal, while self-employed taxpayers file the claim in end-of-year returns.

You don’t have to submit any receipts, but you do have to hold on to them in case you have to prove your claim. That’s four categories. General debt, mortgage debt, household bills, and tax. Time spent reducing these will be the most profitable time you spend this year.

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