Beware of banks bearing gifts. - Charlie Weston
If you are taking out a mortgage to buy your first home, or if you are an existing homeowner thinking of switching your mortgage, then you need to look beyond introductory rates and gimmicks.
Bank of Ireland is doing big business at the moment with a cash-back offer.
The deal is proving attractive to both new buyers and the small numbers of trader-uppers and switchers in the market.
The bank has upped the ante in the battle to get mortgage business by doubling the cash it will give to first-time buyers and movers who take out a home loan with it. The bank is offering 2pc of the value of the mortgage, with no strings attached. This amounts to €8,000 for a €400,000 mortgage, with the offer also applying to buy-to-let mortgages. The deal is limited to all mortgages drawn down before the end of this year.
Cash in the hand is proving very attractive for those taking out a mortgage, especially those just starting out in the home-owning game. The upfront cash comes in handy for buying furniture, flooring and beds.
But is this deal the best you can do?
The answer is that it may not be, as Bank of Ireland is not the cheapest mortgage provider in the market.
Run by Richie Boucher, Bank of Ireland had been offering a cash-back offer worth 1pc of the mortgage drawn down.
The bank found that the allure of immediate funds being paid to those taking out a mortgage proved popular in attracting new business for the bank — and it decided to double the offer.
The bank says the offer was available to first-time buyers, movers, buy-to-let, and switchers whether they choose fixed or variable rates or a combination of both.
The thing is that both AIB and EBS, which are part of the same group, are offering lower mortgage rates.
Bank of Ireland has some competitive fixed rates, but its variable rate at 4.5pc is among the highest in the market. And when you come out of a fixed rate you revert to a variable rate.
EBS and AIB both offer mortgages at a variable rate of 3.9pc, falling to as low as 3.65pc from October.
This means you would be well served to look at the actual cost of the mortgage over the lifetime of the loan, according to mortgage broker Karl Deeter of Irish Mortgage Brokers.
The fact that AIB and EBS are offering lower rates means that after just eight to nine years you would be better off with these lenders than opting to place your business with Bank of Ireland.
Remember that a mortgage can have a life of 35 years.
Banks are also offering a range of different incentives to get new mortgage business.
Ulster Bank will pay €1,500 towards the legal fees of all new customers taking out a mortgage.
KBC offers a 0.2pc discount on the mortgage rate if new home-loan customers move their current account to it, and 50pc off the cost of home insurance for the first year.
Permanent TSB offers €1,000 towards legal fees and 10-month loan approval.
Mortgage customers would also be wise to be wary of introductory interest rates.
Discount rates are attractive and can lure in people because the monthly repayments are initially low. Make sure to check what the interest rate will be at the end of the introductory period and make sure it is good value.
Well worth considering is the term of the home loan. A longer one means temptingly lower repayments, but also means paying more in interest. This means that ultimately it will cost you more over the lifetime of the loan.
Worth considering is where you and your family will be in 10 or 20 years' time.
Don't over-commit to repayments you can't manage (the bank's stress tests should make this impossible anyway), but consider early years' pain for long-term gain.
And if you are an existing customer who feels they are being charged too high an interest rate, then put it up to your lender by telling them you are going to switch.
Sometimes the mere threat of a good customer leaving the bank for another lender is enough to force it to lower your rate. But you will need to be in positive equity, have a payment history and have sufficient income to be considered as a switcher by a different lender.
The more equity you have in your home, the better the rate you can get if you do switch.
If you are coming to the end of a fixed rate, or coming off an interest-only deal, then don't let your mortgage rate revert to the bank's variable rate. That is often a sure way to ensure you end up being over-charged.
Treat it like you are starting out again and check out the market for the best rates, through comparison sites like Bonkers.ie.
After all, banks do not reward loyalty, as we know to our cost.