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As mortgages and finance in general such as car finance and credit card debit are our biggest expenditure, it makes sense that these are areas we should look at to save money. Many people take out a 20 or 30 year mortgage and never look at the interest rate they are paying or shop around for a better deal during that time. Banks can offer better deals to new customers while long term existing customers are on higher rates so it is always a good exercise to contact your lender and find out what interest rate you are paying and what margin you are paying. The margin is the percentage over and above the ECB (Central European bank) interest rate. It is very important that your mortgage has an agreed margin so that when rates go up or down, the margin should stay the same so the deal you have made with the bank stays the same.
Banks also give better interest rates where you have a lower loan to value (the percentage of your loan in relation to the value of your house). This is another good reason to review your mortgage after a number of years as when you bought your house first, the loan to value would be higher than it is now.
Finishing your Mortgage faster
As your mortgage gets older, you may find you have additional money. You could use this additional money to reduce the number of years left on your existing mortgage by increasing the payments. A €100k mortgage @ 5.1% interest over 30 years will be charged interest of €95,462 over the 30 years while the same mortgage over a 15 year time frame will have €43,281 interest, a saving of €52,180.
Refinancing
Refinancing has become a common term nowadays but is often misunderstood. Some times refinancing a mortgage makes sound financial sense. You may refinance simply to avail of a cheaper interest rate reducing your monthly outgoings and improving your overall cash flow.
It can also be a useful method to alleviate debts where you have many short term high interest loans with high repayments which are creating financial problems due to the high repayments. Refinancing can reduce repayments and improve your cash flow. It is important to understand that spreading short term debt over a longer term such as with a 20 or 30 year mortgage does not make sense as a short term solution to an underlying over spending problem unless any overspending issues are tackled at the same time. In these cases a financial plan is extremely important to assess the present situation and to keep you on track in the future.
Refinancing to reduce monthly repayments
Usually you will incur some fees by refinancing but if you intend to remain in the same property for some time, refinancing to a lower rate mortgage will save you more than you may have to pay in fee over time. Some lenders will pay the fees for you. When you get a written offer from the new lending institution, show this to you existing lender as in most cases they will usually match the interest rate and save you having to change lender.
There are many different types of mortgages available on the Irish market today and it is always worth while talking to an independent mortgage broker.
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