Top-up mortgage questions

Famous Blue Raincoat

I want to convert €55,000 in house refurbishment debt that I owe to two lenders into the much lower interest rate that a €55,000 mortgage gives me. Bank of Ireland, with whom I have my existing mortgage, has agreed in principle to give me this. My existing mortgage is currently on a five-year fixed term at 3.1%; as far as I recall BofI has told me this €55k would be at a rate of 2.9% fixed for five years.

Three things. First, the BofI mortgage man said that I would have two mortgages and that BofI does not simply add the €55k to the existing mortgage, which I had assumed was the situation. Why is this done, and what are its consequences for my finances? Do other lenders have a different way of doing this that is more beneficial to me?

Second, is 2.9% fixed for five years a good rate for that €55k, or should I look for better? What is the likelihood of getting a lower fixed rate on the existing main mortgage if I asked?

Third, will I need to engage a solicitor and his costs to complete this €55k request? Given that there's supposed to be some more competition nowadays, can BofI reduce/abolish administrative costs? (I asked how much they were and the advisor told me they're just bundled in with the overall cost - which wasn't very helpful). Any other advice in this process would be appreciated. Thanks.

phormium

I can't answer about the rates as I'm not up to date on the best offers available but to answer your question about it being a second mortgage. This is quite normal and the reason is linked in to your last question. If they do it as a top up second mortgage that runs alongside your original for same term or it could be shorter then there is no need for legal work. The bank has a limit to which it can do this top up, usually 65k and anything above that normally requires a full remortgage which is basically adding the two together and starting again, that incurs legal fees.

Having them separate does not in itself cost you more or less than adding them together, that is all down to the rate and the term. Depending on what rates are generally and your breakage fee for fixed rate it could pay you to switch to another lender and just take out a brand new mortgage for the total amount if you get it cheaper, it will incur legal fees but aren't there some offers out there to deal with this scenario I think?

So basically if you are in a position to consider switching then shop around for best offers for the total, check breakage fee and do your sums or post the figures back here and I'm sure someone will do the sums for you

Trish56

Your existing mortgage is on a 5 year fixed at 3.10% so you need to ask BOI what penalty if any there would be to redeem same. It is normal for an existing lender to offer a top up for home improvements which should have little or no fees attached to it. They must advise you of any fees.

On the rates you can get a 5 year fixed rate from KBC at 2.60% if you switch your mortgage to them. They will also give you 3k back in cash which will more than cover your legal fees. For a switch you will need to employ a Solicitor and complete a mortgage application and submit a recent payslip, P60 for 2018, 3 months current a/c statements, 2 months credit card statements and ID. Its a simple enough process once you have a good Solicitor.

You can check how much you can save monthly by using the mortgage calculator on the CCPC website.

Famous Blue Raincoat

OK. Thanks for both above. While I was agreed in principle last week, I found out today that Bank of Ireland now want to charge me 3.2% fixed for five years, despite telling me it would be 2.9% fixed for five years. In other words, they want to charge me a higher rate for this top-up than on my main mortgage.

The BofI mortgage guy said BofI put up their fixed rate today and as the offer letter had not gone out to me, 3.2% would be the rate they would charge. Naturally, after jumping through all their hoops expecting to get at least 2.9% as promised I just feel like they've wasted my time when I see KBC, Ulster, Permanent TSB and EBS have lower 5-year fixed rates (2.6%; 2.8%; 2.85%; 3% respectively - and some have cashback offers).

So we'll now have to get even more paperwork together - including updated salary certs and so forth - to get the top-up from another bank.

Two things. As suggested above, I asked the BofI mortgage guy how much it would cost to break our 5-year fixed main mortgage with BofI. I was told that, at today's price, it would cost c. €5,300. KBC offers €3,000 as a 'switching offer', so we'd still be down €2,300. However, we'd also be down, I think, €5,000 as we will get that as the last instalment of the BofI 'Cashback' in, I think, two years. So, it would probably make more sense not to shift from our 3.1% five-year fixed rate on our main mortgage until this five-year term is finished in 2022?

So, focusing on the top-up alone, which is the best bank to deal with of KBC or Ulster? I see KBC has a lower rate, but I've heard a fair bit of negative stuff about them. Any experiences of things to be wary of? Also, how long more would we be waiting for a decision? Is there one of these banks that is noticeably slower? Would I need to engage a solicitor and her/his fees just for the top-up? Thanks again.

Famous Blue Raincoat

Actually, a more basic question: can you get a mortgage top-up from KBC/Ulster/different financial institution if your main mortgage remains with Bank of Ireland? Somebody has just told me it's not possible.

Trish56

No you cannot keep your main mortgage with BOI and get the top up from another lender. Your mortgage is secured by the deeds of your house.

I would ask for the penalty to redeem your existing mortgage in writing. If they are putting up rates and the rate is higher than your existing rate I would question how the penalty is calculated.

Famous Blue Raincoat

Another question. I now, apparently (?), have to increase my mortgage protection cover by the €55,000 amount of the top-up mortgage. Does this mean I will have to get a new mortgage protection cover for the whole amount of the outstanding dual life mortgage protection cover which is based upon my existing age, or how does it work? Thanks.

Trish56

You only need to take out a new policy for 55k over the term of the top up. You should also review your existing policy and see if you can get similar cover for a cheaper premium as premiums have reduced over the last number of years. Or you can take out a policy to cover the total amount outstanding on the existing mortgage and top up.

You don't have to take out the policy with your lender you can shop around for best value.

Famous Blue Raincoat

Thanks. Lots of helpful info there.

First, is the mortgage protection premium calculated on the outstanding balance, or on the initial mortgage?

I checked the mortgage protection cost on both the additional top-up amount alone and a combined existing outstanding balance and top-up. It was €147 for mortgage protection for €55,000 but only €59 extra to add that amount to the existing outstanding mortgage protection premium. Is there any downside in doing it the latter way?

Second, the Bank of Ireland mortgage person came back and said that their rate for the top-up is 2.9% for 3 years, or 3.2% for 5 years. The five-year fixed rate is 3.1% on our existing main mortgage. He said BofI could offer us a 3-year fixed rate of 2.9% on both the top up and existing mortgage. But wait for this: BofI would charge us a €5k plus fee if we broke the existing five-year fixed mortgage with them for this new rate they've offered us. I'm really not sure what they're playing at with that "offer".
At any rate, with that €5k penalty, and losing a further €5k or something similar from the second instalment of the 'Cashback' due in a couple of years, it would not be cheaper to move to KBC, even for its 2.6% rate. So, we're stuck with BofI. Consequently, which of the above Bank of Ireland offers would you choose?

Third, our existing 3.1% fixed rate on the main mortgage expires in 3.5 years. If we were to take up BofI's above 3-year fixed rate of 2.9% on the top-up mortgage, what are our options for the 6 months waiting for the main mortgage to run its course?