Bank of Ireland advises customers to actively manage their mortgage

"The vast majority of Irish mortgage holders do not actively manage their mortgage, a practice which could potentially save customers a significant amount of money and also reduce the term of their mortgage," according to Olive Moran, Marketing Manager of Bank of Ireland Mortgages. Figures released today (Tuesday, 16th December) by Bank of Ireland show that only one third of homeowners took decisive action regarding their mortgage in the past 3 years.

Personal mortgage management products available to variable rate mortgage customers range from simple solutions, such as lump sum repayment, term reduction or fixed overpayment to the more sophisticated, such as index linking, which allows the customer to increase their monthly repayments by a percentage of their choice on an annual basis. (See full list of mortgage management options attached).

The most popular mortgage management option exercised by Bank of Ireland customers is a Term Reduction, with most people choosing to knock 5 years off the term of their loan. Olive Moran explains: "A €150,000 loan over 20 years would mean a monthly repayment of €876.83 (APR 3.6%). If a customer opted to reduce this term to 15 years, the monthly repayments would increase to €1078.90, an increase of €202.07 per month (assuming an APR of 3.6%). However, over the entire term of the mortgage, the savings on interest payments would represent €16,200 and of course the customer has the benefit of the loan being fully paid 5 years early."

A customer making a lump sum payment of €1,000 on a €150,000, 20-year mortgage will save €1,048 euro in interest repayments and reduce the term by 3 months. A fixed overpayment of €50 euro per month on the same mortgage will save the customer €5,083 in interest repayments and reduce the term of the mortgage by 19 months. A customer that chooses to increase their monthly repayment by 1% each year (index linking) will result in €5,669 in interest reduction and 28 months in term reduction. The Bank of Ireland figures further reveal that younger people are much more likely to actively manage their mortgage, with half of the customers availing of mortgage management options being first time buyers. Trading up buyers accounted for 25% and equity release and investors made up the balance (19% and 6% respectively).

Married people were found to be twice as likely to avail of accelerated repayment options compared to single people showing that where financial management is concerned, two heads may be better than one.

Although only a small proportion do so, customers can also avail of flexible repayment options - products designed to allow them pay their mortgage when and how they wish. Of the 5% of homeowners that choose to avail of a flexible option, 3% opted for a 'Mortgage Break' - where the customer can take a break of up to three consecutive months off their repayments, ideal for those taking a career break or having a baby. 2% opted for the 'Omit Month' - which allows customers defer their repayments for one or two months during there calendar year, most popular at Christmas and during the summer holidays.

Commenting on the concept of mortgage management, Olive Moran said: "Bank of Ireland would encourage all mortgage customers to actively manage their mortgage. Obviously, this will depend on the capacity of each individual customer to repay more and what type of mortgage they have. There are more options open to those with a variable rate mortgage but there are still options for those on a fixed rate."

"The recent interest rate reductions have presented Irish homeowners with an opportunity to increase the amount repaid each month. Consumers actively review their car and house insurance on an annual basis and it makes sense to do the same with their home loan."

ENDS

For further information:

Note to Editor: Bank of Ireland Mortgage Management Options

Bank of Ireland offers customers the choice of seven mortgage management options. These product features allow you to tailor your mortgage to suit your own requirements.

Index LinkingAllows you to increase your monthly repayments by a percentage of your choice (i.e, 1%, 2%, 3% or 5% etc) on an annual basis. The additional amount each month is offset against your capital balance, thereby reducing the interest charged. Existing variable rate customers can select freely how much to overpay per year while fixed rate customers can avail of up to a maximum of 1% per annum

A €100,000 loan over 20 years on an APR of 3.6% would mean a monthly repayment of €582.53 per month. A 1% index linking each year would increase the monthly repayments as follows - year 1 to €588.36, year 2 to €594.24, year 3 to €600.18 and year 4 to €606.19.

Fixed Increment
Similar to the overpayment option above, but instead you opt to pay a set premium over the standard instalment each month. A mortgage repayment of €500 with an increment of €65 would increase to €565 per month. Your monthly repayment (subject to rate changes) will always be increased by €65 per month.

Maturity date reduction/term reduction
Existing variable rate customers can choose to reduce the term of their mortgage. This means that your monthly mortgage repayment will increase. The benefit of this accelerated repayment option is that the amount of interest repaid will be significantly reduced.

Lump Sum Repayment
If you are in a position to reduce your outstanding balance, you may lodge a lump sum to your mortgage account. With a lump sum payment, you can select one of two options. Firstly, you can opt to leave your existing monthly repayment as is and thereby reduce the mortgage term or alternatively you could decrease your monthly repayment and leave the term as is.

Flexible Month
Allows customers to defer their repayments for one or two months during a calendar year, for example at Christmas or during the summer holidays. The total year's repayments are then spread over the remaining 10 or 11 months. The term of the mortgage is not affected as the remaining payments are adjusted appropriately. This option is available on fixed and variable rate repayments.

Mortgage Break
A mortgage break of up to three consecutive months is designed to assist customers during a short term change in circumstances, for example, someone going on a career break, taking time off to have a baby or pursuing further study. This option may be applied for during the term of the mortgage. It is available with fixed and variable rate repayment mortgages. Customers can avail of up to four moratoriums during the term of their mortgage for 3 months each with a 12-month break between each moratorium.

Fixed Rate Mortgage Customers
Fixed rate mortgage customers can avail of index linking up to a maximum of 1%, fixed overpayment and fixed increment up to a maximum of €65 per month, term reduction by changing the maturity date (so long as it is longer than the current fixed rate term), flexible month and mortgage break. Fixed rate customers can also avail of a lump sum repayment option but a funding fee may apply.