Can my brother and I approach our bank and ask them to change our mortgage to buy-lease? I’m having trouble finding information on this.
The mortgage is in good condition. No missed refunds. Must be repaid in 12 years.
I am aware that the interest rate would be higher – currently we are paying 2.8%. If the bank is considering this type of situation, how complicated is the process? Would there also be any fees in addition to the increase in the interest rate?
We both have permanent jobs. We are both married.
Ms NM, e-mail
There are many reasons why people’s mortgage positions change. Moving or even losing a job can mean that people find themselves in a situation where they are now renting out property that was originally purchased for their own use. And then there is the situation where people buy a house, live in it for a while before moving but choose to keep the old property.
Not everyone thinks of mentioning it to their mortgage lender, but they should.
Your arrangement with the bank on this loan is governed by a very detailed contract that you and your sister will have signed when you first take out the loan.
The specific events that trigger an obligation to notify the lender will be indicated in this document which is likely hidden in a dusty file either at your home or in your attorney’s office. But I can assure you that it would be highly unusual for a decision to change the status of real estate from a primary private residence – that is, a house occupied by its owner – to an investment property that is rented for material gain is not included in this list.
And since you’ll need to register the property with the Residential Tenancies Commission if you’re renting it out, it’s quite possible that it will pass the lender’s radar anyway.
However, there is no need to be nervous about this. You ask if you can bring the matter up with your bank as if it were something they might disapprove of. You certainly can: indeed I expect you must do.
The way you put it seems to suggest that the bank might refuse such a request. As with anything related to contracts, I’m sure it’s in the power of the bank to do that, but that’s not what happens in cases like yours.
So, yes, the banks are considering such a proposal. It happens all the time and it’s something they are well prepared for. And it shouldn’t be a complicated process at all.
They will certainly be happier if the value of your loan is 70% or less. The current Central Bank mortgage rules state that banks should only lend 70% or less on rental mortgages. There is leeway and you are dealing with changed circumstances on an existing loan rather than new business, but that would give the bank more peace of mind.
Either way, with only 12 years left on the loan, I would expect you to be comfortably below that threshold.
Will it cost anything more. Well if you want to get a better rate for a lower loan value they will probably need a formal property appraisal and it will cost a small amount but nothing substantial. Other than that, there should be nothing.
You have a mortgage that has been paid off in full and on time over a significant number of years. In other words, you are a good credit risk. As you say, you both have permanent jobs and affordability is not the issue. If you had been struggling to repay the loan and missed payments, they might be wondering a little more about your plans.
In your case, your lender has had a good deal with you so far. You say you are currently paying 2.8%. 100 and you have about 12 years left on the loan. The time period indicates that you probably have equity in the property: your current loan may even be 60% or less of the home’s current value.
And that means your bank has laughed at you and your sister like a bandit for the past few years. Even if your loans were just under 80% of the home’s current value, you could have gone down to as low as 2.15% fixed over four years. On an outstanding balance of $ 200,000, for example, that would have saved you nearly $ 1,000 per year.
In fact, none of the lenders in the Irish market are currently charging 2.8% on their most competitive product, even the least competitive.
At 60% of the loan value or less, you could have gotten a rate of 1.95% on your home loan.
So they’re right to appreciate your business and the inertia that has made you pay more than you should on your mortgage in recent years.
The extra money
That doesn’t mean they’ll smile and say don’t worry and carry on as you are. The bank will certainly increase the cost of the loan. They will happily bank the extra money they never should have taken from you and apply the new, higher lease purchase rate in the future.
Its amount depends on the value of the loan and the identity of your lender. Over 60 percent of the loan-to-value ratio, the best rate currently offered is 3.95 percent at ICS or Finance Ireland, rising to 4.80 percent at Bank of Ireland, 4.85 percent at AIB and even 4.95 percent with Ulster Bank.
If the value of your loan is now 60% or less, the best rate will drop slightly to 3.75%, rising to 4.5% or more in most cases, without any additional benefit from the Bank of Ireland or AIB for lowest loan to value.
You have nothing to worry about approaching your bank: if something didn’t, it would be the higher risk position. Yes, the rate will be higher, but it should be a straightforward procedure.
The only downside is that banks are more reluctant to allow customers to switch mortgages from lender to lender in search of better rates, but you haven’t actively looked for the best value and your priority. is to make sure your things are in order. , so don’t worry. Just contact them.
Please send questions to Dominic Coyle, Q&A, The Irish Times, 24-28 Tara Street, Dublin 2, or email [email protected] This column is a reading service and is not intended to replace professional advice. No personal correspondence will be exchanged