Making Cents with Liam Croke: Save money by making your mortgage green

Liam Croke

Reporter:

Liam Croke

Email:

liam@harmonics.ie

Making Cents with Liam Croke: Save money by making your mortgage green

Since December ‘19, two banks, AIB and BOI have launched green mortgage products, and they are mortgages which offer lower interest rates, if a properties energy ratings are an A3 or better.

The reasoning behind the product is to encourage people to become more energy efficient by rewarding them with a lower interest rate.

A BER (building energy rating) rating is an indication of what the energy performance of your home is. And the calculation is based on the energy used to heat your home, water, ventilation and lighting, levels of carbon dioxide emissions from your home, number of people living in the property etc.

The rating goes from A to G, with A1 being the best rating you can get, and G rated houses having the worst energy efficient rating.

One of the institutions who are offering this discount is Bank of Ireland, and if you qualify, you can reduce any fixed rate product between one and ten years by 0.2%, but it only applies to people who are buying or building a property for themselves, and those buying a property for investment. In both instances the mortgage has to be drawn down by the June 30 next.

It doesn’t apply to existing mortgage holders, unless they are borrowing additional monies which will be used specifically to achieve a BER rating of A3 or better. The 0.2% discount is only granted on the new monies borrowed, and not on any existing mortgages secure on the property.

The discount only lasts for as long as the fixed rate chosen i.e. after the fixed rate period expires, you revert to what their variable or fixed rates are, without any further discount applying.

So, what does this discount mean in Euros’ and cents.

BOI’s current standard 5 year fixed rate is 3%, which means you can turn it into 2.80%.

If you borrowed, for example €300,000 over a 25 year term, rather than paying €1,422.63 per month, you’ll pay €1,391.62, which is a saving of €31.01. And over 5 years, the saving amounts to €1,860.60.

Before I tell you more about AIB’s green mortgage and how you get your properties energy rating assessed and what it will cost, I want to make quick reference to BOI’s offering for first time buyers, because it’s very good, and I say that for three reasons.

First off, if they are buying a new property, under regulations that came into effect in November last year, the energy rating of a new build has to be A2. So, if they were choosing a fixed rate, they can request that their mortgage is set up as a green one and avail of that 0.2% discount.

My second reason is when people are saving for their 10% contribution, if they save into BOI’s mortgage saver account, and save continuously for 6 months’ at a minimum rate of €250 per month and a maximum of €2,500, and have €5,000 in this account when they come to drawdown their mortgage, they will be awarded a bonus payment of €2,000.

FTB’s are always asking me if there is a particular account, they could save into so they could get a decent return, and my answer is always no, not if they want to save into capital guaranteed accounts which is the type of account they should save into. But with this account and the bonus payment it gives, you’re effectively getting a guaranteed return of 45%, because if you wanted to turn €5,000 into €7,000, that’s the net return you’d need to generate.

And finally, if a, FTB uses BOI for their mortgage, they will qualify for their 3% cashback offer. 2% on drawdown and 1% in 5 years’ time.

From a monetary perspective, what these three offerings mean to a, FTB borrowing €300,000 over a 25 year term, with the first 5 years’ fixed is as follows:

Mortgage repayment reduced by green discount (0.2%) = €1,860.60

Mortgage saver, bonus payment = €2,000.

Cash back = €9,000.

Total = €12,860.60

The only drawback to the above is you have to use BOI for your mortgage, but if you were going to anyway, then I would certainly take advantage of these bonus payments and monthly repayment discounts.

Okay, back to green mortgage’s and AIB’s offering.

They are offering a discount of 0.10% but it only applies to their 5 year fixed offering. Which means if you wanted to avail of AIB’s green mortgage discount, you have to choose a 5 year fixed rate and the rate they’ll will offer you is 2.45%, which is excellent by the way.

This offering doesn’t just apply to first time buyers, any existing client of AIB’s can avail of it provided their primary residence has a BER energy rating between A1 and B3 and they have more than 5 years’ left on their existing mortgage.

The process of moving to this green 2.45% fixed rate is very simple. You need to complete and sign a mortgage amendment form and return it to AIB along with a copy of your BER certificate, that’s it.

If you don’t know what your properties energy rating is, the first thing you need to do is go to the Sustainable Energy Authority of Ireland’s website www.seai.ie who have a list of BER assessors in your area. Contact a couple of them, and get a quote, because there is no set fee. I’d expect it’s going to cost you somewhere between €150 and €300. The type and size of your property influences the cost. The SEAI also provide a grant of €50 which can be used towards the cost for homeowners who are applying for it for the first time.

If, for example, your property has an energy rating D, is it worth the investment of improving it to an A. And the answer is yes, even with no impact on reducing mortgage repayments, because according to the SEAI, you would reduce energy bills on a typical 3-bed semi-detached property by €1,500 every year.