It is interesting to think that there are now over 300 different mortgages on offer in the Irish market. Compared to just 10 years ago, Irish homeowners have a far wider range of mortgages to choose from when they purchase their home and when they decided to trade up.

However, unlike the past, homeowners also have a greater range of mortgages even if they have no plans to move or buy, and are simply looking for a better mortgage deal.

In recent times, the word "refinancing" has become increasingly popular when discussing mortgage options. Still, the term is a bit of a puzzle to many homeowners who may actually benefit greatly from the process.

Refinancing means paying off an existing mortgage and taking out a new one. In the US and UK, there have been so-called "refinance booms" where homeowners raced to take full advantage of the lowest interest-rates in over 40 years, saving tens of thousands of euro (and dollars and pounds) over the lifetime of their new loan. But what does refinancing mean?

Why would a homeowner here in Ireland refinance an existing mortgage and what are the benefits and costs associated with refinancing?

Homeowners may choose to refinance for any number of reasons. Primarily, they choose it to:

- Lower the interest rate on their existing mortgage;

- Change a loan type;

- Own their homes faster;

- Take advantage of equity in their homes.

Lower interest rate

Obtaining a lower interest rate on an existing mortgage is a major reason homeowners choose to refinance. By refinancing to a lower interest rate, homeowners can reduce their monthly mortgage repayments.

However, there are usually some fees and costs associated. Generally, if a homeowner plans to remain at their current residence for some years to come, refinancing their existing mortgage to a lower rate should more than pay for itself over time.

Change the loan type

Homeowners with a variable rate (or tracker) mortgage can change to a fixed rate by refinancing. This option can offer protection against rising interest rates and some peace of mind in the long term. As interest rates rise, so will mortgage repayments.

Homeowners with a fixed-rate mortgage will have no increase in their monthly payments for the duration the rate remains fixed, ie, two-year, 10-year etc.

It is also possible to switch from a fixed to a variable rate mortgage. However, there are often costs associated with this option but the benefits can outweigh the costs over time.

Own your home faster

Refinancing helps people own their homes faster. Homeowners can do this by availing of a mortgage over a shorter term, reducing from a 30-year to say 15-year term.

This option will work for those who can afford to absorb higher monthly mortgage payments. Generally, the longer the term on a mortgage, the more interest paid, so a €100,000 mortgage with a 5.1pc APR over 30 years will accrue interest charges of €95,462 while the same loan over a 15-year period will accrue interest charges of €43,281, a difference of €52,180.

Mortgages should be reviewed and managed on a regular basis (about every two years).

Equity in the home

Homeowners can borrow against the equity in their homes (equity refers to the current value of a house less any mortgage outstanding against it).

However, banks generally restrict how much "cash-out" or extra cash a homeowner can borrow. Provided this option is used sensibly, it can be a much cheaper source of borrowing.

People may use this option to borrow for any number of reasons such as financing a wedding, buying a car and purchasing an investment property or holiday home.

In more recent years, debt-consolidation loans, that is, loans, which pay off outstanding balances on credit cards, personal and other loans have been gaining in popularity among homeowners.

In this situation, homeowners should ask about a split-loan option.

Using a split-loan option, short-term debts can be paid off in say a three-year period while long-term loans (a mortgage) are paid over 15 to 30 years.

Both loans will have the most competitive rates. This way, a homeowner will avoid paying a credit card balance off over 15 or even 30 years, which could end up costing more in the long term.

Do your homework

Homeowners should always do their homework before they proceed with refinancing as there are usually some fees (including processing fee, solicitors fees etc) charged.

Consulting with an independent mortgage advisor is one way homeowners can do this. By knowing the costs involved, homeowners should be in a good position to decide whether or not refinancing is right for them.

Frank Conway is a director with Irish Mortgage Corporation. Contact the company on 1850 444474 or at www.irishmortgage.ie 

It pays to keep an eye out for mortgage deals

New mortgage deals appear on a regular basis, so it pays to keep an eye on the products available and make sure your interest rate remains competitive.

By shortening the term of your mortgage, increasing the repayments or switching to a cheaper lender, you could save yourself a lot of money over the life of your mortgage.

If a cheaper mortgage comes on the market, you may want to consider switching lender. You will most likely have to pay costs if you decide to switch.

Ask your existing mortgage lender to review your rate first. If they decline to do so, look at whether it is still cheaper to switch.

If you decide to switch, you will probably have to pay a valuation fee, although some lenders will offer you a sum towards this cost, the legal fees and other charges. Again some lenders may meet this cost or pay a sum toward it and a fee to cover the cost of breaking your fixed rate if you don't have a variable-rate mortgage.

Make sure the savings you would make by switching to a lower interest rate outweigh the costs.

If you decide to increase or "top up" your mortgage, make sure that the loan term is suitable for the purpose of the debt.

For instance, if you are borrowing the extra money to buy a car, it makes sense to ask if you can repay this portion of the mortgage over a shorter term. You don't want to still be paying for this year's model in 15 years' time.