#Mortage: What to know

Updated: Sep 17, 2019


Do you always dream of buying or building your own home, maybe the current rental property market just feels like it is dead money and you would be better off to invest in your first property purchase.

Whichever of the above is relevant you are going to be looking towards taking out a Mortgage like I know many of my friends have or are starting to. This is such a big financial decision in anyone's life and here's a few things you should know:

First Time Buyer

In Ireland for the purpose of taxation or tax relief a first time buyer is an individual who has not previously purchased or built a property, this is as an individual or jointly. If you are purchasing a new home as a couple both individuals must be first time buyers to avail of this status.

Therefore choose a lender that offers reduced interest rates or other incentives for a first time buyers than they would to non first time buyers.

The maximum LTV (Loan to Value) for a first time buyer is 90%. A non first time buyer will be a maximum of 80%. These differences are imposed by the Central Bank of Ireland. Back in the Boom or Celtic Tiger times some banks were giving 100% LTV mortgages. Generally a deposit of 20% is required.

Normally a lender will either offer you the LTV amount or else up to 3.5 times your annual salary for a Mortgage.

Fixed Interest Rates:

A fixed interest rate is fixed by the lender for a specified period of time, normally one to five years. In general fixed interest rates will tend to be higher than current variable rates. The longer the fixed period the higher the fixed amount will be.

Fixed interest rates give the buyer a piece of mind that their mortgage repayments will not increase over the fixed period if interest rates increases however, the other side is that if rates decrease then your repayments will not fall.

Variable Interest Rates:

SVR (standard variable rate) Interest rates will move up and down. A mortgage lender will attempt to set its variable rate by reference to its cost of funds, plus a margin, but also has to take competition in the mortgage market into account. The EURIBOR rate has become a more accurate reflection of the cost of borrowing funds on the wholesale market and has been higher than the ruling official ECB rate.

Discounted Variable Rate: DVR some lenders will offer discount off their standard variable rate for new mortgage holders in their first six to 18 months of their mortgage.

Stress Testing:

You will be stress tested if interest rates were to rise to show what your repayments would increase by monthly. This is a sort of risk calculator to show you that your repayments might increase aswell as decrease, and if so would you be able to afford the repayments. You might need to increase the repayment timeframe to reduce monthly repayment instalments in some cases.

Fixed rate loans are not always a good thing. They can work in favour of the borrower if variable rates increase over the fix period, but they can work against the borrower if variable Rates stay the same or decrease over the period.

Borrowers who wish to repay the loan in part or total within the fixed rate period are subject to an early repayment penalty which does not affect variable rate holders.

Over the long term, a fixed rate loan will usually cost more than a variable rate loan, all other things being equal, as a cost or loading for fixed the rate for a period is implicitly built into the fixed rate charged.

ICB (Irish Credit Bureau)

Lenders will check for previously loan history and any bad debts you may have in order to determine if you are someone who will repay on time every month. Any bad credit history will look bad and can determine a banks decision to offer you a loan.

You can now go online to the ICB and request a statement for free under the recent GDPR, it is now illegal to get charged for information held about yourself. You should be able to request this freely, back a few years ago there would to be a charge of around €5 for this statement. So avail of it now ideally before you plan on taking out a mortgage so you can be prepared and if you have any bad debt you can try to pay it down and improve your overall credit rating.



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