Mortgages - Frequently Asked Questions

How much can I afford to borrow?
While its tempting to borrow as much as possible, you should be realistic and budget carefully. Its important to ensure you will be able to cope with possible future expenses such as higher interest rates, the arrival of children, illness or redundancy. It might be a good idea to include an amount for ‘unforeseen expenditure’ in your budget.

What size mortgage can I get?
Most lenders offer a percentage of the value of the property that you want to buy, usually up to 92%. You have to pay an 8% deposit yourself as soon as you agree to buy your home.
 
Some lenders however, may offer you 100% finance – taking into account:
- your income*,
- your job & its security,
- whether you are borrowing on your own or with someone else,
- whether you will have a guarantor,
- your savings,
- any existing loans**,
- your credit history, and
- the value of the property you wish to purchase.
 
This option may make it easier for you to buy your home but there are risks involved. It could put you under a lot of financial pressure if interest rates rise or if property prices fall you could owe more on your mortgage than your home is worth.
A general rule is that your monthly mortgage repayments, as well as any other monthly loan repayment should not go above 40% of your monthly net income. If you have any existing loans, your lender may – offer you a smaller mortgage or a mortgage over a longer term or they may request you to pay off these loans prior to giving you a mortgage.

* Overtime, bonuses and commission are also taken into account.

How long should I borrow for?
You can take out a mortgage for as little as 5 years or as long as 40 years – depending on your ability to repay and your age. The shorter the mortgage term, the less it will cost you at the end of the day. Your monthly repayments will be higher but you will pay less interest over the life of the loan.
Initially you may to choose a longer mortgage term so you can afford the monthly repayments as well as all the other costs involved but you may decide to shorten this term at a later stage. This can be done by paying extra each month or paying a lump-sum when you can afford it. To avail of this option free of charge you must be on a variable rate mortgage. If you are on a fixed rate you will have to pay a fee.

What are the different types of mortgage products available?

(1) Discount mortgages
The rate of interest you pay is set at an amount below the lender's standard variable rate (SVR), and the rate you pay moves up or down in line with any changes to the SVR. This type of loan is cheaper than Standard Variable Rate at the start of your mortgage and allows you to take advantage of any interest rate cuts. But if interest rates rise, your monthly payments go up. The discount you enjoy in the first few years of your mortgage can mean a big saving, however the discount usually means you are tied into your mortgage during the discount term. So, if you change your plans and need to repay your mortgage during the discount term, you will have to pay an Early Repayment Charge. However if you simply need to move house, you can usually take your mortgage with you.

(2) Fixed Rate mortgages
The rate of interest on your mortgage is fixed for a set period of time regardless of whether the European Base Rate or the lender's Standard Variable Rate changes. Typically mortgages have rates that change over time - with the effect that repayments can go up as well as down. This can make budgeting difficult, but a fixed rate mortgage can help. Fixed rate mortgages are suitable for those who prefer to know exactly what their monthly outgoings will be and are averse to the risk of rates increasing. An Early Repayment Charge may apply if the mortgage is repaid during the fixed period. Remember, if interest rates fall, you may miss out on a reduction in your monthly payments.

(3) Cashback mortgages
You receive a lump sum or percentage of your loan in cash when you complete your mortgage.

(4) Tracker mortgages
Your mortgage interest rate is linked to the ECB rate for a set period. So if the base rate goes up so will the rate of interest you will have to pay on your mortgage, but if the base rate falls so will your monthly repayments.

(5) Flexible mortgages
This type of mortgage is designed to accommodate your changing financial needs. It may allow you to overpay, underpay or even take payment holidays. You may also be able to make penalty free lump sum repayments.

(6) 100% Mortgages
100% mortgages now being made available by a number of lenders to the general public in Ireland. All the lending institutions have some conditions that need to be met to avail of these mortgage products.
General conditions that must be met are:
- continuous employment for a minimum of three years,
- property must not be a one bedroom apartment or studio,
- property must not be a self build or site purchase only.

(7) Deferred Start
Deferred start mortgages are mortgages where you can postpone repayments for one, two or three months at the start of the mortgage. Often mortgage providers will provide flexibility to first time buyers or those who need some financial comfort at the start or during the life of the mortgage to ease your personal financial burden. There are also a host of other mortgage options which have been developed by lenders in response to the needs of first time buyers

What are the different types of Interest Rates available?

(1) Fixed Rates
The rate stay the same for an agreed period, as do your repayments. The main advantage with this type of mortgage is security. If interest rates increase, your repayments will not increase. However, if they decrease, your repayments will not reflect this. If you decide to switch lenders or move to a variable rate you will have to pay a charge for breaking your contract. Also, you do not have the facility to pay off lump-sums during the fixed rate period.

(2) Variable Rates
A variable rate mortgage is more flexible. It allows you to increase repayments or pay off lump-sums when you have extra money and if interest rates decrease, so do your repayments. However if they increase, repayments also increase. It is important to consider how you would be affected if this occurred.

(3) Tracker Rates
A tracker rate is variable linked to the European Central Bank rate for the term of the mortgage. The advantage here is that lenders can only change their rates when the ECB announce a rate change. However lenders pass on full rate increases within 30 days of ECB announcement. Typically lenders offer more attractive rates to customers borrowing less than 60% of the value of their property. .

How can I pay back my mortgage?
Despite all the different types of mortgage schemes and deals available, there are still only two basic ways of repaying your mortgage:

(1) Repayment mortgage
A repayment mortgage is also known as a Capital & Interest mortgage - your monthly repayments pay off the interest and some of the capital borrowed each month. This is the only method that ensures your mortgage is totally paid off by the end of the term - so long as you keep up your payments.

(2) Interest-Only mortgage
This is where you only repay the interest on your mortgage each month, so you'll need some sort of investment plan to pay off the capital, e.g. a pension, an endowment policy, an ISA or other long term investment plan. When your investment matures, you cash in the plan and use it to pay off your mortgage loan. You are responsible for the repayment of the capital when the mortgage reaches the end of the term.

What are the advantages of Re-Mortgaging?
Cheaper rates – if your current rate is too high it may be time to consider changing lenders**. You may also find a mortgage that gives you more flexibility.

Debt Consolidation – if you have other loans besides your mortgage (i.e.) credit card debts, personal loans, etc. it may be worth while taking out one loan to cover these. While repayments are lower, you may end up paying more than anticipated as the loans are now spread over the term of the mortgage. Some lenders however are flexible and allow a portion of the loan to be repaid within the original term.

Equity release – if you have substantial equity built-up in your home over the last few years, you may decide to release some of this to fund the purchase of a new car, home improvements or an investment property.

** There are costs involved in switching mortgages – valuation fee’s and legal fee’s (some lenders may contribute to these). There is also a charge for breaking a fixed rate mortgage.

Can I defer my repayments?
Depending on the lender you have chosen, there are various options available which allow you to postpone repayments for a few months, giving you a chance to get settled into your new home. Some lenders allow to you defer repayments for up to 6mths – the mortgage term stays the same but instead of repayments being calculated over (ie) 30 yrs they are recalculated over 29 ½ yrs. Other lenders offer interest-only mortgages for up to 3yrs, while others allow repayment breaks at times where there is increased demand on income (ie) Christmas

Other options include:
- Increasing repayments each year thus reducing the amount of interest paid & paying off the mortgage sooner than anticipated,
- Paying off lump-sums when extra income is available.

What is a credit check?
A credit check is carried out by lenders on all applicants through the Irish Credit Bureau (ICB). The ICB records a rating of your previous repayment history. If you have had arrears on any previous loans, the chances are they were recorded and your rating affected accordingly. A bad credit rating could be the reason your mortgage has been refused.

What do I do if I’ve been refused a mortgage?
Lenders can refuse to give you a mortgage & they don’t necessarily have to give you an explanation. However, here are a few common reasons:
- poor credit history,
- existing loans,
- your job is not permanent,
- you have not shown ability to save or manage your money,
- the property you want to purchase may be overvalued, in their opinion.

What is a Sub-Prime mortgage?
A sub-prime mortgage is a mortgage given to someone who has been refused a mortgage by a prime bank possibly because of the reasons above. As there is a higher chance of the applicant failing to repay, interest rates are higher.
Like a standard mortgage, there are a few details you need to consider:
- Interest rates – whether you should choose a fixed or variable rate,
- Term – the longer the term the more interest you will have to pay.
While sub-prime mortgages may look manageable, the extra cost over the term of the mortgage is quite substantial. You should make sure that this is the right option for you. Alternatively, you may chose to wait, save for a few years, build up a good credit history and re-apply to a prime bank.

What insurance is needed?

(1) Mortgage Protection
The mortgage is fully repaid in the event of your death (or your spouse's) during the mortgage term. The outstanding mortgage amount at any time during the term of your mortgage is covered. So, as your borrowings reduce, so does the level of cover. You could on the other hand, take out a Life Policy. This differs from the above in that the amount of cover does not reduce with the amount owing over the term of the mortgage. So, if a death occurs in Year 28 of a 30 year mortgage, the same amount will be paid out, which will pay off the last 2 year's mortgage repayment and the balance goes to your family or estate. The main advantage is that Life Cover is reasonably priced when you are young and healthy. It does however get more expensive as you get older.

(2) House Insurance
Your lender will not issue your cheque until there is adequate insurance on your property. Insurance values vary but are based on what it would cost for your property to be rebuilt from scratch. Your valuer will give you this figure when you purchase your property and every year your home insurance provider will index link the rebuilding cost of your property for you to ensure you are suitably covered.
It is also advisable to insure your contents. The level of contents cover you take out is entirely up to yourself. It is a good idea to make an inventory list of the contents of your home and try to calculate the costs of replacing all of these items.

(3) Income Protection
If your income reduces significantly or stops altogether due to you being sick and not being able to work for a long time or if you become unemployed, this policy will take effect immediately and pay your mortgage for up to 12 months. Depending on your employment situation, this could be very practical but it is not compulsory.

What is Mortgage Interest Relief?
Purchasers can avail of tax relief on mortgage interest paid. Your lender reduces your mortgage repayments by the amount of tax relief and then claims this tax relief from the Revenue Commissioners.
 
Mortgage Tax Relief is calculated @ 20%. However, if the interest paid is below the following limits, the relief is restricted to the actual amount paid.

Single Person Married/Widowed First Time Buyers from 01/01/2007 €10,000* €20,000* All Others from 01/01/2007 €3,000 €6,000

* as per Budget 2008, the higher limits for first-time buyers, apply for the tax year in which the mortgage is taken out plus six subsequent tax years.
The above limits are applied at the standard rate of tax of 20%, and the maximum actual TRS relief available for each category is as follows:

Single Person Married/Widowed First Time Buyers Max. TRS Relief (per annum) from 01/01/2007 €1,600 €3,200 All Others Max. TRS Relief (per annum) from 01/01/2007 €600 €1,200

 

Prime Meridian Overseas Properties Ltd (T/A DNG Kenny Kelleher) is regulated by the Financial Regulator.
Lending Terms & Conditions apply.