How to save thousands when taking out a new mortgage
Calculating just what you will repay could save you thousands on a mortgage
WITH some mortgage lenders already reporting ‘exemption’ limits reached on loans over and above normal credit limits, and it’s still only March, demand certainly isn’t an issue.
Neither is supply – as long as you meet the stringent, but prudent, Central Bank rules. Finding an actual house is the only hard bit of home-buying at the moment.
But with credit flowing and new lenders coming on stream later this year (see below), borrowers need to be even more careful in choosing the correct bank partner, who, after all, they are going to be tied to for decades to come.
So the results of a survey which show 24pc of mortgage seekers will plump for whichever lender is first over the line with a ‘yes’ are worrying. Carried out by broker Mortgages4Her.ie, it found that 20pc are still lured by the attractive-looking ‘cash back’ offers which pay for the stamp duty but can be tied to high interest rates. At least it finds that borrowers are a little more educated from the days when they stood up on the metaphorical bus to declare they didn’t know what a tracker mortgage was.
And 35pc claimed to ‘fully and completely’ understand the mortgage products in the market (which I suspect must mean they’re bankers).
A further 44pc found they ‘kind of’ understood when they ‘put their mind to it’, so at least they’re being honest.
The company says the fact that “24pc of people state that they would go with whichever lender gives them approval first could be a risky strategy; a mortgage is one of the biggest financial undertakings any of us will ever take, the decisions can impact us for the next 25 to 30 years – haste is not always advised”.
So, if you’re in the market what terms do you actually need to understand? My three top are:
1 LTV:
Calculating the loan-to-value ratio may mean brushing off your 6th class maths book, but it could save you thousands. Banks lend based on risk; the less risky you are the better the deal and banks are always willing to do deals based on you, the person, and your prospects.
Calculating LTV is simple: divide the amount you need to borrow (after your deposit) by the property’s value and multiply by 100. For a house worth €450,000, needing a loan of €350,000 the LTV is 77.7pc. The lower the better.
2 Fixed or variable:
Choosing between them depends on your attitude to security. If you get comfort from knowing exactly what your repayments will be for the next one, three or five years, plump for fixed.
If you reckon you’re okay to be guided by where the market goes, and want the flexibility to move your mortgage if needs be, it’s variable.
3 Cost of credit:
All lenders must now show you in writing, expressed in euro, how much you’re handing over in interest payments. APR or AER can be a fudge to the non-numerically minded, so knowing the interest alone on a €300,000 loan over 30 years at 3pc is €155,332.36 may concentrate the mind to shop for a lower rate.
Use ccpc.ie’s mortgage calculator to get an instant result.
Where to Borrow?
The market is not as broad as you might think.
Three banks (AIB, EBS and Haven) are all the same company, for a start. Bank of Ireland, Ulster, PTSB and KBC make up the rest.
Finance Ireland has just announced its entry into the market after taking over Pepper’s business.
Rates start from 2.75pc variable (but you’ll need an LTV under 50pc), and 2.55pc for three year fixed (under 60pc LTV). At the higher end, it’s a hefty 3.6pc for a seven-year fix for a borrower needing the full 90pc.
Some Credit Unions and An Post are also due to start mortgage lending this year.