Posts tagged Ireland

The amount that can be borrowed from Irish banks and building societies varies from lender to
lender. Lenders have various criteria that borrowers must satisfy when they consider mortgage
applications. As well as the value of the property, other factors taken into account include the
income of the borrower, the type and security of their occupation, their credit history and the
possibility of obtaining a guarantor for the loan.

Even if these qualifying conditions are met, the borrower may still need to pay an up-front deposit before obtaining the mortgage. Borrowers may also have to meet other costs such as legal fees and possibly stamp duty.

There are four basic categories of mortgage available to Irish house buyers currently looking to
purchase a home.

Fixed Rate Mortgage
Variable Rate Mortgage
Discount Rate Mortgage
Offset Mortgage

Fixed Rate Mortgage

As their name suggests, fixed rate mortgages involve monthly repayments that stay constant
throughout the period of the loan. The advantages of a fixed rate  mortgage are that if the European Central Bank rate increases, those on fixed rate mortgages will not have to pay more.   However, if the rate decreases, borrowers on fixed rate mortgages will not benefit. Fixed rate mortgages allow borrowers to plan ahead, knowing exactly how much to budget for every month. The disadvantage of fixed rate mortgages, as well as losing out on ECB rate reductions, borrowers have to commit to a given repayment period and will be liable to a charge if they switch to another mortgage lender.

Some lenders will not accept additional or lump sum payments on a fixed rate mortgage.   In addition, when the fixed rate expires, some banks and building societies  automatically transfer the mortgage to a standard variable rate.

Standard Variable Rate Mortgage

A standard variable rate mortgage loan, is a mortgage in which the interest paid by the house buyer is dependent on fluctuations in the ECB base rate. However, banks and building societies are allowed to increase or decrease the rate. The advantages of a standard variable rate mortgage include the fact that borrowers may repay the mortgage early with no early repayment penalties. Also lump sum payments are allowed, so the mortgage can be paid off early, reducing the total interest that would otherwise be due to the lender. The big disadvantage of the variable rate mortgage is that lenders have the power, within certain limits,  to change rates whenever they feel it is necessary.

Discount Rate Mortgage

Lenders often provide initial discount on their variable rate mortgage. This reduced rate may only
apply for the first year, after which it reverts to the standard variable rate. The advantages of a
discount rate mortgage are the lower initial repayments.

Offset Mortgage

Offset Mortgages connect mortgage repayments with the borrowers current and savings accounts. Any balance in these accounts is  ‘offset’ against the mortgage balance, thus reducing the interest owed on the mortgage. Instead of earning a small interest on savings and current account, house buyers  don’t pay interest on the equivalent amount of the mortgage balance. The advantages of an offset mortgage include possible interest payments saving as well as the potential to reduce the mortgage term. It also reduce the amount of Deposit Interest Retention Tax payable. The disadvantage is that no interest is earned on savings and borrowers have to have their current and savings accounts
placed with their mortgage lender.