Mortgages.ie - Mortgages and Mortgage Protection Insurance

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Mortgage product choices for first time buyers

There are a number of choices available to first time buyers both in terms of mortgage product choice and perhaps more importantly in terms of rate choice. We are here to advise you on the alternatives.
 
The key elements of a mortgage product are as follows
Term - The longer the term the more interest you pay - The longer the term the lower the monthly repayments - need to strike an affordable balance.
Rate - variable or fixed
If fixed- what is the rate that will follow the fixed rate
Mixed rates - you can apportion your mortgage between variable and fixed and in that way balance your risk.

Annuity mortgages

The vast majority of mortgages whether its first time buyers, remortgages or investors are classified as annuity mortgages.

An annuity mortgages works in such a way that repayments are spread evenly over the term of the mortgage. Within each repayment is a capital and an interest element and the capital element reduces the amount owing on the mortgage with the interest covering the interest as it arises.

Over time the capital reduces to zero and your mortgage is paid off in full. In the early years of your mortgage the bulk of the repayments will go towards interest and unfortunately it is surprising how slowly the capital balance reduces. Our mortgage calculator provides details on the capital and interest split.

To view how an annuity mortgage works and how interest is spread over the mortgage term please click Capital interest split analysis.

As the name suggests an interest only mortgage is a mortgage where interest only is paid and the capital balance never reduces. Up until 2007 this was a popular choice particularly with investors who banked on the value of their property increasing. However the housing downturn has severely curtailed this product with interest only products only being offered to applicants with high equity in their property or portfolio. 

Offset mortgages

This product is not currently available on the market

By combining your current account with your mortgage account you may make significant savings on your mortgage interest bill and reduce the term of your mortgage.
Naturally it depends on the balance held in credit in your current account. This is a useful product in that you have the use of the cash in your current account should you so require but when its sitting there at least you are effectively receiving interest equivalent to your mortgage rate.

Overpaying your mortgage

A  less sophisticated way of achieving a similar result is to overpay your mortgage as you are going along thus ensuring that your interest is calculated on a lower capital balance. The main difference between offset and overpay is that in the overpay scenario you cannot take back the money you have overpaid. Our consultants would be happy to explain the workings of this innovative and highly competitive Mortgage product.
 

Variable rate mortgages 

In Ireland most mortgages are on a variable rate.
Variable rates are adjusted in accordance with a bank's underlying  cost of funds and in response to competitive pressure.

Variable rates vary from lender to lender. They also vary according you the loan to value percentage, with lower loan to value mortgage attracting cheaper rates.


Fixed rate mortgages 

In Ireland fixed rates are no where near as popular as in other countries..
Our fixed rates are too dear.
As the name suggests fixed rate mortgages fix the repayment for a given chosen period.

The terms vary from 1 to 10 years
The price of fixed rates are set by reference to the markets current view on what will happen to rates in the future.

So if the market feels that rates are likely to rise in the future they will build this sentiment into the rate.

Split rates ( mixing and matching) 
An attractive option is to split your mortgage into partially fixed and partially variable. You can choose the split percentage yourself or in consultation with your consultant but this option is a good way of hedging your bets .Most lenders will offer this facility.    

Some lenders offer mortgage products with attractive rates at the outset to entice customers with low initial payments.
As long as there is no downside in the follow on rates ( the rates you move to after the initial period) these can be good value, but you need to be careful not to make a decision on the basis of an initial rate alone.