A. Repayment/Annuity Mortgage

With this form of mortgage your monthly repayment consists of interest and capital. In the early years of your mortgage the majority of the payment goes towards the interest owed.

As your mortgage term matures your repayment goes more and more towards the capital amount borrowed. At the end of your mortgage term the loan is fully paid off.

B. Endowment mortgage

With an Endowment Mortgage your repayments only cover the interest on the amount you have borrowed. You also take out an endowment policy with a Life Assurance Company to which you make separate payments, the intention being that at the end of the term of the loan, the proceeds of the life assurance policy would be sufficient to clear the principal amount borrowed. It should be noted that there is no guarantee that all life assurance policies will clear the principal amount owing at the end of the term of the loan. Experience both here and in the United Kingdom has shown, that many people found themselves having insufficient funds to clear the mortgage due to the under performance of the Life Assurance policy.

We do not favour these mortgages unless in particular circumstances or for specific reasons e.g. taxation.

C. Pension Mortgage

This type of mortgage has become more attractive in light of the recent changes to pension regulations under recent Finance Acts. A pension mortgage is similar to an endowment mortgage, you pay the interest only to the lender for the duration of the loan. In addition, you pay a monthly/annual premium into a pension plan, which avails of tax relief and is used at the end of the term (upon retirement) to repay the mortgage. A pension can not be assigned (used as security), therefore most lenders are very cautious when it comes to approving Pension Mortgages. In practice, a customer needs a strong credit record, comfortable repayment capacity and where the lender has sufficient security cover on the loan before approval is granted.

Pension Mortgages are very tax efficient for the purchase of commercial buildings particularly, where you maximise your tax relief on the interest for the duration of the loan and receive tax relief on the pension contributions.

Interest Rate Options

A. Variable Interest Rates

With variable rate mortgages your monthly repayments rise or fall in line with movements in your lender's variable interest rate. During the term of your loan, your lender can increase or reduce the interest rate charged on your mortgage, thereby increasing or reducing your monthly repayments. Variable interest rates are affected by the prevailing money market conditions, intense competition among the lenders and the rates as set by the European Central Bank. Variable rate mortgages offer great flexibility, where you can increase your repayments, contribute lump sums from time to time or even redeem your loan fully, without any penalties. The downside to variable rate mortgages is where interest rates rise, so too will your monthly repayments, which you need to be able to afford.

B. Discounted Variable Rate Mortgage

Most lenders now offer a discount off their standard variable rate for the first period of your loan, generally being for either 6 or 12 months. Home buyers should not be swayed by the discount rate on offer alone, as once the discount period is over you will automatically revert back to the lender's standard rates. Therefore, it’s important to look at the lender's standard rates before making your decision. Some lenders seek to claw back any discounts granted if the mortgage is redeemed during the first few years of the term.

We will help guide you through the pros and cons of all the rates options and lenders on the market.

C. Fixed Interest Rates

With fixed rate mortgages your interest rate is fixed for a term. Most banks offer fixed terms of 1, 2, 3, 4,5 or 10 years. This guarantees your monthly repayments for the agreed time frame. It is easier to budget, because you know how much your monthly repayments will be for some time ahead. Fixed rate mortgages are therefore independent of interest rate movements during the term of the fixed rate. When this term runs out you will generally revert on to the Lender's variable rate or be given an option of selecting another fixed rate. There are generally substantial penalties if you break out of a fixed rate mortgage or want to redeem your mortgage during the fixed rate period.

D. Split Interest Rate

This being another alternative, where you can split part of your mortgage as a fixed rate and have the remainder on a variable rate. If rates fall, repayments on the variable part of your mortgage reduce, and if rates rise you have the security of knowing that only part of your loan repayments will rise, i.e. the variable portion. We can develop a split loan package to suit your needs.

Tracker Mortgages

This relatively new product offering basically guarantees to track the European Central Bank's rates plus a margin of on average 1%. This product has the flexibility that variable rates offer and provides the mortgage holder with some guarantee with regard to future rates also. Any change in rates announced by the European Central Bank will have to be passed on by the bank in full to tracker mortgage holders within a fixed period, usually 5 business days.

Tax Relief at Source

From 1 January 2002 tax relief for home mortgage interest is no longer given through the tax system, but instead is granted at source. This means that your tax relief element on the mortgage interest is "built into" the monthly mortgage repayment. For most lenders this is shown in two separate items on your bank account statement. First you will see the direct debit for the monthly mortgage payment and next to it you should see a corresponding credit for the tax relief on the interest.

The interest relief amount is calculated on an annual basis to reflect the reduced interest as your mortgage amount decreases. The lender will then calculate the mortgage interest relief and apportion that over the 12 months.

The maximum relief for non-first time buyers is €2,540 for a single applicant and €5,080 for joint applicants. For first time buyers these figures are increased to €4,000 and €8,000 respectively. These increased limits apply for the first seven years only. Therefore, the maximum relief per month is €66.66 for a single person and €133.33 for a couple in this seven year period.

How do I get the tax relief?

When you take out a new mortgage, your lender will supply you with a form TRS1 to complete. This form will show your mortgage account number as well as your personal details (name address and RSI (personal tax number). This form will need to be signed by you and returned to your local tax office. From there the revenue will contact your lender directly to arrange for the tax credit to be applied. The process may take a couple of months and if you don't see the credit coming through on your bank statement after this period, you may have to contact the local tax office to make sure your form has not been misplaced.

In the case of a loan in joint names, each borrower is entitled to relief in his or her own right subject to the upper limits. Where the mortgage payment is made in full by one of the joint borrowers, the reduction in the monthly payment under this TRS system should reflect the aggregate relief due to all joint borrowers.

Life Assurance/Home Insurance

Life Assurance

All lenders require that you have life cover/mortgage protection equal to the amount of the loan. This ensures that should either you or your partner die before the loan has been repaid, the Life Assurance will provide you/your family with a lump sum to pay off the mortgage.

Buildings & Contents Insurance

All lenders insist that your property has Buildings Insurance before they release the cheque to your solicitor. Home insurance protects against risks like fire, theft and malicious damage and its critical to have in place and to have your home insured for the required amount. When looking to insure your home and possessions, some items are categorised as 'buildings', such as fitted furniture and anything that is plumbed in. Other items are treated as contents. The easiest way to make sure everything is covered is to insure both building & contents in the one policy.

APR Explained

This stands for Annual Percentage Rate of Charge and is considered to be the best means of comparing the cost of different types of credit. The Consumer Credit Act defines APR as the total cost of credit to the consumer, expressed as an annual percentage of the amount of credit granted. APR calculates the total amount of interest which will be paid on a loan, and adds to this any other charges which the borrower has to meet. This total cost is then divided by the number of years in the loan term to find out what the borrower will be paying per year. This amount is then expressed as a percentage of the loan, i.e. as the APR.

APR provides you with the 'true' cost of any sources of credit, and enables you compare like with like. As credit agreements may have handling charges and depending on the frequency of the interest calculations, the total number of repayments etc., can make ones monthly repayments and/or nominal interest rate look surprisingly attractive, while hiding charges that are not classed as interest, but still have to be paid by the borrower.

Equity Release

Equity is the difference between the amount you owe on your current mortgage and the present value of your home. If your home was worth €150,000, and your mortgage balance was €80,000, you'd have equity of €70,000.

Today many people avail of the low interest rate on mortgages and therefore increase their mortgage for many reasons such as to build an extension, fit a new heating system or pay for educational expenses.

You can borrow up to 90% of the value of your home subject to supporting income criteria.

Pension Mortgages

Pension Mortgages are a tax effective way of paying off capital sums (e.g. loans). A pension mortgage is similar in structure to an endowment mortgage with the loan set up on an interest only payment and the capital repaid at the end of the term by the lump sum accumulated in the pension fund. Pension mortgages are significantly more attractive than an endowment policy as with the pension investment you / the company can receive tax relief on the pension contributions and the pension fund grows tax free

Why consider a Pension Mortgage?

Following the Finance Act 1999, many individuals have significant flexibility with how they use their retirement fund. Individuals can not only use the 25% tax free lump sum portion to repay a capital sum, but can also encash some of the remaining retirement fund, which would be subject to income tax to repay the loan also.

An important point to note is that one must have a guaranteed pension income of €12,697 p.a. at retirement or one is obliged to invest €63,487 into an AMRF.

The key tax advantages are the interest payments are kept high throughout the term of the loan, which can be written off in full for tax purposes against rental income on that property, be it residential or commercial property. In addition, the individual or company can avail of generous tax relief on pension contributions, plus the fact that the pension fund is growing tax free.

Credit Approval:

The tax advantages are well documented at this stage, but securing loan approval for a pension backed loan is not that easy in practice. While the lending institution have the deeds of the property, but given that the loan is on an interest only basis and the fact that they cannot take a lien on the pension fund (under current legislation) many banks are slow to approve pension backed loans unless the client has a high net worth and the loan to value ratio of the deal is relatively low, circa 40-50%.

In Summary:

Pension backed mortgages attract significant tax advantages, given the tax relief’s associated with pensions mainly. However, one can still avail of all the tax advantages associated with a pension plan without having to get involved in financing a property purchase.

Therefore, if linking in a pension plan with a property investment makes the sums work when otherwise they didn't go for it. However if an individual had the wherewithal to optimise their pension funding separately and are keen on property investment and can finance it separately, we would recommend this approach as it best maximises net worth.

A Summary of how Pension Mortgages Work:

Credit History

The importance of having a good credit history

All the majority of lenders now subscribe to a credit bureau (Irish Credit Bureau). The first step most lenders now take prior to making finance available, is to check the applicant’s credit rating with the Bureau, thus identifying, with a reasonable degree of certainty, the applicants "rating" with finance companies.

A good credit rating is critical in arranging finance and the maintenance of this good rating is essential for everyone who will require finance in the future. A borrower should be aware that the consequences of being slow in making payments or missing payments will effect later applications.

If in doubt about your rating or if you want to know what your record looks like, all you have to do, is contact the Irish Credit Bureau and for a fee of €6.35 and you will then be able to see the information that any potential lender will be able to access about you. If the information is incorrect, on suitable advice, the Irish Credit Bureau will amend your records on their files.

The address of the Irish Credit Bureau Ltd. is:

ICB House
Newstead,
Clonskeagh Road,
Clonskeagh,
Dublin 14,

Phone:(+353)-1-2600388
Fax:(+353)-1-2600390

Indemnity Bonds

Indemnity bonds are a form of insurance that covers the lender in the event that they make a loss on the sale of a repossessed property. Indemnity bonds are charges on varying degrees by all lenders; however as a guide where the loan amount exceeds 75%-80% of the purchase price or valuation (whichever is the lower of the two) an indemnity bond may apply. Some Lenders pay the cost of the bond for the borrower, while others when negotiated may reduce the cost.

We can advise you on how to reduce or preferably avoid paying this Indemnity bond altogether, which can be as high as €635.

To Fixed your Rate - or Not

If you think interest rates are going to rise and the current fixed rates haven't yet factored this in yet, then certainly you should consider fixing. Is this likely? Alternatively, if you like the certainty that your mortgage repayments are fixed for a specified period, fixed rates are an attractive option.

In addition, if you take your current rate and monthly repayments, and consider the implications of a 1-2% rate rise, if these increased repayments would pressurise your cash flow considerably then opting for a fixed rate until such time as you are a little more comfortable, would be well advised.

Fixed rates are popular amongst many first time buyers, as it provides that degree of certainty and security that are very important for the first few years of the mortgage.

If your main priority is bargain hunting, then history has shown over the years that variable rates have provided better value on average than fixed rates.

The big downside to a fixed rate, is should you want to repay part or all of your mortgage most lenders will charge a hefty penalty for breaking out of a fixed rate during its term.

How to maximise your borrowing capacity?

Points to consider:

1. If you earn overtime, get bonuses or receive expenses, pay these into your bank. Do the same with any part-time or secondary positions. 
2. Your employer’s confirmation of your income must be backed up with either payslips or bank statements and a P60. Don't exaggerate your earnings - lenders can verify them.
3. If you are in line for a pay rise, ask your employer to confirm this in writing as most lenders will take this into consideration. 
4. If you intend letting a room in your new house, say so, now that you can earn up to €7,618 per annum tax free. 
5. Reduce your outgoings, such as loans for cars, holidays or computers. If you earn €30,000 but have a car loan that amounts to €3,000 a year, a lender may estimate your "real" salary at €27,000. This reduces your borrowing capacity to €87,750 rather than €97,500 (based on a salary multiple of 3.25 times). 
6. If possible avoid taking out loans over more than a 12- month period, or use your savings to repay them before closing on your purchases.

Index Linking Your Repayments

Customers can decide to increase their monthly repayments by a set percentage each year. The additional amount each month is offset against the capital Balance, which reduces the interest charged and the mortgage is paid off quicker.

Even indexing your repayments by 1% can make a difference and customers should be able to return to the original repayment at any time. There are generally no restrictions for variable-rate borrowers who avail of this facility but fixed rate customers may only be able to avail of this up to a limit.

On a €100,000 mortgage over 20 years at a variable rate of 5.85%, indexing the repayments by 1% per annum would reduce the term by 32 months and save €7,823 in interest.

However, if you decide to increase your mortgage repayment or maintain your repayments even when rates decline, it is important to inform your lender. The risk is that unless you inform the lender, your increased repayments amount may sit in a non-interest bearing account.