Making Cents: Don’t get tempted by low payments to begin mortgage

Headlines in the past week have proven that homeowners need to be savvy and not rely on financial institutions to work in their best interests when it comes to mortgages, says Grainne McGuinness.

Whether your have an existing home loan or are currently looking to buy a property — preparation and research will help ensure you get the best possible mortgage deal.

First-time buyers

Get your affairs in order well before you actually apply for a mortgage, this will help you get the best rate from a retail bank. Sub-prime mortgages make it possible for people with less than stellar records to buy property, but you are penalised with much higher rates. You have to convince the bank that you are financially stable and can comfortably manage the repayment. You should have a history of paying rent, even if you are living at home or renting privately make sure you are making a contribution your lender can verify. Don’t have any sign of gambling on your current account — it raises a major red flag with lenders.

Don’t just speak to one lender. It is very tempting for first-time buyers to go to their own bank, you probably have some relationship with staff already and they have all your details. But they will only be offering you options from their own range. At a minimum, look for quotes from three or four lenders. This can seem overwhelming, but there is plenty of assistance available from brokers and comparison sites. Sites such as bonkers.ie (see panel) will compare the current offerings of all lenders in the market and some also offer a broker service. You can also compare mortgages at consumerhelp.ie.

Be very careful with introductory rates. Discount rates are offered to attract buyers and it is very easy to be drawn by a low initial monthly repayment. Always check what rate will apply at the end of the discounted period and be happy that it is competitive. You will be repaying this loan for up to 35 years, a lower payment for 12 months is not the basis of long-term value.

Think hard about the term you choose. A longer one means temptingly lower repayments, but also means paying more in interest — so it will ultimately cost you more over the lifetime of the loan. Think of where you and your family will be in 20 and 30 years — it would be wonderful to be clear of mortgage repayments before the costly college years kick in for your children. Don’t over-commit to repayments you can’t manage (the bank’s stress tests should make this impossible anyway), but consider early year’s pain for long-term gain.

Existing homeowners

Don’t be complacent if you already have a mortgage, or feel that you are locked in with your lender for the duration. There are procedures in place to allow mortgage-holders to switch between providers. Yes there are costs, you may have to pay for a new valuation fee, legal fees and other charges. But some lenders will offer to pay toward these to encourage you to switch to them and the savings you could make because of a lower APR and different types of interest rate, could far outweigh the costs and hassle of switching.

When interest rates change

In recent years, lenders are dropping their rates at different times. If you feel your bank is dragging its heels check out what you could save by moving. With prices on the up nationwide, an increase in the value of your home may mean you are entitled to a better rate — generally the lower the LTV, the better the rate. Your lender will be in no hurry to tell you this, so you need to do some research yourself in case there is a better deal out there. If you are coming to the end of a fixed or interest-only deal, don’t just let your mortgage revert to your lender’s standard variable rate. Treat it like you are looking for a new mortgage and shop around.

If there are any consumer issues that you’d like Gráinne to address or if you have problems that Gráinne could help with, she can be contacted at makingcents@examiner.ie 

 

Deal of the week

For this week’s Deal of the Week we turned to comparison site bonkers.ie to see what is the best mortgage offering on the market right now

We took the example of first-time buyers looking for a home loan of €300,000. Our example used 80% loan to value (LTV) — so borrowing €240,000 with a €60,000 deposit. We looked for a variable rate loan over 25 years.

Bonkers.ie is an Irish website and compares prices from all the main players in the market, including AIB, Bank of Ireland, EBS, Haven, ICS, KBC Bank, Mortgage Store, Permanent TSB and Ulster Bank.

Ironically, given the headlines in the past week, the top suggestion from the site for the example above was the offer from Permanent TSB.

They offer a LTV discounted variable managed variable rate of 3.5% — working out at a monthly repayment of €1,201.50. It is important to note that this is a discounted rate, so after the first 12 months, the rate will mature to the managed variable rate. This is currently 4%, which is still a competitive rate.

This product is available to first-time buyers and those trading up, and is offered to both new and existing customers of the bank. It is available on home loans with a LTV of greater than 70% or less than or equal to 80% of the value of the property and the maximum term offered is 35 years. In addition, subject to conditions, they offer up to €1000 towards your legal fees.

 

 


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