Everything You Should Know About Mortgages
EVERYTHING YOU NEED TO KNOW ABOUT MORTGAGES
How to cut the cost of your home loan, plus answers to all your mortgage questions
The mortgage maze has become increasingly difficult to negotiate as a growing number of lenders offer an ever-growing range of home loan options. This chapter explains:
• How to take advantage of the demand for your business;
• How to make sure you’ve got the mortgage that suits you best;
• How to make sure you are paying the lowest possible price; and
• Who to trust for mortgage advice.
Plus we look at how mortgages work, remortgaging, tax relief and just about every other property-related question you can think of.
Taking advantage of the mortgage revolution
Please put any pre-conceptions you have about buying a home or arranging a mortgage to one side. The truth is:
• Your home is not necessarily your most important investment;
• Your home is definitely not your most expensive purchase;
• You don’t have to take 25 years to pay back your mortgage;
• You aren’t tied to one lender for any longer than you want to be; and
• You don’t have to move to a different lender to get a better mortgage rate.
Also, and this is crucial to keeping the cost of buying your home or investment property to a bare minimum:
• The interest rate your mortgage lender charges you makes a huge difference to the cost of buying your home; and
• The type of mortgage you have also makes a huge difference to the cost of buying your home.
Over the last few years there has been a mortgage revolution in Ireland. New products and greater competition means there are more opportunities than ever to slash the cost of buying your home — opportunities which no homeowner, or would-be homeowner, should ignore.
Not necessarily your most important investment — definitely not your most expensive purchase
Received wisdom has it that the most important investment most of us will probably ever make is in our home. There is no doubt that owning your home is a significant part of being financially secure:
• The cost is not dissimilar to renting a home — making it a good financial decision;
• You aren’t at the mercy of unscrupulous, unpleasant, greedy or inefficient landlords; and
• With luck you’ll see the value of your property rise — giving you a tax-free gain.
Nevertheless, although it makes sense to buy your own home you shouldn’t be fooled into thinking that it is the be-all and end-all of investments. It is arguable, in fact, that building up your other investments, especially a pension plan, is substantially more important. Furthermore, the stock market has, traditionally, always produced a better return than property. I’m not trying to put you off buying your own home, far from it, but don’t forget it is only one part of establishing your personal wealth.
It is also worth remembering that your home won’t automatically be your most expensive purchase. Depending on interest rates, that honour could easily go to your mortgage. If you buy a house for €200,000 and take out a traditional, repayment mortgage for €160,000 (80% of the purchase price) and pay it back over 25 years at an average rate of 4%, the total cost of buying your home (including interest) will be €253,362. That’s €53,362 more than the actual cost of your home. Which is why it is crucial you choose the least expensive mortgage option available to you.
Throwing out the traditional mortgage rules
There was a time, not so long ago, when all mortgages were pretty much the same. Loans lasted for 20 or even 25 years; it was unheard of to pay your mortgage off early; borrowers were discouraged from switching between different lenders; and the lenders themselves would not have dreamt of re-negotiating an existing loan.
All this has changed.
There are currently 13 different financial institutions offering mortgages in Ireland and, thanks to the euro and greater freedom of financial services within Europe, we can look forward to more lenders coming into the market. This means increased competition for your custom, with the result that:
• Better and better deals are available all the time;
• There is much more emphasis on coming up with new, more beneficial home loan products; and
• Lenders are more open to negotiation.
Lenders know that it is now easy to move your mortgage elsewhere, whether or not you are moving your home, and they don’t want to lose your business. If you can find a better mortgage deal than the one you are on, you may even find that your existing lender will match it rather than see you re-mortgage elsewhere. A mortgage revolution has taken place and, as a consumer, you’d be crazy not to take advantage of it.
Download the Financial Regulators "Independent Consumer Guide to Mortgages" for more information.
'From The Money Doctory by John Lowe'
