What is a mortgage?
A mortgage is a type of financial loan that is used specifically to buy a property. It involves borrowing a certain amount of money from a mortgage lender. The amount you can borrow depends on your income. You then have a set period in which to pay it back, with terms typically ranging from five years to 35 years.
How does a mortgage work?
When you have a mortgage, you must repay a certain amount of money each month, plus interest. The value of your monthly repayments depends on how much you have borrowed and the length of the mortgage term. So, if you borrow €100,000 and you have a 35 year mortgage term, your monthly repayments will be lower than if you borrow the same amount and you have a 10 year mortgage term.
Early mortgage payoff
You can pay more than the minimum monthly repayment if you wish. You can either make regular overpayments or lump sum payments. However, most lenders only allow you to overpay by a certain percentage, especially if you are on a fixed rate mortgage. If you repay too much money too quickly, you could face an early repayment fee, also called a break fee.
You can calculate exactly how much you can overpay by. First, you need to know the terms and conditions attached to your mortgage. If your lender only allows you to overpay by 10% and you have a €100,000 mortgage, then you can overpay by €10,000. You can overpay by more if you are willing to accept the fee.
Failure to pay mortgage meaning repossession
If you fail to keep up with your monthly repayments, then the lender can actually repossess your property. This is because a mortgage is a secured loan, meaning the lender takes your property as security against the loan. The lender has a claim over the property until you have repaid your mortgage in full.
Property repossession is a serious matter. If your lender issues repossession proceedings against you, you could end up losing your home. If you are struggling to keep up with your mortgage repayments, you must speak to your lender as soon as possible. You may be entitled to a mortgage holiday, a repayment plan or other forms of support.
Fixed rate mortgage vs variable rate mortgage
As mentioned above, when you have a mortgage, you must repay a certain amount of money each month plus interest. The amount of interest you pay depends on whether you opt for a fixed rate mortgage or a variable rate mortage, as well as your loan to value ratio.
A fixed rate mortgage is when the lender sets the rate of interest for a specific period of time. This could be two years, five years, seven years or 10 years. The benefit of a fixed rate mortgage is that you know exactly what the interest rate will be for the foreseeable future. This allows you to budget accordingly, and you will not be affected by any fluctuations in interest rates.
A variable rate mortgage is when the interest rate can increase and decrease, as per the rates set by the European Central Bank. This creates uncertainty, as your mortgage interest rate could go up or down at any time. If interest rates fall, then you will be at an advantage. But if they rise, then you will have to pay more. You must be informed if the rate is going to change, and your lender must also inform you about the other options available.
Whether you choose a fixed rate mortgage or a variable rate mortgage, the amount of interest you pay will also be dictated by your loan to value (LTV) ratio. This is the ratio of the amount borrowed to the value of your property. Many lenders offer lower interest rates to borrowers with lower LTVs.
How to get a mortgage
Unless you have enough liquid cash to buy a property outright, you will need a mortgage to buy a property in Ireland. So, how exactly do you get a mortgage?
The first thing to know is that you must meet the criteria for a mortgage. This means that you must have:
- A 10% deposit if you are a first-time home buyer
- A 20% deposit if you are not a first-time home buyer
- A good credit rating
- A secure source of income
- Proof that you can afford to repay your mortgage
To get a mortgage, you will need to make an application to a mortgage lender. The lender will analyse your credit history, your income and any other documentation that is requested. This might include payslips and bank statements. The lender will then either approve a mortgage in principle, or will reject you.
If your mortgage is approved in principle, the lender will tell you how much you are allowed to borrow. This is typically 3.5 times your annual gross salary, a figure which has been set by the Central Bank. However, lenders can make exceptions and loan you more money. This will only happen if you are considered low-risk and are earning a secure income.
Mortgages Ireland – who has the best mortage rates?
You are perfectly entitled to shop around for mortgage lenders, just like you would for car or home insurance. Different lenders offer different deals, and these change at regular intervals. You can make a mortgage comparison to see what’s on offer. You can then make a decision based on your personal preferences.
For example, one lender might be offering a low fixed interest rate for five years. If you are keen to take out a fixed rate loan, then this could be an attractive proposition for you. Alternatively, some lenders provide low interest rates on ‘green’ high energy homes. Others offer additional incentives, such as cash back to first time buyers.
It is impossible to say exactly which lender has the best rates – it all depends on your personal circumstances. Some home buyers may be attracted to PTSB mortgages, for example, while others will favour ESB mortgage rates. You need to compare the options available and decide what is most beneficial for you.
Mortgage rates – mortgage comparison Ireland
There are websites that allow you to make a mortgage comparison. One example is bonkers.ie. The bonkers mortgage calculator lets you compare interest rates, offers and incentives. To do this, you will need certain information, such as the value of any property you currently own, the amount of money you need to borrow, and how long you want to borrow for.
If you are unsure what the answers to these questions are – or you are having trouble navigating the ins and outs of mortgages – then you might prefer to use a mortgage broker instead.
Mortgage broker Dublin
A mortgage broker offers expert advice to those wanting to enter into a first mortgage, and those wanting to renew or switch mortgages. They gather information regarding your personal circumstances, such as your income. Then, they use these details to search for the best mortgage deals for you. You can consider the results and decide which mortgage you want to apply for.
Your mortgage broker can also handle the mortgage application for you. This removes the burden from your shoulders, saving you the time and hassle of having to complete the paperwork yourself. You can rely on the broker’s expertise, asking any questions that you may have. Mortgages are extremely complicated, so it can be comforting to have the support of a specialist.
There will likely be an additional cost, if you do choose to use a mortgage broker. You must weigh up whether you wish to use a mortgage broker or not.
Can I switch mortgages?
Yes, you can switch mortgages. In fact, it can be very cost-effective to switch mortgages, potentially helping you to save hundreds – if not thousands – of euros. However, certain restrictions apply, depending on the type of mortgage you have.
If you have a fixed term rate, then you will be locked into the deal for a set number of years. This is usually somewhere between two and 10 years. If you leave the mortgage before this date, you will normally be subject to a fee, known as an early redemption fee. A variable rate mortgage offers greater flexibility because you can normally switch at any time.
How to switch mortgages Ireland
If you are nearing the end of your fixed rate mortgage term, or you are on a variable rate mortgage, you can explore the options open to you. Compare the different products on offer and calculate whether or not it makes financial sense to switch. It may be preferable to continue with (or renew) your current mortgage. Alternatively, it may be better to switch mortgages.
If you want to switch mortgages, then you must meet the criteria set by the lender – just like when you first applied for a mortgage. Primarily, the lender will want to ensure that:
- You have a secure source of income. If your employment has changed for the worse (for instance, you have lost your job or taken a significant pay cut) then you may struggle to secure a new deal.
- You have a good credit rating. This may have changed since you were originally approved for a mortgage, particularly if you have struggled to repay your mortgage, credit cards or any other type of debt.
- You have enough equity in your property, meaning around 20% equity. Anything lower than this (or negative equity) may mean that you struggle to switch.
- You have a certain number of years left on your mortgage term. Lenders may not want to take you on if you only have a few years left.
- You have a minimum outstanding balance left on your mortgage, which is typically €30,000 to €40,000.
If the lender is satisfied that you meet the criteria, you will be sent a mortgage switching pack. You will need to get an up-to-date valuation of your property so that the lender can calculate your loan to value ratio. Once the mortgage is approved in principle, you will need to find a mortgage solicitor.
Do I need a solicitor to switch mortgages Ireland?
You need to instruct a solicitor if you wish to switch mortgages in Ireland. Your solicitor will manage the process for you. This includes getting the title deeds from your existing lender, reviewing the mortgage loan offer with you, and sending the loan agreement to your new lender.
Speak to our mortgage solicitors
If you want to switch mortgages, please contact us at Gibson & Associates. Our property solicitors make it easy for you to switch mortgages. We act quickly to complete the conveyancing work, handling all the details to ensure a smooth transition.
To find out more, complete our online enquiry form, or phone us on 01 872 3143 today.
Sign up to our news letter