Jill Kerby examines mortgage options for first time buyers using bonkers.ie.
CONGRATULATIONS! You've jumped all the lending hoops - you have the right amount of income, a good credit score, a regular savings record and you've put together the hefty deposit.
Now you have to choose the right type of mortgage loan at the right price. The days of easy credit may be gone (not a bad thing) but you've missed out on the greatest bargain of the century - a tracker loan - and must instead decide between a fixed rate loan or a standard variable.
Interest rates here are up to two per cent higher in Ireland than in many other EU countries, mainly due to ongoing legacy debt issues from the crash. But with both variable and many fixed rates under 4%, they are historically low for this country, which for 30 years up to the early 1990s experienced normal interest rates of clO%.
So using the example of a first time buyer couple with income of €70,000 and borrowing capacity of €218,000 on a maximum value house or apartment worth €245,000, I went to the independent mortgage comparison site, www.bonkers.ie.
Starting with fixed rate choices, according to Bonkers, this couple could borrow the €218,000 over 30 years at a monthly cost of between €978.92 (3.5%) for one year from EBS or Haven; €997.26 (3.65%) and €1,066.06 (4.2%) from Bank of Ireland and Permanent TSB respectively. The latter two both offer two per cent cash back, hence the higher long-term cost.
There are more two-year fixed deals with The Mortgage Store (3.5%, €987.92 per month) and AIB, KBC Bank, EBS and Haven all offering 3.6% and €991.13 per month. At Bank of Ireland, PTSB and KBC, the two year fixed rates are more expensive because of their two per cent cash back and a 50% discount on home insurance add-ons.
No one should let these 'bells and whistles' distract them from finding the best fixed or long- term repayment rates.
Three, four, five and even seven-year fixed rates are also available, but you should probably take some expert financial advice before settling on a long-term rate, even if in nearly every case (KBC Bank is the only exception) the five-year rate will be fixed under 4%.
Will rates drop further over the next five years? They might. Could you live with a slightly higher loan than the guy next door who might have a lower two or three year fixed or variable rate?
But what if rates go up and the neighbour on a variable rate of 3.65% today (offered by KBC plus a 50% insurance discount) ends up having to pay another 0.25% - 0.5%. Securing a 3.65% three-year or 3.75% five year fixed deal will start looking like an excellent choice.
The only seven year fixed rate - 3.99% - is from Ulster Bank at a monthly cost of €1,039 per month on a €218,000 loan.
Choosing between a variable and fixed rate loan requires that the borrower weigh up the immediate advantages of slightly lower monthly repayments €987.92 against the peace of mind of knowing, for the next three years (for example) that your three- year best fixed rate of €997.26 is exactly what you will be paying, regardless of how rates are moving (Both these offers are from KBC Bank).
Finally, before you sign up for any mortgage, work out the total, long- term cost of this great financial commitment. Over 30 years, even a €987.92 monthly payment for a €218,000 loan will work out at a total outgoing of €355,651. If you can manage to repay this debt sooner, say over 25 years, you will pay €1,108.98 a month but just €332,694