Understanding mortgages
A mortgage is loan that you take out to buy a property. A mortgage is a long-term commitment, so it’s important that you understand it before taking one out. There are many lenders in Ireland who offer mortgages, and you can compare all your options using our mortgage comparison Money Tool.
How much can you borrow?
There are many factors that lenders consider when deciding how much they will lend you. These include:
- Your income
- Your age
- If you have any dependents
- Other loans/debts you have
- Previous mortgages/other houses you own
Lenders must apply Central Bank of Ireland (CBI) rules as well as their own criteria. CBI rules limit borrowing to 4 times your income for first time buyers and 3.5 times your income for other buyers. They also require borrowers to have a 10% deposit if they’re buying a house they want to live in and a 30% deposit for a buy-to-let mortgage.
Lenders will also have their own criteria, for example if they count overtime and bonuses as income for calculating your mortgage limit. Lenders are also allowed offer a limited number of mortgages outside of the CBI limits, for these reasons you should always shop around.
What are the costs of a mortgage?
When choosing a mortgage, the interest rate is the most important factor to consider. The rate you pay has a significant impact on the amount you pay each month, and over the lifetime of the mortgage. There are a few different types of interest rates available:
Fixed interest rates
With a fixed rate mortgage your monthly repayments are fixed for a set period. The main benefit of a fixed rate is knowing exactly what you will repay each month and having the peace of mind that your repayments will not increase during the fixed-rate period. However, if rates drop, you may end up paying more in the long run.
If you want to break out of a fixed rate you may have to pay a penalty or fee. You might want to break out of your fixed rate if you decide to switch lenders, re-mortgage, pay off a lump sum or if you want to sell your home. You should find out more about any penalty before you sign up to a fixed rate or decide to break out of an existing one.
At the end of the fixed rate period, your lender will write to you and inform you of your options which may include moving to a variable rate or availing of another fixed rate. If you don’t choose an option, your lender may automatically put you on their standard variable rate which might not be the most suitable or cheapest option for you.
Variable interest rates
A variable rate is a rate which is set by your lender and can change at any time. Variable rates may not be the cheapest option, but they allow you to over pay, switch lenders or sell your home without any breakage fees.
Tracker interest rates
None of the lenders in the Irish market offer tracker rates to new customers, however many existing customers still have these rates. Tracker rates are set at a fixed percentage or margin above the European Central Bank (ECB) rate and as this rate rises and falls, so does a tracker mortgage rate.
If you switch from a tracker rate you are unlikely to be able to revert back to it. If you are coming to the end of a fixed term and you think you are entitled to revert back to a tracker rate, you should check this with your lender.
As well as your interest rate, there other fees you may have to pay, and special offers (such as cashback), that you may be eligible for. When comparing mortgages, it’s important to look at the total cost and all benefits combined to work out which is overall the best mortgage for you.
Other fees
Some fees you may have to pay for your mortgage include:
Arrangement fee – some lenders charge a fee to arrange the loan. This may be a percentage of the loan amount, such as 0.5%. In general, this is for buy-to-let and investment mortgages.
Brokers’ fees – some brokers charge a fee to arrange your mortgage or for mortgage advice. This might be a percentage of the mortgage amount or a flat fee. Not all brokers charge a fee so if you are planning to use a broker it is important to ask about this and to shop around.
Valuation fee – this is paid to a professional valuer to estimate a property’s value, some lenders may pay this fee for you.
Structural survey fee – a structural survey is done to find out the condition of a property. If any issues arose during the valuation of the property or it is very old, your lender may insist on a structural survey. Even if your lender does not require it, you may want to get a survey anyway to be sure there are no problems with the building.
Special offers
Many mortgage lenders offer incentives to take out a mortgage with them, but you need to consider if these short-term incentives are worthwhile when compared to the long-term costs of the mortgage. The interest rate should be your main consideration as this is what will determine the overall cost of credit.
If you get a cashback payment when taking out your mortgage, your lender is not entitled to claw it back if you switch to another lender.
Example
John has an outstanding mortgage of €300,000 on his home and wants to switch his mortgage.
He is doing research and finds a bank that is offering cashback of 2%. John is delighted that he will get €6,000 cash back to move to Lender A. But there is another lender in the market with a lower APRC and no special offer – the table below shows the true cost of both options.
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| Lender |
Amount borrowed |
APRC |
Monthly repayments |
Total cost of credit |
Total cost of credit minus cashback |
| A |
€300,000 |
4.6% |
€1,667 |
€200,249 |
€194,249 |
| B |
€300,000 |
3.6% |
€1,502 |
€150,561 |
€150,561 |
His mortgage repayments with Lender A are €165 more expensive a month than they would be with Lender B. The temptation to take the 2% cashback offer will cost John €43,688 over the term of the mortgage.
