I’m buying a house - what kind of mortgage should I go for?
It's a pretty big decision.
Buying a house is probably the biggest purchase most of us will ever make, and there are loads of different steps involved - from saving to make up the deposit, to deciding the area you want to buy in, and getting up early every weekend to go to viewings, it’s non-stop once you decide you’re going to buy.
One of the biggest decisions will centre around your mortgage. There’s lots of choice out there, and you’ll need to think about whether you want to use a broker or go to a bank directly, as well as the type of mortgage you go for.
Should I use a broker for my mortgage?
It can be hard to know whether or not using a broker is the right thing to do. Some people like it, because the broker talks them through everything and does the shopping around for them - but if you decide you’d like to compare offers yourself, there is plenty of information out there to help you.
The Competition and Consumer Protection Commission (CCPC) has a dedicated mortgages section on its site, which covers off everything you’d need to know - and there are even some mortgage calculators which can help you get a real sense of how much you’d be repaying, depending on the mortgage you go for.
If that all seems like a bit much, and you do want to opt for a broker, make sure you check their name on the Central Bank’s registers so you can be sure they’re regulated.
What are the different types of mortgages?
The type of mortgage most people will be offered will be an annuity mortgage, which involves making a monthly repayment that includes interest and capital. At the start of these mortgages, the majority of your payments will go towards interest, but this changes as the years go on.
If you choose an annuity mortgage, you’ll need to decide on a variable rate or fixed rate mortgage. Most fixed rates are for somewhere between 1 and 5 years and if you choose one, your repayments will remain the same for the fixed period.
Some people like this option as they want to be sure their repayments won’t go up during the set period, however fixed rates do tend to be higher than variable rates, and if you opt to fix, you won’t get any benefit from rate cuts until your fixed rate period is over.
Other types of mortgages include:
- Pension mortgages. With these, you pay the interest off your mortgage each month, as well as paying into a pension policy monthly. Then, the idea is that you would pay off the capital value of your mortgage when you retire, using the value from your pension. These kinds of mortgages won’t be offered that often, but if it’s something you’re considering, remember you’ll also need your pension to fund your retirement as well as paying the mortgage off, so take this into consideration when deciding what you invest in.
- Interest-only mortgages. These are similar to pension mortgages, in that you only pay interest for the life of the mortgage, but will need to pay the full capital amount at the end of the term. This means you’ll have to take out a pension or investment - or else sell your home - to pay off the mortgage.
How much of a deposit do I need for my mortgage?
The Central Bank’s mortgage lending rules state that:
- First-time buyers must pay a minimum of a 10% deposit
- Second and subsequent buyers must pay a minimum of a 20% deposit.
So, for example, if you’re a full-time first-time-buyer looking to buy a house that costs €300,000, you’ll need to have €30,000 of a deposit. Meanwhile, if you’re a second or subsequent buyer, you’ll need a deposit of €60,000 for the same house.
Remember, you also have to pay fees to your solicitor, stamp duty costs and the cost of things like furniture, so make sure you take these items into account when you’re saving.
How much can I borrow for a mortgage?
The Central Bank’s rules state that the majority of borrowers can borrow 3.5 times their income for their mortgage. In the case of joint borrowers, the combined income will be taken into account. There are some exemptions to this, which have recently been review. From 1 January 2018:
- 20% of new lending to first-time buyers can be above this 3.5 limit
- 10% of new lending to second and subsequent buyers can be above this 3.5 limit
You can read more about the mortgage measures on the Central Bank website._
Struggling to pay your mortgage?
If you already have a mortgage and you’re finding it hard to meet the repayments, make sure to talk to your lender about it straightaway.
They will be keen to engage with you on this and should be able to offer guidance on what your options are.
If you’d like some advice before speaking to your bank, you could contact MABS, who are well trained in this area and will be happy to help.