Demystifying Mortgages: Top 10 FAQs

Embarking on the journey of homeownership can be both exciting and daunting. With numerous questions swirling in your mind, it’s essential to seek answers that shed light on the mortgage process. From interest rates and lending rules to required documents and fees, this blog post aims to demystify the top 10 mortgage FAQs commonly asked by homebuyers. So, let’s dive in and uncover the knowledge you need to navigate the world of mortgages..

1. Fixed or Variable: Choosing Your Mortgage Rate

When considering a mortgage, you’ll encounter the choice between a fixed-rate and a variable-rate mortgage. A fixed-rate mortgage maintains the same interest rate throughout the term, providing stability but potentially missing out on lower rates. On the other hand, a variable-rate mortgage fluctuates with market conditions, offering flexibility but also the possibility of increased rates. WIth variable rate lender allow you to top up, extend or pay extra off your mortgage without having to incur any penalties.

2. Understanding the Central Bank’s Mortgage Lending Rules

The Central Bank has implemented rules to regulate mortgage lending. These rules include a loan-to-income limit, which determines how much you can borrow based on your gross income. Additionally, a loan-to-value ratio determines the minimum deposit required for the property’s value. It’s important to note that exceptions and exemptions may apply, varying from lender to lender.

1. Loan-to-income limit For first-time buyers you can borrow up to a maximum of 4 times your gross income, or combined annual income if purchasing with a partner. For second-time and subsequent buyers, you can borrow up to a maximum of 3.5 times your gross income. This is derived from your base salary. Some variable income, such as commission and bonus, can be taken into consideration, but generally, this is a significantly reduced proportion.  It should be noted that banks and lenders have the freedom to make exceptions.  
2.  Loan-to-value ratio The loan-to-value ratio refers to the percentage of the property’s value that you can borrow and how much you are required to pay upfront in the form of a deposit. First-time buyers and second and subsequent buyers need to have a minimum deposit of 10%.  Bear in mind that for second-time buyers, this 10% deposit can take the form of equity from selling your existing house. This does not need to be made up of new cash and can be useful if your existing house has increased in value while your mortgage has reduced through repayments. Lenders can also give deposit exemptions in some cases.  

3. Essential Documents for Mortgage Applications

During the mortgage application process, you’ll need to provide various documents to support your application. These documents help lenders assess your financial stability and ability to repay the mortgage.

• Bank statements: You’ll be required to provide the lender with your personal bank account statements for the previous six months. 
• Proof of ID and proof of address: Usually these can be in the form of a current valid passport or current driving licence and a recent utility bill. 
• Proof of your Personal Public Service Number (PPSN): This is usually found on a payslip, a tax assessment document or correspondence from the Department of Employment Affairs and Social Protection or the Revenue Commissioners. 
• Credit card statements: Usually two or three months of credit card statements are required. 
• Proof of income: If you’re a PAYE employee, you will usually need to provide payslips for the previous three months. If you’re self-employed you’ll need to provide certified accounts, likely for the previous two or three years, and a copy of tax returns from the previous two years. 
• Stamped employment status report: You’ll need to provide an up-to-date employee status report completed and stamped by your employer.

4. Mortgage Application Assessment Factors

Lenders evaluate several factors when assessing a mortgage application. These include your income, savings, age, existing debts, monthly expenses, and credit record. Demonstrating a steady income, responsible financial management, and a good credit history can enhance your chances of mortgage approval.

5. Unraveling the Mystery of Mortgage Fees

Securing a mortgage involves various costs beyond the loan amount. These may include stamp duty, legal fees, lenders’ valuation fees, surveyors’ fees, local property tax, and insurance. Familiarize yourself with these fees and save accordingly to ensure a smooth mortgage process.

• Stamp duty: This is a Government tax charged on the written documents that transfer ownership of property from one person to another. The rate of stamp duty is based on property value. Currently, there is a rate of 1% on the first €1 million paid for residential property and 2% on anything above €1 million.
• Legal fees: You’ll need to pay a solicitor to look after the legal aspects of transferring ownership of the property to you. Keep in mind that solicitors’ fees can vary considerably and can either be a percentage of the property price or a flat fee. Shop around, get quotes and always confirm whether a price is inclusive of VAT or not.
• Lenders valuation fee: Your lender will insist on getting a professional valuer to estimate the property’s market value to ensure you’re getting a fair price. This usually costs around €150.
• Surveyors fees: While this may not be required by your lender, getting the house you’re interested in surveyed is always a good idea. This can help to determine whether there are any hidden defects or structural issues with the property.
• Local property tax: This tax is charged on all residential properties in Ireland. It’s a self-assessed tax paid annually to Revenue.
• Insurance: To draw down your mortgage, most lenders will require you to have mortgage protection insurance and home insurance in place. Mortgage protection is a form of life insurance that will pay off the outstanding balance on your mortgage should you pass away, while home insurance will financially cover you should your property and contents be damaged. At PSF we survey the market for you and will give you the best quote available.

6. Approval in Principle: A Glimpse into Mortgage Possibilities

Obtaining approval in principle (AIP) gives you an estimate of how much a lender is willing to lend based on your financial information. While AIP is not legally binding and doesn’t guarantee mortgage approval, it provides reassurance when making offers on properties. AIP is typically valid for six months but can be extended if needed.

7. Scheme available to help buys
   • (a)First-Time Buyer Support Schemes

First-time buyers can benefit from government support schemes such as the Help-to-Buy (HTB) scheme and the First Home scheme. The HTB scheme provides tax refunds on income tax and Deposit Interest Retention Tax (DIRT) paid over the previous four years.

• (b) The first home scheme

his is a shared equity scheme in which the Government takes a stake or ‘share’ in your home in return for providing you with up to 30% of the property price. This scheme is open to first-time buyers, divorcees, and people who have been declared bankrupt (and who may have previously owned a home). 

The HTB and the First Home scheme can be used in conjunction with one another.

8. Evaluating Cashback Mortgages

Cashback mortgages offer a lump sum payment to borrowers, providing short-term financial relief. However, it’s crucial to consider the overall cost of credit over the mortgage term. While the immediate cashback may be enticing, it’s essential to evaluate interest rates and the long-term impact on your financial situation.

9. Exploring Mortgage Options Beyond Your Current Bank

You are not limited to applying for a mortgage with your current bank. You can explore mortgage options from different lenders, comparing rates, terms, and features. While some banks offer incentives to current account customers, it’s worth exploring the broader market to ensure you secure the best mortgage deal for your needs. Switching your current account to another bank can open doors to competitive rates and favorable terms, allowing you to make an informed decision.

At PSF I analyse the Mortgage market to see which mortgage lender best suits the client.

10. The Role of Mortgage Brokers

You can go directly to the lender yourself without engaging the services of a mortgage broker to guide you through the mortgage process. Feedback from my clients dealing with PSF is that i took control of the entire process taking a lot of the stress out of the process for them.

Mortgage brokers possess extensive knowledge of the market and can provide expert advice tailored to your circumstances. I have access to multiple lenders, enabling PSF to find the most suitable mortgage options for you. Working with a mortgage broker can save you time, effort, and potentially even money by helping you navigate the complexities of mortgage applications.

Conclusion

By unraveling the mysteries of mortgages and answering the top 10 FAQs, you now possess a clearer understanding of the path to homeownership. Whether it’s choosing between fixed and variable rates, understanding lending rules, or gathering the required documents, this knowledge empowers you to make informed decisions. Remember to evaluate fees, explore first-time buyer schemes, and consider the expertise of mortgage brokers. With these insights, you can confidently embark on your homeownership journey, knowing that the world of mortgages is no longer shrouded in mystery.

If you wish to discuss your options, please contact me and we can start your mortgage journey.