MOTERAGE IN IRELAND
INFORMATION
Buying a home in Ireland,
whether you are purchasing for the first time or selling
an existing home is a considerable financial decision. House
prices in Ireland
over the past ten years have risen enormously and unless
you are one of a very small group who can afford to buy
a house outright, you will have to borrow the money and
pay back the loan, usually over 25 to 30 years. A loan used
for the purpose of buying a house is commonly called a 'mortgage'.
The following information will guide you through the various
sources of finance when you are paying for a home. Detailed
information
on the various costs associated with buying a home is
available here.
SOURCES OF FINANCE
There are broadly two sources of finance for buying your
own home: commercial lending agencies such as banks and
building societies and local authorities.
If you cannot get a mortgage from a building society or
bank to buy or build a house, you may be eligible for a
loan
from a local authority.
TYPES OF MORTAGES
Broadly speaking, there are two types of mortgages: annuity
and endowment.
This is the traditional mortgage and by far the most popular.
The loan is taken out for usually 25 to 30 years during
which time the loan is repaid with interest. (Some lenders
now offer 35 or 40 year mortgages to first-time buyers or
younger buyers). Each repayment covers the interest and
something off the loan. In the early years of a mortgage,
interest forms the largest part of the repayments so the
amount owed reduces very slowly at first and then much faster
towards the end of the mortgage. The interest rate moves
up and down in line with general interest rates, so if interest
rates go up or down, your repayments will go up or down
too.
There are some variations on the standard annuity mortgage.
A fixed rate mortgage provides a loan with the rate
of interest fixed for a period of time. The advantage of
this is that repayments are fixed and can be budgeted for
accurately. The borrower gains if interest rates rise above
the fixed rate and loses if they fall below it.
A low start mortgage postpones payment of some
of the interest that is normally paid at the beginning of
the loan by adding it to the amount of the loan, so that
the loan increases over time. After a fixed period, normal
interest is paid and monthly payments increase. Some people
may be drawn to this, but it is important to be sure that
you will be able to afford the increased repayments; and
to realise that if interest rates rise, you could be in
a situation where the outstanding loan is worth more than
the value of the house.
The advantage of an annuity mortgage is that there is very
little risk compared with an endowment mortgage. However,
repayments usually depend on general interest rates and
these mortgages tend to be expensive in the earlier years
of the loan.
With an endowment mortgage, the borrower takes out an
insurance policy that is designed to repay the entire loan,
usually after 20 years. So each monthly payment consists
of the premium on the insurance policy and the interest
on the loan. Nothing is paid off the loan until the policy
matures. At that stage, there should be enough to pay off
the whole loan, and possibly an additional lump sum. There
are a number of different types of endowment mortgages and
variations but the basic principle is the same.
The advantage of an endowment mortgage is that it generally
offers better tax relief, although in recent years, the
advantages have been reduced. However, the net repayments
in earlier years are usually higher than those on an annuity
mortgage. In addition, there is some risk since there is
no guarantee that when the insurance policy matures, there
will be enough to pay off the entire loan. A further disadvantage
is that they are less flexible than annuity mortgages. If
you get into financial difficulties, there is no scope for
cutting repayments temporarily.
MORTGAGE INCOME TAX RELIEF
Tax relief is available on the interest portion of any
loan or mortgage taken out to buy or to repair and improve
your home. With effect from 1st January, 2002, your mortage
lender now gives you the benefit of tax relief on interest
paid. This means, that your mortgage repayment will be reduced
by the amount of tax relief and the lender then claims this
tax relief from the Revenue
Commissioners.
If you take out a bridging loan while you are waiting
for the mortgage loan to come through or because you bridging
finance between the sale of one home and the purchase of
another, you can claim tax relief on bridging loans. Read
more about mortgage
income tax relief/tax relief at source here.
GETTING LOAN APPROVAL
It is sensible to talk to potential lenders before you
start looking for a home. A lender will tell you how much
they are prepared to lend you, based on your income, your
credit record, your employment record, other borrowings,
etc. This approval in principle may save you a lot of time
later on.
(Source:
http://www.oasis.gov.ie/housing/buying_a_house_or_flat/paying_for_a_home.html)
