How does a mortgage work?

A mortgage has two parts:

Capital - the money that is borrowed

Interest - the charge made by the lender until the loan is paid back.

How do I choose the right mortgage?

There are two initial decisions to make when you choose a mortgage.

1. How you want to repay the loan and what type of mortgage suits you best.
2. How do you want to repay the loan?

There are two main ways to borrow money for a home; an “interest-only” mortgage or a “repayment” mortgage.

With an interest only mortgage, you only pay the interest on the amount you borrowed each month. This means that at the end of the mortgage term you will still owe the same amount you borrowed, so you will need to plan how to pay this off.

With a “repayment” mortgage, you pay off part of the capital each month, as well as the interest. This guarantees that your mortgage will be repaid in full at the end of the term, as long as you keep up the repayments. This is the most common choice for borrowers purchasing their family home.

What type of mortgage suits you best?

Every lender has a different range of mortgages types. The most common options are:

Standard variable:  Most lenders offer a standard variable mortgage rate, which can move up or down at their discretion, but normally only when the European Central Bank Rate changes.

Fixed:   A fixed rate can help you budget because the interest rate you pay and your monthly payment will be fixed until a set date. This means you will know exactly how much you will need to pay each month.

Capped:  This type of mortgage guarantees that your interest rate and your monthly payment will not go above a set figure within the capped-rate period. Below that set figure, the rate will move up and down in line with the lender’s standard variable or tracker rate.

Discount:  This type of mortgage gives you a discount off a Variable or Tracker rate for a specified period, normally 1 to 2 years. Your rate will move up and down to correspond with changes in the ECB rate. Discounted rates can help to keep your payments down at the start.

Tracker: This interest rate tracks the European Central Bank rate by a set percentage. Every time the ECB rate changes, so will the payments on your mortgage. It is slightly different to a standard variable rate, where the lender has the flexibility to choose when the rate goes up or down.

Current Account: These mortgages give you the chance to offset your savings or current account balance against the mortgage balance. You don't receive any interest on your savings, but also do not pay interest on the equivalent amount of your mortgage. The bigger the balance in your savings / current account the more you save on interest.

By talking to Kielty Cashell Financial we will be able to assess your affordability, determine your borrowing requirement and recommend the most appropriate mortgage type based on your needs.

Which comes first - the mortgage or the house?

Before choosing a house, it is important to know how much you can realistically afford. The first thing to do is visit Kielty Cashell Financial and we will be able to calculate how much you can borrow, based on your earnings and savings to date.

How much can I borrow?

The actual amount depends on the lender and your personal set of financial circumstances. Contact Kielty Cashell Financial to establish the most appropriate lending institution for you.

What additional costs are involved?

You will need to take out a life policy (which is mandatory) if the property is your primary dwelling home. You will also be required to take out home insurance on the house and it's contents.  You must employ a solicitor who will act on your behalf and protect your legal interests.  You will require a valuation report to be carried out on the property prior to the loan cheque being released. You may wish to have a surveyor look at the property before you agree to purchase. This will ensure that your purchase is structurally sound.

Want to know more? Contact Us

Warning:  Your home is at risk if you do not keep up your mortgage repayments or any other loan on it.