Mortgage Question

roboc

Hey guys

First of all, forgive the stupidity of these questions. I have very little experience with mortgages or buying a home, but I have been looking to buy a new home (I know the market sucks right now, but Im fed up with renting). Basically, Im looking for some impartial advice on the best rates out there etc, also, any advice on the legal fees involved, stamp duty etc. I've been trying to get my head round it all, but am getting nowhere, and the last thing I want to do is show up at a bank without a clue.

The properties I have been looking at vary in price from 250000 to 350000. Do mortgage rates have cut off points? I mean, is a mortgage for 300000 calculated at a different rate than one for 250000 or the like?

Are there any sites out there that offer advice to first time buyers? Or any companies that offer impartial advice (for a fee, naturally). Failing that, is there anyone out there who can recommend a particular bank or financial institution for any particular reason (rate, service etc etc)?

Again, sorry for the stupid questions. Thanks in advance for any help.

Rob

Time Magazine

Moved from Economics.

dotsman

roboc wrote: »

Hey guys

First of all, forgive the stupidity of these questions. I have very little experience with mortgages or buying a home, but I have been looking to buy a new home (I know the market sucks right now, but Im fed up with renting). Basically, Im looking for some impartial advice on the best rates out there etc, also, any advice on the legal fees involved, stamp duty etc. I've been trying to get my head round it all, but am getting nowhere, and the last thing I want to do is show up at a bank without a clue.

The properties I have been looking at vary in price from 250000 to 350000. Do mortgage rates have cut off points? I mean, is a mortgage for 300000 calculated at a different rate than one for 250000 or the like?

Are there any sites out there that offer advice to first time buyers? Or any companies that offer impartial advice (for a fee, naturally). Failing that, is there anyone out there who can recommend a particular bank or financial institution for any particular reason (rate, service etc etc)?

Again, sorry for the stupid questions. Thanks in advance for any help.

Rob

OK, where to start:

Rates:
Mortgage rates don't have a cutoff with regards amount, it's LTV. LTV (Loan to value is the percentage of the value of the property the mortgage is for, so if you are buying a property worth 300K and only need to boow 210K, then the LTV is 70%. Typically there are 3 bands 80%-100% is the highest rate as it is the least secured, while anything under 50% should get you the cheapest rate as it is very secure.

There are 3 types of rates:

• Fixed - You agree to pay a certain rate for X years regardless of whether the Central Bank's interest rates go up or down. You also have to pay penalties for repaying the loan early of if you want to change banks etc.
• Variable - The bank decides what interest rate you pay and it constantly changes (up and down) depending on the economic climate). There are no penalties for making extra repayments or switching etc
• Tracker - You pay a fixed amount over the ECB (European Central Bank). For example you might be quoted ECB +1% which would mean that whatever rate the Central bank change to, you will always pay 1% more than that. There are no penalties for making extra repayments or switching etc. Trackers have become very popular over the past few years as they have consistently been the best value (but there is no predicting the future!)

Mortgage Broker/Advice
The good news is that you can contact a mortgage broker, who will (or at least should!) give you impartial advice and deal with various banks on your behalf. Your mortgage broker should charge you nothing as they are paid commission by the bank (although there is talk of them bringing in fees due to the downturn and the fact that the banks have recently cut the commission rate).

Amount You Can Borrow:
There is no exact way of calculating how much the bank will sanction, as there is a huge variety of criteria in decisioning a loan. Anyone who tells you it is based on a multiple of your salary doesn't know what they are talking about.

Criteria include (but not limited to, not in any particular order):

• Net Salary
• Additional Income (ie, renting a room, dividends, bonuses etc)
• Credit history (if you've been in trouble in the last few years with even a small loan, you can forget about getting a mortgage in today's climate)
• History of savings
• Influential parents (ie, if you've a parent who has been a life long customer with impeccable record and high financial worth)
• History with the bank (If a great (ie profitable!) customer who has been with them a while, your own bank should be the best to deal with, but not necessarily so!)
• Financial sense (if dealing directly with your bank, a good idea is to bring in a budget showing exactly both your recent expenditure/savings (which you can prove by them looking at your account/statements) and how you intend to make the repayments no problem over the next few years)

Stamp Duty:
As a first time buyer, you don't have to pay any, unless you are buying with someone who already has bought a place. The only exception to this is parental mortgages where a parent is named for a short term on the mortgage (at the banks request), but not on the deeds of the house.

Legal Fees:
Shop around (ask friends/relatives in your locality who have purchased recently). You should have no problem getting a solicitor for under 2K.

Life Assurance/Mortgage Protection:
This is a legal requirement. Life Assurance is more expensive and pays off the full amount of the loan if you die during the mortgage. Mortgage Protection just pays off the amount outstanding. This probably doesn't really affect you now, but over the life of the mortgage you are likely to get married, have kids etc and so this is essential (hence it is a legal requirement). Check out LABrokers. There's been a lot of talk about them over the past few years, and when I applied last December, they were the cheapest.

There's a load more you will need to know, but this should get you started. Enjoy your new home!

none

Brilliant mortgage introduction for dummies by dotsman

Unfortunately, no more trackers now but everything else still seems to be valid.

Perhaps, somebody can just shed some light on the current rates of the last two points (Legal Fees and Life Assurance/Mortgage Protection)?

What are the average solicitor fees now?

This is what I found on ptsb site:

According to the Law Society Solicitors fees are usually measured on the recommended scale of 1% of the total price plus EUR 127, plus 21% VAT.

They quoted me almost 5K for the solicitor fees.

And with regard to Life Assurance/Mortgage Protection - are you free to choose which one to take or your lender will have the final say here?

Cheers:)

LionelNashe

roboc wrote: »

..... any advice on the legal fees involved.......

I would agree with the dotsman's advice to 'shop around', and also I would recommend that you question the solicitor about what the fee includes and what it doesn't. I was quoted 1200 '+ extras' a few years ago and was a bit naive - I did not realise straight away that the 'extras' added up to another €800 of land registry fees, VAT and so on.

ferga_com

none wrote: »

And with regard to Life Assurance/Mortgage Protection - are you free to choose which one to take or your lender will have the final say here?

You can and should shop around for all the insurances associated with a mortgage, including Mortgage Protection life cover, Mortgage Repayment Protection or Income Protection (which are optional) and property insurance.

none

ferga_com wrote: »

You can and should shop around for all the insurances associated with a mortgage, including Mortgage Protection life cover, Mortgage Repayment Protection or Income Protection (which are optional) and property insurance.

Thanks but I mean that Life Assurance and Mortgage Protection are different products and they, if I understand correctly, listed as "either this or that" but I'm not sure who makes the choice? I know that I can choose the insurer but I'm wondering if I can choose the product.

Long Onion

none wrote: »

Thanks but I mean that Life Assurance and Mortgage Protection are different products and they, if I understand correctly, listed as "either this or that" but I'm not sure who makes the choice? I know that I can choose the insurer but I'm wondering if I can choose the product.

You can choose both. You will be required to have the mortgage amount insured in the event of death but the lender cannot decide on with whom the cover should be effected.

You will have a choice between a decreasing life cover policy - this is usually the cheapest form of cover and the amount of life assurance you have will decrese in line with the mortgage. There are some points to note here:

a) These policies are inflexible so if you need to move to interest only payments, get a top up or take a moratorium, these policies will no longer meet the lenders requirements. This means you will need to take out a new policy. If this happens in the early stages of the mortgage it will not make a huge difference but as life cover becomes more expensive as you get older, any changes to cover in 10 years or so could mean that the cost of the cover increases significantly at this point. The cheapest policy from day one does not always work out better over the long term.

b) Most providers have a minimum premium, so explore the largest amount of cover you can get within that premium band - for example €100,000 over 25 years may cost €13 per month, €200,000 may well cost the same, if you take the higer amount, you may have room for manouvere later in the event of top ups, interest only etc.

The next type of cover is level term - here the amout of life cover does not decrease - this is slightly more expensive than decreasing cover but will allow for top ups (up to the original amount of the loan) and facilitate interest only payments, moratoriums etc. It will also provide cash for family protection needs as the loan amount reduces (i.e. surplus cash will be passed to the family.

To any of these policies you can add cover for serious illness, in the case of a decreasing cover, this is always known as 'accelerated' cover - i.e. the total cover granted is part of the life cover amount - e.g. decreasing Life cover of €200,000 over 25 years with serious illness cover means that if you contract one of the specified conditions, the policy pays out the outstanding amount and ends.

On level term cover, the illness portion can be 'accelerated' or standalone - the latter means that you are covered twice e.g. you get seriously ill so the polciy pays out, you later die, the policy pays out again.

Specified illness cover is significantly more expensive than life cover but consider the fact that if you become seriously ill and unable to work, the mortgage will still have to be paid.

If you opt to take the cover supplied by your lender, you may write it on a group basis which means that it is automatically assigned to the lender - this has some benefits when it comes to shortened medical questions and speedier issuance, however, should you change lender in the future, many of these policies cannot be re-assigned and so you will need to take a new policy.

Outside the life cover, you may opt for Mortage repayment protector or Permanent Health Insurance (Income protection) the former is quite expensive, will cover only the mortgage payments for up to 12 months and is notoriously hard to claim on - but it does cover redundancy.

The latter policies are much more comprehensive and will cover up to 75% of the total income until such time as you can return to work or reach retirement age. You can also offset the premium against tax, by and large these polices are a much sounder purchase than repayment protectors but they do not cover redundancy and may have limitations depending on your occupation.

In the case of considering either of these, I would calculate the cost of your mortgage repayments for twelve months and consider whether you could save enough to meet these payments in the event of redundancy, if the answer is yes, I would steer clear of MRP policies, I would, however consider PHI, possibly instead of serious illness cover as it tends to be cheaper and more comprehensive.

ferga_com

ferga_com wrote: »

You can and should shop around for all the insurances associated with a mortgage, including Mortgage Protection life cover, Mortgage Repayment Protection or Income Protection (which are optional) and property insurance.

If your mortgage is to buy a family home, you are under 50 and in good health, the life assurance cover is obligatory. All else is optional. Like Long Onion, I am wary of Mortgage Repayment Protection cover, even though I could sell it if I wanted to.

none

Long Onion, thanks for another masterpiece:)
Just one thing, I think there might be a confusion between Mortgage Protection and Mortgage Repayment Protection. I asked about the former but most people actually referred to the latter. I wanted to see if I can choose between Life Assurance and Mortgage Protection and appears I can. Life Assurance is more expensive (how much, on average?) but more robust and flexible so it seems the way to go if the price difference with Mortgage Protection isn't too big.
Thanks all for the input:)

broker2008

example:
male aged 29, non smoker would pay €10 per month for a Mortgage Protection Policy for a death benefit of €200,000 over 20 years(which reduces in line with annuity mortgage) or €15 for a Level Term policy where in the event of death over the 20 years, the full €200,000 would be paid out in the event of death.

none

OK, back to this subject
I understand that the value of Life Assurance (LA) stays the same with time whereas the value of Mortgage Protection (MP) depreciates. Now, since there is no surrender value and the benefit is payable only upon your death, what's the point of taking LA if you're not planning to die? I mean, seriously. Obviously, when you die, LA will pay more but I suppose most people who take these products hope to live longer and do, in fact, live longer so, in essence, they're overpaying.
So in short, if you won't die during the mortgage term, what's the point in taking LA?

ferga_com

Your query seems to be the philosophical one about insurance of any sort - should you bother when the statistical likelihood of suffering an insured event is relatively small? Very few people plan to get sick or die young but it happens all the time and there's nothing you can do about it. Living a healthy lifestyle will only take away some of your risk factors.

If you have kids or a dependent partner, it's certainly prudent to have life assurance to make sure that they are not left with debts or without your income in the event that you're one of the unlucky ones.

If you're single with no dependents, it's probably sufficient to have just enough life assurance cover to pay off your debts in the event of your death, e.g. Mortgage Protection life assurance.

Long Onion

Indeed - being honest, if you don't see the point in taking out life assurance, it means that the only reason you will effect a policy is because the bank won't give you the mortgage without it.

For your situation then, it becomes a matter of pure practicality and cost. The decreasing cover is cheaper but inflexible and will not facilitate a switch to interest only payments, a moratorium or future to ups, the level term cover ma do this.

What is the liklihood of you needing this and how much are you willing to pay for the flexibility? Therein lies your answer.

none

Thanks guys:) As most of us, I am a philosopher to some extent but here I'm trying to be only pragmatic. This is indeed only considered to satisfy the mortgage requirements, period. Life and death questions aside, what I was trying to figure out is what other benefits I get with more expensive LA option. If I got it correctly, I can't really pay lump sums while on MP as this effectively invalidates the policy which is supposed to insure only a certain amount and any deviations from that amount are forbidden? Is this the case? For me this would be an important obstacle. Can anybody elaborate on this??

ferga_com

Most MP policies will have a schedule of the rate of reduction in cover. ("Year 1 €100,000, Year 2 €98,500, Year 3 €96,900" etc.) Many calculate it assuming a 6% interest rate. So if you overpay your mortgage, you'll actually owe less than the amount you're covered for. This is fine for most MP policies, but double-check at point of sale - one or two policies I've seen in the past do inextricably link your mortgage to your policy. Most operate independently, and can even be continued if you paid off the loan entirely, but needed life cover for a different purpose.

Long Onion

You can still pay lump sums off your mortgage if you opt for the MP policy, this will result in an excess accruing which the bank would be obliged to pass on to your estate in the event of you death. There is no issue with being over covered, it is the converse situation which would result in problems.