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Finance - Mortgages
Most people who buy a home borrow to finance the purchase, and repay the capital and interest over the term of mortgage, usually 20 or 25 years. Finding the right mortgage can be complex, with lenders offering different types of products. Here are some common questions about mortgages.
How much can I borrow?
The amount you can borrow is usually limited to three times your annual income if you are an individual buyer. For couples the limit is two and a half times the main income plus the second income. However, you should talk to several banks as some differ in their interpretation of what can be included as income.
What is the difference between the interest rate and APR?
Comparing mortgages on interest rates alone can be misleading, as it does not take account of fees or discounts in earlier years. The Annual Percentage Rate (APR) is the projected rate over the duration of the mortgage after taking the costs into account and is a more accurate comparison.
What are my mortgage options?
There are several types of mortgages available and the most suitable one will depend on your personal circumstances.
Variable rate mortgages
The monthly repayments are determined by current interest rates and will generally fluctuate in line with changes in the European Central Bank rate.
Fixed rate mortgages
The monthly repayments are set for an agreed fixed term irrespective of changes to the European Central Bank rate. At the end of the fixed term the interest rate will revert to the variable rate.
Discount rate mortgages
The interest rate is discounted for an agreed term, and at the end of the term reverts to the variable rate.
Flexible mortgages
Allows the borrower the flexibility to increase repayments and reduce the mortgage without incurring charges. Borrowers will generally pay a higher interest rate for the flexibility.
Interest only mortgages
The monthly repayments only cover interest, and no repayments are made on borrowings until the end of the mortgage term. The borrower will pay into an investment fund, such as an endowment policy, that will mature at the end of the mortgage term. The aim is for the investment funds to cover the borrowings.
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