Trading up or retaining your property to rent out?
There are quite a few myths and misconceptions surrounding mortgages, particularly in the current economic climate. Here are some common myths about mortgages explained by Liam O’Connor and Sinead Gilsenan of Irish Mortgage Corporation.
1. You have to be a customer to get a mortgage with a particular bank
It is a common misconception that the bank you have your accounts with will be the right one for you to get your mortgage with. By looking around a bit more, you can save money on your homeloan repayments and it won’t affect who you normally bank with. Most lenders are looking for customers who are attractive to them in terms of repaying monthly mortgage repayments and being an existing customer is not a requirement as all applications are assessed on a case by case basis using normal lending criteria.
2. Banks aren’t lending
Banks are lending again and this is reflected in the market numbers. Albeit from a low base, gross mortgage lending has increased from €3.48 billion per annum in 2012 to a likely €8.5 – €9 billion in 2018.
3. It costs more to buy than to rent
This is a common myth with people believing it is better to rent than to buy. In nearly all the cases we see, the monthly mortgage cost is lower than if the property had been rented.
4. Cashback mortgages are a good option.
Unfortunately not. In the main, these offers of for example 2% cashback when your mortgage completes can be best described as an upfront loan which is paid for dearly in the long term. This is based on the much more expensive prevailing variable interest rates applicable. This is further reflected in the more expensive APRs typically applying on these cashback products. Treat them at your peril! Thankfully, it looks like they will be banned by legislation soon.
5. I have to take the bank’s house insurance and/or life cover products
As part of their homeloan packages when dealing directly, the lender will offer you their house insurance and/or life cover products. This isn’t always a great idea. Apart from having no obligation to take what the bank is offering, you could end up limiting your choice and be spending more than you should. Reason is most banks linked with just one house insurance or life cover provider. By shopping around through the service of an independent broker you can get the best price available in the market but also the products that best suited to your needs.
6. If my current home is in negative equity, I can’t get a new mortgage
People normally move homes because their family is growing or they want to relocate for personal or professional reasons. If your home is in negative equity and you would like to trade up or down there are options including a Negative Equity (NE) mortgage. This allows you to add the negative equity balance from your old property onto the mortgage for your new property.
7. It’s possible to get mortgage approval in principle in 15 minutes
An approval in principle or AIP for short gives prospective buyers an idea of how much they would be approved for based on the information they provide about their finances. When you see adverts that read ‘Approval in principle in 15 minutes’ this is not a full approval. This is an indication of the amount you may qualify for provided all the information you input was correct. Lenders can’t give a formal approval in principle without fully accessing your application and supporting documents and then issuing you an AIP valid for 6 months typically.
8. Broker placed mortgages are more expensive than going directly to a bank
A common misconception is that going through a mortgage broker will be more expensive than going to a bank. A broker will have a number of agencies with various lenders in the market. By choosing to go to a broker you can save time and money on your mortgage. When you go with a bank you only have one choice of mortgage but with a broker their job is to find you the most suitable mortgage that meets your needs.
9. If Self-Employed or on an employment contract it’s impossible to get a mortgage
Not the case. With proper packaging and presentation, such applications can have the same chance of success as a typical salary/PAYE applicant.
10. Banks reward loyalty
We’re afraid not. No additional benefits like a better mortgage rate if you are a (long-time) customer of a bank. As such make sure to consider the market and not just your own bank as the wrong decision could cost you thousands!
Irish Mortgage Corporation
118 Lower Baggot St
Phone: 1850 444 474