4 Surprising Facts About Mortgages

As you are probably aware, getting on the property ladder is one of the most rewarding feelings you will ever experience, and while testing, it is certainly more than manageable if you take the time to familiarize yourself with the process. Now, the mortgage industry and the property market has changed dramatically over the last few decades.

It is tougher for the younger generation to get on the property ladder, there’s no denying that, but there are plenty of options now available. Today however, we’re going to focus on mortgages, but not in the way that you may have thought. Here we’ll be taking a look at a few surprising facts about mortgages.

The word ‘Mortgage’ has dark undertones

Did you know, that the word ‘mortgage’ is actually pretty-macabre? The reason for this is that it is literally related to death. The word has French origins and is derived from the French words ‘mort gaige’ which literally means ‘dead pledge’. The reasoning for this is that, if you fail to pay your mortgage, or if you pay it off, your mortgage dies. How’s that for a nice and cheery way to start your day?

Having no credit score hurts your chances of getting a mortgage

In order to be considered for a mortgage, the lenders first need to have a rough idea of how careful you are with your money, and how well you can manage your finances. This is why they check your credit score. If you have a good credit score, this proves that you can pay your debts on time, and that you can manage your money. A low credit score tells the exact opposite. But did you know that having no credit score is just as bad, if not worse, than a low credit rating? It doesn’t matter how good you are with your money, if the lenders don’t know anything about you, how can they be expected to lend you a sizeable amount of money? The answer is that they can’t.

Red doors aren’t just pretty to look at

In a world where white UPVC doors reign supreme, it’s nice to see a little colour on people’s front doors now and then. If you ever see a red door however, the owner may not simply enjoy the colour. You see, in Scotland, and in many other parts of the UK too, homeowners paint their doors red when they have paid off the mortgage to their home. When buying your first home, rather than champagne, why not celebrate paying off the mortgage by painting your front door red instead?

A lot of people don’t understand mortgages

You’d think that once you bag your first job and legally become classed as an ‘adult’ you would immediately understand how mortgages work, as if by magic, it seems. The reality is that a large percentage of the population do not understand how mortgages work.

The Extra Costs to Consider Before Buying a First Home

It’s not easy to save up and buy your very first home. There are a number of other costs on top of the deposit that should be considered. We’ll go into detail on these extra costs to help you save up the real amount you need.

As a first-time buyer, you likely know you have to put together a deposit worth at least 10% of the purchase price for your desired house. If you were to buy a house at €300,000 for example, you would need at least €30,000 in savings.

There are also some other costs that need to be considered before banks will be willing to approve a mortgage application.

  1. Stamp Duty

Stamp duty is likely the highest additional cost you will face. We’ll look at the different stamp duty rates and how those rates apply to first-and-second time buyers.

 

Property Type Value Stamp Duty Rate
Residential First €1 million 1%
Residential Every extra €1 million 2%

 

This means a house with a value of €300,000 comes with stamp duty worth €3,000.

Things are somewhat different when purchasing brand new homes though. The stamp duty will still be the same, but the rate will be applied to the value of the property minus VAT. The VAT for new houses in Ireland stands at 13.5%. That means that you would only be paying €2,595 in stamp duty for a brand new property worth €300,000 – which is 1% of €300,000 minus 13.5%.

A bank will require, at the very least, that you have enough money put together for both your deposit and the stamp duty on a property before approving you for a mortgage.

 

  1. Solicitor’s Fees

It is up to solicitors to handle conveyance, meaning that they undertake all legal tasks necessary to make you the legal owner of a property.

A solicitor may charge a flat fee for this, or they may charge a fixed percentage of the property value, commonly 1 or 2%.

Shopping around can help, but you should expect to be paying anywhere between €1,500 and €3,000 (as well as VAT). When you get a solicitor’s fee quote, be sure to ask if the price being quoted includes VAT or not.

 

  1. Valuer’s Report

Your lender wants to be sure that you’ll pay a fair price for the property, so they are also going to request a valuer’s report. The valuer is there to estimate the market value of the property to ensure that you aren’t overpaying for the property.

 

Lenders will often have their own valuers they will use for this, but you will still be required to pay for their report out of your own pocket. This can cost around €150 plus VAT.

 

  1. Surveyor’s Report

Before purchasing a property, it’s worth having a professional surveyor put together a report. That report identifies potential structural problems or defects with the property including damp, dry rot, condensation, and pyrite.

Your lender may or may not require you to have a surveyor’s report, and a bad report doesn’t mean that you won’t get approved for the mortgage. It means you know just what you are buying before going ahead with the greatest financial decision you will ever make.

Put aside an extra €300 plus VAT for that report.

 

  1. Insurance and Property Tax

There are some other costs associated with owning your own home that you might not be used to having to pay if you’re renting your home or living with your parents. This includes home insurance, mortgage protection, and property taxes. These need to be considered.

Many lenders ask you to claim mortgage protection. It is basically a life insurance policy that pays off the reminder of the mortgage balance should you die. The cost of this mortgage protection depends on factors like your health levels, age, and the mortgage value. You can expect to be paying around €20-€30 each month for the duration of the mortgage.

On a similar note, lenders require you to have home insurance to keep the property and the contents of it safe from fires, storm damage, and other problems. A home insurance policy costs around €300 per year.

Many banks will offer their own home insurance and mortgage protection deals, but keep in mind that there’s no obligation to take these offers. You can – and should – shop around for a good deal.

The last thing to consider is property tax. Property tax is a self-assessed tax paid to Revenue, based on the market value of the property. Houses with a value of €300,000 will cost around €500 per year in property taxes.

 

Shop Around Before Making Decisions

If you’re still starting out with buying a home, or are considering switching mortgage lenders, don’t forget that you can use a mortgage calculator to estimate mortgage repayments.