When you’re buying a house, there’s an awful lot of highfalutin bullshit to wade through.
Plenty of terms that the average Joe just don’t know.
So to help you survive the onslaught, we’ve created a Mortgage Bullshit Buster, or MBB if you will.
Without further ado…
The word mortgage dates back to the late 14th century, with the roots “mort” meaning death in French and “gage” meaning pledge.
So that literally makes a mortgage a “death-pledge”, and yes, it sure feels like you will be paying it until you’re dead 💀
In reality, a mortgage is the name for a loan you get from a bank/lender to pay for a home, a homeloan in other words.
You agree to pay back the loan over an agreed number of years for a monthly repayment.
Once you have paid back what you owe, the house is yours!
When you’re comparing mortgage rates, the APR tells you how much the mortgage will cost you each year, including hidden fees.
Think of it like buying concert tickets online.
The ticket price might be €50, but after adding service fees, delivery fees, and taxes, you actually pay €60.
If you only looked at the ticket price, you’d miss those extra costs.
The APR is like seeing the full €60 upfront, so you know exactly what you’re paying.
So, if one mortgage has an APR of 3.5% and another has an APR of 3.6%, the first one is cheaper overall, even if their interest rates seem similar.
A variable mortgage rate is where the amount you pay back to the lender can change.
If the bank increases their variable rate, you will pay more.
If the bank reduces their variable rate, you will pay less.
If you choose a fixed rate mortgage, your repayments are fixed (don’t change) for an agreed period.
e.g if you choose a 5 year fixed rate with repayments of €1267 per month, they will stay at €1267 every month for 5 years.
After the 5 years, you can fix again or choose to go on a variable rate.
The Loan-to-Value ratio (LTV) is a way to compare the amount of money the bank is lending to the value of the house you are buying.
This is important for the bank because a higher LTV means higher risk for the lender because they are lending a higher percentage of the value of the property.
Therefore a lower LTV will mean a lower interest rate for you!
Let’s say you are borrowing €300,000 and the value of the house is €400,000.
The LTV is 300k/400k = 75%
If you were borrowing 200k, the LTV would be 50% meaning less risk for the bank so the bank will offer a lower interest rate.
The LTV ratio helps lenders decide how risky it is to lend money for a house purchase.
This is where you repay both the principal and the interest over the term of the loan, gradually reducing the balance owed to the bank.
This is the most common repayment method for a residential mortgage.
On an interest only mortgage, you pay only the interest for a set period, with the principal repaid at the end of the term
Investor or rental mortgages are usually interest only.
You can pay more than the agreed monthly repayment.
By doing so, you will pay off the mortgage sooner.
Your mortgage drawdown date is the day you “draw-down” or cash that big fat mortgage cheque from the bank.
It’s also known as Cheque Issue Date.
In reality, you’re not going to be cashing a giant cheque like a LOTTO winner.
3 numbers would be nice sometime 🙄
Instead, the bank transfers the mortgage funds electronically to your solicitor’s bank account on the drawdown date.
You must have your mortgage protection and home insurance in place before your drawdown date (although we recommend having it in place before you sign binding contracts)
Your drawdown date usually comes just before your closing date.
This is THE BIG DAY.
When you become a homeowner, you get your keys and can move in.
This has to do with your home insurance.
If you’re getting a mortgage, you have to take out home insurance just in case the house goes up in smoke.
Your home insurance provider will issue a letter of indemnity naming your lender (the bank) on the home insurance policy.
You give this letter to your bank, and they tick a box.
This is similar to a letter of indemnity but has to do with your life insurance/mortgage protection.
When you get a mortgage, you need life insurance or mortgage protection to clear the mortgage if you die.
What’s the difference between mortgage protection and life insurance?
The bank needs a copy of your policy to prove you have said cover.
They also make you sign a Deed of Assignment, which transfers your policy ownership to the bank.
If anything happens to you, the bank gets the proceeds of the policy (so be careful not to add serious illness cover to your mortgage protection)
Your insurer will issue a Confirmation of Assignment letter to your bank proving ownership has been transferred to the bank.
Your bank ticks another box.
Quick quiz – say you add serious illness cover to your policy – Who gets the proceeds of a serious illness claim?
Now, there’s a fancy word.
All it means is “payment break”.
Let’s say you get a 6-month moratorium at the beginning of your 30-year mortgage.
So you won’t have to pay a cent for six months.
Sounds dreamy – think of everything you could buy from IKEA in those six months.
Of course, the insurer will hike your repayments over the remaining 29.5 years of the mortgage to ensure you pay it off in full.
So maybe it’s not as dreamy as it first sounds.
If you’re:
your bank, at their discretion, may offer you a mortgage protection waiver.
This means you can proceed with your mortgage without having life insurance.
You must sign a declaration stating you understand the consequence of getting a mortgage without life cover.
In plain English, if you die, your partner will have to stump up all the mortgage repayments on their own, or they will lose the house.
The legal work involved in transferring property ownership from the seller/vendor/property owner to you, the buyer, is known as conveyancing.
You shouldn’t need to worry about this.
Pay a competent solicitor, and they will remove all the headaches here.
Best House Purchase (Conveyance) Solicitor Ireland
Don’t go cheap when employing a solicitor, as discount conveyancing may come back to bite you on the arse if the proper checks have not been carried out.
Look for recommendations from friends who have been through the process before.
DO NOT google “cheap conveyancing”.
PRO TIP If you do google it, avoid all the firms you find advertising “cheap conveyancing”.
It’s cheap for a reason, people.
A broker will help you find the best deal for your mortgage. Unlike going direct to a bank that can only offer you one mortgage, a broker gives you a choice of mortgage lenders.
Make sure your broker has access to all of the lenders in the Irish market.
Professional fees start at €1,000, not including VAT and outlay.
Get recommendations and shop around.
You’d be crazy to pay less than €1500 for a professional fee.
Remember what I said about cheap.
The standard valuation fee is €130.
You don’t need a structural survey, but look, you’re paying hundreds of thousands of euros for a gaff.
Isn’t it worth paying €400 to ensure it won’t fall in a few years?
Get House Survey is the best in the business, and they offer fixed prices based on the size of your humble abode.
Pretty simple:
If your dream home has a purchase price of €375,000, you will pay 1% of this, which is €3750.
Ah, finally, it’s my time to shine 😎
Two types of insurance are mandatory.
Shop around for this stuff, or you could pay through the nose.
If you’d like a quote, we can help; complete this questionnaire
It’s easy to get confused about the type of life insurance you need when getting a mortgage.
Your loan offer says you need life insurance coverage when, in fact, all you need is a type of life insurance called mortgage protection:
Your cover reduces over time (the same way your mortgage reduces as you pay it off).
God forbid you shuffle off this mortal coil unexpectedly. This policy will clear the outstanding balance on your mortgage.
Mortgage protection costs much less than life insurance, so be careful not to be hoodwinked into buying an expensive policy.
You don’t need life insurance when getting a mortgage
Should you combine life insurance and mortgage protection – absolutely not – here’s why
Hopefully, that’s made things a little clearer.
Unfortunately, it’s impossible to avoid jargon when you’re getting a mortgage, but if you are ever confused by the terminology, don’t be afraid to raise your hand and ask a question.
Some of us old-timers have been in the job so long that we forget what it was like to know nothing about mortgages.
The Curse of Knowledge is real.
Best of luck buying your new home. If you need any insurance-related help, please complete this questionnaire, and I will email you a no-obligation recommendation on the types of insurance you should consider.
Thanks for reading
Nick
Editor’s Note: We published this blog in 2020 and have regularly updated it.
As Ireland's leading life insurance broker, we specialise in comparing the rates and policies from the top five Irish life insurance providers and offering the very best value quotes to suit the individual needs of our clients. Our expertise lies in finding a suitable insurance plan for those with specific needs, be it a particular illness, occupation or claim history, we've got you covered in every sense!
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