While we have not returned to the heady days of the Celtic Tiger, more and more of my clients are starting to look again at property, both as an investment and many are starting to look again at trading up their private residence too.
This means I am seeing more and more Mortgage Applications and during a conversation with a prospective client, he asked the very relevant question: “how can your service deliver benefits greater than those I can secure myself?” He, rightly, was under the impression that qualifying for a Mortgage is based on “arithmetic”, which means that the borrower either qualifies or not, subject to their Ability to Repay and the Security on Offer. Thus, also rightly, my client believed that whether or not he qualified for a Mortgage was already decided and there was nothing a Mortgage Broker could do to change that.
My reply was another question: “do you believe that the cost of your Mortgage is dictated by the interest rate alone?” My prospective client answered, as most borrowers do, “yes” to this question, but this is simply not the case! There are multiple influencers on the true cost of any loan, and in the case of a Mortgage the following illustrates this point: –
- Interest Rate – Of course, the higher the interest rate the higher the cost, so this is an important contributor to costs.
- Interest type – The type of interest rate you are offered will considerably affect the costs over time. A rate, for example, linked to the EURIBOR will be one that can only increase in the future if market conditions dictate. On the other hand, a variable rate or a rate linked to EURIBOR plus some bank generated margin (sometimes referred to as “prime” or “base” or “RAC”….etc.) is a rate that may increase at the lender’s discretion and so offers little but an indication of the rate payable on Day 1.
- Security – All lenders will need to have some valuable security that they can sell in the event that a borrower fails to make repayments. Some will satisfy themselves with the Property itself, some will look for additional security and the more assets a borrower ties up in any loan arrangement, the higher the real costs.
- Capital Repayment – Some lenders, while they take capital monthly, only apply that capital annually, causing the true interest costs to be higher than the interest rate displayed.
- Arrangement Fees – Many loan offers can include such a charge and many even add this to the mortgage and show it as part of the loan offer, sizeably increasing the costs as it gets paid over the loan term and not up-front.
- Life Insurance – There will almost certainly be the need for “death cover” in place to repay the loan if you were to die during the repayment term. Many lenders will either own Life Insurance Companies and/or have group arrangements with independent Insurers and rarely do such policies offer the best value for money. No lender can insist on you using their preferred supplier and independent agents, most of whom have a “price pledge” guarantee in place with Ireland’s major insurers, will ensure you pay no more for this basic type cover than is needed.
- Term – Where time value of money is concerned, the longer you repay a loan over the less expensive it will be. Consider it this way, imagine a simple loan for a moment from a friend, you borrow €100,000 and you repay him at €10,000 per annum over ten years. However, the “value” of the €10K paid in year 1 is NOT the same as the value in year 10, simply due to inflation eroding the buying power. If we assume inflation at 2% per annum in this example, the real value of the year 10 €10K is just €8,200.
- Property Insurance – As in the case of life insurance above, preferred suppliers and/or subsidiary suppliers tend to be involved by the lender, but again you have the right to search the market for your best fit and we will help you do so.
Not only can an independent agent ensure you get the Mortgage Offer you deserve, but his/her superior knowledge and experience will ensure you take ALL costs into account when deciding upon your next mortgage. Qualifying for a loan is mathematical and, in truth, if you do qualify under the underwriting rules, you qualify under ALL lender’s rules, as they are all pretty much the same. An impartial and independent agent cannot get you a loan when you do not qualify, but he/she can get you the right loan at the right price and this can save tens of thousands of Euro over the repayment term.
My advice to all is seek the help and advice of a truly impartial agent (like me) as they will pay for themselves over & over again during the repayment term.
Paul A. Overy QFA, FLIA
