How much can you borrow?
The amount you can borrow depends largely on what your repayment capacity is.
How will the bank calculate your repayment capacity?
The banks have a ready reckoner for “reasonable living expenses” * based on marital status and number of children.They calculate your net disposable monthly income and deduct from this your reasonable living expenses and loan repayments, to arrive at your repayment capacity.
A couple with 2 children earning a net income of €42,000 pa
They have a credit union loan, repaying €200 p/mth
|Net Income||€ 42,000|
|Married – Reasonable living expenses||€ 2,050||€ 24,600|
|Children x 2||€ 500||€ 6,000|
|Loan Repayments||€ 200||€ 2,400|
|Annual Repayment Capacity||€ 9,000|
Result: a repayment capacity of €9,000 per annum or €750 per month. Based on this the maximum mortgage available would be in the region of €135,000 – €140,000 over a 35 year period.
*AIB table of reasonable living expenses
What are the key principles of mortgage approval?
- Your income needs to be secure: Be in permanent employment for at least 6 months if an employee or at least two years in business if self-employed (some banks may look for 3 years).
- Proof of affordability: A savings history enhances your case, and if you are currently paying rent, the bank likes to see rent payments paid through a bank account and not by cash.
- Have the required deposit: 10% for first-time buyers and 20% for second-time buyers.
- A good credit history/behaviour on your account: Banks don’t like to see referral charges/returned items or online gambling on a regular basis.
What documentation do you need when making a mortgage application?
If you are in Employment
- Salary certificate completed and stamped by employer;
- Most recent P60; and
- 3 months’ up-to-date consecutive payslips.
If you are Self Employed
- 2-3 years trading accounts (audited/certified by your accountant) depending on bank;
- Confirmation of tax position from your accountant; and
- 2-3 years Revenue Notice of Assessment depending on the bank.
- 6 months’ statements are required for any current, savings or investments accounts; and
- 6 months’ statements are required for any loan or mortgage accounts.
Mortgages – Why you need Financial Advice
We all know that getting a mortgage is much more difficult than it has been in the past and, if successful, is probably the largest investment many of us will ever make.
Therefore, it is really important to get accurate information and good advice before making your mortgage decision.
Getting it wrong at the outset could cost you a lot of money.
Q: So what should you do?
A: Talk to a Financial Advisor
And here’s why – financial advisors:
- Keep up to date with the lending criteria which lenders apply when assessing mortgage applications; therefore, they can guide you through the mortgage application process with relative ease.
- Will show you how the length of your mortgage will affect the total amount you pay back. The differences here can be staggering.
- Explain the long-term effects of different interest rates. 0.5% may not sound like much but over 35 years it can add up to a lot.
- Explain just how ‘special’ the special offers are, and advise you on whether they will work out for you financially in the long term. In many cases, they don’t!
- Will assess how much you can actually borrow.
- Offer you clear advice across lenders. When you go to a bank they can only advise you on their product, the one they are trying to sell you!
How the term of your mortgage affects the amount of interest you pay?
The table below compares the amount of interest you will pay at 3.9% on a loan of €140,000 over 25 years versus the same loan over 35 years. Look at the total interest and see how staggering the difference is!
The difference in the monthly payment is only €119.74 (€731.26 – €611.52) but results in a massive saving of €37,457 (€116,836 -€79,379) over the term of the mortgage.
How the interest rate on your mortgage affects the amount you pay?
The table below compares the amount of interest you will pay on a loan of €140,000 over 35 years based on a rate of 3.15% versus the same loan at a rate of 4.5%.
The above calculations use the actual interest rates on a variable rate mortgage quoted by two of our main banks as at 01/02/2018 with a Loan to Value (LTV) of 90%.
The interest rate differential of 1.35% has a huge impact if maintained over the term of the mortgage. Over 35 years it amounts to a potential total saving of approx. €47,032, assuming interest rates don’t change.
Why Choose MLMG?
As financial advisors looking at your income, financial commitments and existing loans, we can assess the likelihood of your mortgage application being accepted and guide you through your mortgage options. We will give you advice that will benefit you not just now, but for the next 20 or 30 years. We are not tied to any particular provider so we advise on all the main provider products and with over 60 years’ of combined experience in financial services, you can trust our expert advice. We have a standard charge of €100.00 for an initial Mortgage review. Contact us today or call us on 07493 21420 for your no-obligation consultation.