Which Mortgage Is Right For You in 2021?
Securing the optimal mortgage deal could save you wads of cash. But knowing which mortgage is right for you in 2021’s still uncertain times can be seriously confusing.
Our spotlight on the various mortgages on offer in Ireland is here to help.
Read on for guidelines to find the mortgage that might make sense for you to snap up in 2021.
COVID-19 has changed the face of our society forever, with the withdrawal of countless mortgage deals at the start of the pandemic leaving many buyers out in the cold.
However, the good news is that the housing market is slowly coming back to life, and many companies are now looking to attract potential movers with enticing deals.
But, with such a wide range of options currently available, many people are finding it slightly overwhelming trying to decide which type of home loan is best suited to their needs.
So, if you’re wondering which mortgage is right for you in 2021, this is where we can help. Listed below, we have outlined the various types of mortgages currently available, highlighting exactly how the COVID-19 pandemic has affected them.
But before we get started, it’s important to remember that no individual financial background is the same.
The type of mortgage you will be able to get will depend on a number of factors; your income, how strong your credit score is, how in control of your spending habits you are and how stable your job is.
As such, it’s important to bear this in mind as you navigate through the various types of mortgage listed below.
Fixed-rate mortgages are one of the most commonly seen offers out there, typically using a fixed interest rate over a designated period. You may, for example, find a product with a fixed interest rate of 3.5% for a set period of between three, four, five or even ten years. Generally speaking, the longer the fixed term length, the higher the interest rate will be.
Fixed-rate mortgages may provide peace of mind to those looking to maintain a strict budget, as repayments will not go up or down and you know exactly how much you will be paying for the agreed-upon period.
That said, if you lock yourself in to, say, a 15-year repayment deal, there’s a chance that interest rates could dip during that period, and you’ll be doling out more dough than might have done with another loan deal.
Another downside is that some fixed rate products might charge to end your term early. This could be a real issue for buyers whose circumstances changed as a result of the pandemic,
Our advice? Be realistic about your circumstances and, if in doubt, talk to a professional mortgage advisor.
But, with interest rates currently frozen thanks to COVID-19, fixed-rate mortgage products could put buyers in a potentially better position to get a great deal on buying their dream home.
Variable Rate Mortgages
Variable-rate mortgages are also an extremely popular option.
As opposed to fixed-rate mortgages, the percentage of interest for variable-rate mortgages changes depending on the lender. i.e. if you got a mortgage at a rate of 3.5%, for instance, and six months later the lender drops their rate to 3%, you would only pay 3% interest from then on. However, if the lender were to increase their rate to 4%, this would be passed on to you and your payments would also rise accordingly.
It’s, therefore, very easy to see possible disadvantages of a variable rate mortgage, with buyers potentially facing increased uncertainty and a greater risk that low initial rates could become higher as months go on, resulting in higher payments.
However, there could be some benefits for those whose circumstances are likely to change. Variable-rate products may have lower fees or no fees at all for those looking to make changes to their financial structure and so could provide greater flexibility for buyers.
Tracker & LIBOR Linked
Tracker mortgages are similar to variable-rate mortgages in that the rate of interest you pay is subject to change.
Unlike variable mortgages, where the lender sets the rate of interest, tracker mortgages usually follow fluctuations in the European Central Bank interest rate with a lender margin added on top.
Say, for instance, the European Central Bank interest rate is set at 0.5% and the lender margin is 1.5%. This means you would effectively pay 2% – the sum of those two numbers. If, however, the base rate was to increase to 1%, your payments would follow suit and – in turn – rise to 2.5%.
LIBOR Linked mortgages also follow this model but, instead of rates being reflective of European interest rates, they are set by the London Interbank Offer Rate. These types of mortgages are not as common and, according to the Mortgage Finance Gazette, many lenders are currently transitioning to new systems before the end of 2021.
Both tracker and LIBOR mortgage products could provide benefits to short-term borrowers due to a higher probability of interest rate fluctuations. But this may prove difficult for those on a budget or borrowing over a longer-term. This latter point particularly relates to LIBOR linked mortgages which won’t be on offer from most major lenders by mid-2021.
Capped & Offset
Two less common mortgage types are capped and offset mortgages. Capped mortgages are products where the interest rate cannot rise above a certain point, meaning that you would never pay over the agreed-upon amount.
While these may seem enticing, they are increasingly hard to find and you will likely pay for the privilege of added security.
Offset mortgages may be available to those who wish to keep their savings and mortgage with the same bank. The bank could offset the mortgage amount with the balance of your savings account.
For example, a person requiring a mortgage of €100,000 with savings of €40,000 may only make payments based on a mortgage balance of €60,000, because the bank has “offset” the savings amount.
Be aware, though, that some banks may require a minimum amount of savings to remain in the account.
COVID-19: Things to Consider
COVID-19 has completely changed the way we function and, unfortunately, the mortgage market has not gone unaffected.
There are now a few factors to especially think about when shopping for a mortgage:
- If you have been part of the Temporary Wage Subsidy Scheme, check with lenders about what their stance is on borrowing, as some might only base your mortgage amount on your current salary.
- If you have taken a mortgage payment holiday or relied more heavily on credit options during the pandemic, your credit score may have been affected (even, we’re sorry to say, if the bank told you it wouldn’t be). This could affect your ability to get a mortgage, so you may need to improve it before applying for financing
- Some lenders have decreased their loan to value ratios, meaning that first time buyers could need a bigger deposit than initially planned.
While incentives to move home may be everywhere right now, it’s important to choose the right mortgage product for your personal circumstances.
Always do your research and speak to a trained mortgage advisor for tailored advice where possible.
And, perhaps more importantly, don’t let choosing ‘the right mortgage’ dampen your spirits while searching for your dream home.
If you are ready to buy a house or apartment in Ireland, why not check out our wide range of properties for sale in Ireland and Dublin or find an estate agent in your area here.
*Perfect Property does not claim to offer professional mortgage advice and cannot be held liable for individual mortgage choices.