Q: I am currently taking out my first mortgage of €290,000 on a five-year fixed rate. I have been offered two deals. One is at 2.3pc and one is at 2.7pc, but with €5,000 cash back. Which is better?
A: This is a question that people applying for a mortgage often get wrong, according to director at Affinity Advisors Peter Gilbourne.
What you need to do is contrast the total mortgage payments over the five-year fixed rate period for each rate. Obviously, the repayments on the 2.3pc will be lower, but you must then factor in the €5,000 cash offer, Mr Gilbourne says. You should also consider whether or not you need a cash injection of €5,000. Based on a mortgage of €290,000 on a five-year fixed rate over a 30-year term, your monthly repayments would be €1,176 on a 2.7pc rate. They will be €1,115 on a 2.3pc rate, he calculated. The monthly difference would be €61 over 60 months which amounts to €3,660 over the five years. However, when you factor in the €5,000 cashback you would be €1,340 better off with the 2.7pc rate plus cashback over the initial five years. You should also consider what happens when the rate matures and it is up for renewal in five years. Cashback lenders tend to offer existing customers higher rates when they are renewing as they wish to recoup their outlay on the cashback, he said. Long-term value lenders, which have the lower rates, will offer their existing customers cheaper new business rates. If you do need the €5,000 initially, then it might be better to go for cashback to start and then review with a broker and switch to a long-term value lender after five years, getting the best of both worlds, Mr Gilbourne said.
Q: I’m a self-employed plumber and have not worked in five months. When lockdown happened I cancelled my van insurance because I couldn’t afford it. I haven’t had the means to restart my insurance and I can’t work without the van. I hear the Government has announced a new grant scheme. Do you know if I’m eligible to get this?
A: The grant is specifically targeted at people in your position so you should be eligible to receive it, according to Jonathan Hehir, managing director, Insuremyvan.ie. Initially, when the scheme was launched, certain business costs were excluded – one being the insurance premiums on your van, he said. After lobbying from Insuremyvan.ie and other van insurance providers, the Minister reversed the decision and van insurance is now included.
There seems to be an acceptance at Government level, that without transportation, it is impossible for you to carry out your job on a day-to-day basis, he said. However, you should note that your public liability premium also falls under this grant. The grant is worth up to €1,000, Mr Hehir said.
Q: My mortgage lender facilitated a payment break for us over the last four months as my husband lost his job. He’s now back in full-time work and I’m back working part-time. I would like to get back on track with my payments, but I wonder if I would be better off extending the term or paying a higher monthly amount.
A: There are two main options when looking at coming back to full payments, according to director of Affinity Advisors Peter Gilbourne. The first is to spread your payments out across your existing term. While this keeps to your original mortgage payment schedule, it will mean your monthly repayments will be higher than currently, as the payments that were on hold and the interest charged during the hold period will now be spread out over the agreed term you have left . The second option is renegotiating your mortgage term and extending your repayments to take the payment break into account. This will mean that repayments that were put on hold or reduced and the interest charged during the break will be recalculated and due for repayment over a longer term However, you also need to consider the additional interest that will accrue You may pay less monthly, but would face increased interest payments over the life of the mortgage, Mr Gilbourne said. One decision that will definitely pay off is returning to full payments as soon as you can, the mortgage expert said. This will make the loan cheaper over the longer term. Any extension to the life of your mortgage, also needs to be matched by an extension in your life cover.