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Repayment/Annuity Mortgage

The repayment/annuity mortgage is the most common one. Each month the borrower repays both monthly interest and a portion of the loan amount. Repayments in the early years of the mortgage are mainly comprised of interest. The balance changes to downpayment of the loan as the period progresses, until the loan is fully paid.

Endowment Mortgage

The endowment mortgage was a popular option in past years when returns were impressive at a time of both high interest rates and investment returns.

The product is an interest only mortgage that is supported by an endowment life assurance policy. The borrower pays only interest during the term of the mortgage and the loan amount remains outstanding until the end of the term. Premium payments are payable on the endowment policy during the term. The endowment policy is similar to a life assurance investment/savings policy that is designed to provide an amount to repay the mortgage at the end of the term.

In recent years, stories of shortfalls in the amounts available to pay off loans, have made borrowers wary of the product.

Pension Backed Mortgages

Pension mortgages are similar to endowment interest-only mortgages. A pension plan supports the mortgage instead of an endowment policy. The product is only available to the self employed or persons in non-pensionable employment.

The lump-sum portion of a pension plan is used to repay the mortgage principal. The borrower has the advantage of gaining tax relief at the highest tax rate on the pension premiums.

Variable Rate

The interest on varaible rate loans can rise or fall depending on changes decided by the lending institution. Rate changes are mainly determined by base interest rates set by the European Central Bank.

Fixed Rate

The interest on fixed rate loans are fixed for a specified term generally ranging from one to ten years. During the fixed period, payments remain constant. The rate on a 20 year mortgage can be fixed for say 3 or 5 years when interest rates are unlikely to fall, thereby ensuring constant payments during the period.

At the end of the fixed period, the borrower can choose to fix the rate for another period, using the rate prevailing at that time. Alternatively, the option of the varaible rate is available.

If in the course of the agreed fixed period, the borrower wishes to pay back the loan or change the agreed rate, a redemption fee is normally payable.

APR Rate

The Annual Percentage Rate (APR) takes account of cost outlays that are payable at the beginning of a mortgage, which are additional to the interest payable. This is why the APR is higher than the related standard rate.

The APR is important as it enables realistic comparisons between the offerings of different lenders. For example, a special low start-up rate may be on offer to new customers for a fixed period. As the rate paid at the outset does not reflect the real cost of the loan, the APR informs the borrower of the annual percentage interest rate that may have to be paid in the future.

Articles:

Irish house prices year to date

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Construction and Housing in Ireland Report July 2006: CSO says Construction Output up 80% in 5 years - Mortgage debt increased from €33bn in 2000 to €100bn in 2005

Irish housing boom may boost public finances to €9bn this year; Government collects average of €100,000 in taxes from the cost of every new housing unit built in State

Irish house prices up 270% since 1996 rising at average of 14.9% for each of the last ten years; Construction sector may shed over 100,000 jobs by 2016

Irish First Time Buyer couples nationally are spending on average 27% of their income on their mortgage repayments

State of Chassis: Artificial restriction on land supply puts Ireland and UK at bottom of property league in Developed World; Irish urbanisation at 4% is among Europe's lowest

July 2005:  New Permanent tsb/ESRI home purchase study on Irish First Time Buyers

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