What are the different types of mortgages in Ireland 2021?

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In Ireland, there are many different types of mortgage loans available to individuals. These types of mortgages include Annuity Mortgages, Interest-Only Mortgages, Pension Mortgages, Endowment Mortgages, and Deferred Starts. Though it is important to note that all of these mortgages are not widely available, understanding what each one entails is beneficial in understanding which mortgage best fits your needs.

Annuity Mortgage Explained

Annuity Mortgages are the most common type of mortgage loan. In this type of mortgage, the lender will determine the amount the monthly repayment must be in order for the mortgage to be cleared by the end of the loan term. Two components make up the borrower’s monthly repayment: the loan’s interest payment and the capital repayment. 

At the beginning, the majority of the borrower’s repayment will contribute to paying down the interest accumulating on the mortgage loan. However, over time as the amount that the borrower owes decreases, the interest contributions made on the repayments decrease while the capital contributions increase.

Interest-Only, Pension, and Endowment Mortgages Explained

In Ireland, Interest-Only Mortgages are primarily targeted towards buy-to-let borrowers and borrowers working in the property investment industry. Therefore, these mortgages are not targeted towards individuals looking to purchase their own home. In an interest-only mortgage, the monthly repayments only contribute to paying off the interest that accumulates on the loan. They do not contribute to paying off the capital balance.

Pension mortgages and endowment mortgages are the two main types of interest-only mortgages. Their names refer to the method used to pay back the original loan amount, or the capital balance. With these two types of mortgages, the borrower takes out either a pension or endowment policy at the beginning of the mortgage that will build up the funds needed to repay the original loan amount.

The original loan amount can also be repaid when the borrower later sells the property and uses the proceeds generated from the sale to pay down the amount.

It is important to note, however, that there is no guarantee that the above methods will generate enough funds to pay off the original loan amount.

Deferred Starts Explained

Deferred starts to mortgages allow borrowers to delay mortgage repayments for a given number of months. During these months when the borrower is not making loan repayments, the lender will be charging interest on the mortgage. This interest will be added to the original loan amount, thereby slightly increasing the mortgage balance before the borrower begins to make repayments.

Deferred starts can be useful in the event that the borrower needs to furnish, decorate, or renovate their home. However, it will increase the overall cost of the mortgage loan.

There are many types of mortgage loans available. Before deciding which is the best for any given situation, it is important to understand how they work and how they differ from each other.