New mortgage trends – Will Irish lending turn American?

Today we received an email from Haven Mortgages about their updated interest rates, we were pleasantly surprised because for the first time in a long time there were some very attractive long fixed rates. Recently banks have had no choice other than to lash on margin in order to pay for the funds they were securing. The new 10 year fixed rate from Haven is 5.66% it is also the cheapest rate they offer.

What does this mean for a borrower? Well, on one hand we have Trichet saying that he doesn’t see inflation coming under control until 2010 and as the ECB’s only job is to control inflation it would therefore stand to reason that we won’t see a rate cut any time soon. Economists and commentators (myself included) have made some bad forecasts and for that reason I would be prone to feel that the rate outlook is uncertain, at best the current climate is guesswork. This means that a borrower would do well to buy some stability, a way of doing this …

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Financial Literacy: What is a Mortgage? How do mortgages work?

Financial Literacy posts are designed to be more than just a simple definition, they are aimed at putting financial concepts into easily understandable terms and to give an example or two to demonstrate the answers.

Today we ask: What is a Mortgage?

By definition a mortgage is pledging a property to a lender as security in return for a mortgage loan. While a mortgage is not an actual debt it is evidence of a debt and is the legal instrument used to transfer an interest in land from an owner to a lender on condition that it will be given back to the owner once the terms of the mortgage have been satisfied.

I am a big fan of pictures so we shall use a few to show what happens.

Let’s take the example of ‘Joe’ who wants to buy a house. He must save up a deposit as loans require ‘equity’ it gives the bank some security in the sense that it means the person is vested in the purchase (they stand to lose …

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How bank margins are likely to be set in the future

We have seen the rise of the ECB (European Central Bank) over the last three years and the possibility of more is never far from the mind of the ECB. The current cost of mortgages however, is not solely tied to the prices set by the ECB, instead it is down to banks piling on lending margin [that makes loans more expensive to the consumer but more profitable to the bank].

It is important to think about this when you think about where your money is going to be going in the future, margins have widened from about 0.5% or there abouts to more than 2% in many cases meaning that there is a 1.5% uplift in the actual mark up the bank is charging, that translates into an extra €375 per month on a mortgage of €300,000 (in interest payments only!).

The chances are that we will not see margins go as low as we did in 2005-2007 any time soon, and even if we do …

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Beat the bear that is beating the bull.

There are many lessons to be garnered from a financial crisis, the downside is that for most people 99% of the lesson is delivered only in hindsight.

Today we will look at some of the lessons you can take from a financial crisis and use them (or at least understand them) to your advantage. If we accept that risk (including upside risk – which is generally well loved!) is a reality then you can do your best to look objectively at this risk and what to be aware of.

1. The Government and Banks or Big Business are not there to help you or warn you: This is fairly straight forward but a surprising number of people feel that the government should have stopped house prices from falling, now we see people calling on the government to get the housing market kick started again and the singular binding feature is that in both cases nothing is done. Banks are just the same, in the USA Bear Stearns issued statements saying they were doing well only two days before being handed …

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