Capital and interest mortgage, annuity, repayment – defined

There are four main types of loans, these differ in the way the capital is repaid to the lenders.

Capital & Interest, the most popular type of housing loan, where the borrower makes regular repayments – part interest / part capital. These are usually for an agreed term, typically 25 years however in recent times the term can be as long 30 -35 years.

C&I loans are also know as Repayment mortgage, Standard mortgage and Annuity mortgage. In the early years of a C&I loan the majority of the repayment is used repaying the interest, so the capital reduces slowly.

So as the capital reduces with each repayment, so does the amount of interest payable on that capital.

The other types of loans are interest only repayments with the capital sum been paid at the end of the term from, a:An Endowment Mortgage b:A Pension Mortgage c:The sale of the property / asset.

This means that the borrower pays interest only for the term of the agreement and only repays the capital sum at the end by means of a …

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What is Consumer Credit?

Consumer Credit

The term consumer credit  refers to different forms of credit agreements available to consumers which are provided by credit institutions, credit unions and retail credit firms.

These types of credit are:

a:    Personal Loan, typical period of loan is 1-5 years. Longer terms are also available.

b:    Hire Purchase, this where a consumer agrees to hire a product / goods from a finance company. At the end of the agreed    period the consumer has the option to purchase the product / goods from the finance company provided that all the    payments have    been made over the agreed period. However, the consumer is not obliged to buy the products / goods.

c:    Credit Sale Agreement, is when a consumer purchases a product / goods from a retailer with the aid of a loan provided by a    finance company (the retailer acts as a credit intermediary in this case). The consumer owns the goods from day one and    they    cannot be repossessed if the consumer defaults on the loan repayments.

d:    Conditional Sale Agreements, this is similar to a hire …

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Banks are lending (while standards tighten)

I often complain that banks are ‘not lending’, they say this isn’t true. The Central Bank then says that lending criteria is tightening (report here). This at first seems to support the first statement, but could it be that they are lending and reining in on underwriting criteria at the same time?

It could be, AIB stated that they wanted to lend €800m this year (that was said at the end of 2011 at an in house conference), they are on track to lend €1,050m which is about 25% higher than previously expected. Bank of Ireland/ICS are saying the same thing, at the same time, the main lenders have jacked up rates and made more conservative estimations of who does or doesn’t get loans.

With the fall out in lending from 06/07′ to now, it means that there are plenty of borrowers of a high quality who are seeking finance, when you raise interest rates the stress-testing gets harder to pass, so that cuts out a lot of borrowers, as …

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Best mortgage rates September 2012

Mortgage rates are constantly under review and even though we might be expecting an ECB rate cut this week to 0.5% (which will be a historic low) it is highly likely that rates will sit still or even rise. The conundrum for consumers is about the rate choice, banks have just upped rates prior to any rate cut and by doing this then not passing on a rate cut they actually increase their margin significantly.

The best mortgage rates at present are below:

<50% LTV: AIB 3.34% >80% LTV: AIB 3.79% 1yr fixed: AIB 4.15% 2yr fixed: BOI 4.49% 5yr fixed: PTsb 3.7%*

*The PTsb 5 year fixed rate is a good example of a pricing discrepancy that is related to the PTsb loan book, this rate is excellent, lower than the standard AIB variable and fixed for 5 years! The reason for this is that by lending on this type of property PTsb will increase their assets (to fix the loan to deposit ratio that is too high) quicker and in return they will give up some margin.

If …

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Every little helps (except when it means mortgages)

Tesco won’t be offering mortgages in Ireland despite rolling out a full host of financial services, this is also a departure from the UK proposition in which they are included, something we covered nearly four years ago.

Bothered? Maybe not, but you should be because any market with a functional duopoly is unhealthy, we saw for instance how AIB increased their rates and for 2 or 3 hours their prices were the same as BOI, but then BOI co-incidentally increased their rates by 25 basis points on the same day so the pricing difference occurred once again.

Why would Tesco decide not to enter the Irish market? They claim it’s regulation, one doesn’t need a Professional Diploma in Compliance to realise that much of our regulation is identical to the UK and in foundation is primarily based upon it, …

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Dichotomy in property – apartments versus houses

The recent liquidation sales have possibly started a new trend in the property market in Ireland, one whereby there is an increasing divide between the valuations in different types of property, we have long been saying that the only market worth considering is non-apartment second hand homes in cities, the liquidation sales have reinforced this belief.

While we may be part of Europe, when it comes to living spaces we believe that Irish people favour houses to apartments, we have not crossed that particular Rubicon just yet and unlike our European counterparts, there is still a wish to own the land under the dwelling, over time this may change, but with the exception of the bubble-times the overwhelming mortgage for a first time buyer was used to purchase a house and not an apartment.

The situation regarding the property market in Dublin (for instance) will likely be one where apartments are seen as a totally separate market, in the past many newly built apartments were not priced on a totally dissimilar basis to houses of comparable square footage in the …

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