Most homeowners in this State take out 20-year loans and because the age profile of many first-time buyers is relatively low (late 20s, early 30s) many of those loans are cleared well before retirement.
However, because of the sharp rise in house prices, especially in greater Dublin, lenders are beginning to reconsider their traditional lending terms. Last week, the Irish Permanent became the second bank TSB Bank being the first to bring out a longer term mortgage.
The new 35-year loan will certainly result in a significantly lower monthly repayment, but at a considerably higher overall cost.
The bank is quick to point out that while the longer term loan will give customers more flexibility with their monthly payments, "extending the loan to 35 years will increase the overall interest. As financial circumstances improve, customers can avail of the Irish Permanent "Swift" repayments option which allows them to increase the monthly repayments and cut their overall interest bills.
A typical 20-year, £50,000 mortgage at a 7 per cent variable rate of interest, costs £7.75 per £1,000 borrowed per month (£387.50). Increase the term to 35 years and the same loan (at £6.38 per thousand borrowed) costs £319.00, a monthly "saving" of £68.50. But multiply those monthly repayments over the full terms and the total cost of the 20-year mortgage is £93,000 and £133,980 for the 35year one a difference of nearly £41,000.
Independent mortgage advisers, like Mr Richard Eberle of REA Mortgage Services, believe that increasing mortgage terms are all very well, but it would be fairer and would help lower income buyers more if lenders were to ease up on borrowing limits.
He argues that most couples can afford a £400 or £500 monthly repayment; the problem is that it doesn't buy much of a mortgage/house i.e. one in the price region of £55,000£60,000. However, a £500 monthly payment, spread out over 35 years constitutes borrowings of just under £80,000, which would more accurately reflect that the average Dublin house now costs £100,000.
However, it is questionable whether customers should be encouraged to cut monthly payments (on relatively low loans to begin with), at a horrendous long-term price.
