Friday 30 September 2016

Mortgage 'sweeteners' could make your loan €30,000 pricier

Published 24/01/2016 | 02:30

Sweeteners may cost you money
Sweeteners may cost you money

Homeowners could pay tens of thousands of euro more in interest than they need to by taking up a mortgage sweetener - because the lenders that offer these perks usually work out more expensive in the long run.

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In fact, the additional cost for a first-time buyer borrowing €200,000 from such as lender could be as much as €30,000.

The best sweeteners are offered by Bank of Ireland, Permanent TSB and Ulster Bank. These lenders are, however, the most expensive for a first-time buyer who uses a variable mortgage to borrow about 90pc of the value of their home.

Bank of Ireland and Permo both have mortgage cash-back offers, where borrowers are given €2,000 cash for every €100,000 borrowed.

Bank of Ireland and Permo are two of the most expensive lenders for a first-time buyer borrowing €200,000 over 30 years to buy a home priced at €225,000. Bank of Ireland charges 4.5pc interest on a variable mortgage, while Permo charges 4.2pc. EBS, however, one of the cheapest lenders, charges 3.7pc interest while AIB charges 3.75pc.

Bank of Ireland's cash-back offer is worth €4,000 on a mortgage of €200,000. However, the interest charged by Bank of Ireland on this €200,000 mortgage over 30 years adds up to €165,000, compared to about €133,000 with AIB and EBS.

So you'd pay €32,000 more interest over the lifetime of your mortgage by going for Bank of Ireland instead of AIB or EBS - or €28,000 more if you deduct the €4,000 sweetener from the bill. Permo charges about €152,000 for the same mortgage. That's about €19,000 more than AIB and EBS - or €15,000 after taking the value of its cash-back offer into account.

Ulster Bank offers a €1,500 contribution toward legal fees for all new mortgages.

However, Ulster is the second most expensive lender for a first-time buyer getting a variable mortgage of €200,000 to buy a home worth €225,000.

It charges 4.3pc interest - which adds up to €157,000 on such a loan over 30 years. So taking up Ulster Bank's sweetener instead of choosing a cheaper lender would cost €24,000 in extra interest - or €22,500 once the €1,500 perk is factored in.

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