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Your Questions: What determines how big a mortgage we can secure to buy a home?


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Question: I'm at the very early stages of a mortgage application with my fiancé. We're renting in Carlow town. We would ideally love to buy somewhere in the area. We were going through our income and expenditure the other night, trying to work out how much we could actually borrow. What are the most important costs and factors we should be looking at?

Answer: The key factors are your credit history, your age, your income, your deposit amount, and what lenders call your repayment capacity.

In practical terms, the area you can potentially change relatively quickly, based on an assessment of your income and expenditure, is repayment capacity, according to chairman of the Association of Irish Mortgage Advisors, Trevor Grant. Your repayment capacity is a combination of your monthly rent, savings and any loans which will be cleared prior to you obtaining a mortgage.

You should look at your monthly expenditure and see which items you can reasonably cut out, which will then increase your monthly savings and ultimately the size of your deposit.

In terms of the costs associated with your mortgage, you should be considering a mortgage valuation fee of around €150, legal fees, stamp duty and potentially a surveyor's report, depending on the age of the property.

These will vary based on the costs of your new home, Mr Grant said.

Question: Most of my friends are married with kids, with a house and all the financial stuff that comes with it. I am 37, single and don't want any of that. But I pay a hefty rent bill each month and I don't have any insurance cover if I were to get seriously ill and be out of work. I can't make head nor tail of the different products. Any guidance?

Answer: This area is complex because of the myriad product names, types, and terms and conditions associated with life assurance. You have three main options, according to head of proposition at Royal London, Joe Charles. Specified serious illness cover will provide you with a lump sum if you are diagnosed with one of the specified serious illnesses covered by your insurance provider.

Then there is personal income protection, which will provide you with a regular monthly income if you are unable to work due to illness or injury for a certain period of time, and you suffer a loss of earnings.

Payments start after a specified number of months that you are unable to work, and continue either until you are well enough to return to work or your policy ends.

Last, there is a new type of cover called multi-claim protection cover. It can pay out multiple times for different illnesses over the lifetime of the policy and it can also trigger multiple claim components for one illness.

This cover moves away from paying out on diagnosis of an illness based on a list of often hard-to-understand medical conditions and definitions, and instead looks to link payouts to life-changing or traumatic health events.

This cover can make incremental payments based on the severity of the illness and leaves money for future potential claims.

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Question: I have decided to buy a new car, something in the region of a 1.4ltr hatchback. This will be the first new car I've ever bought. I am struggling a bit with the idea of it depreciating the moment I drive it away. Are there many advantages to buying new over old, apart from the reliability?

Answer: There is a lot of value in the dealerships at the moment. Depreciation notwithstanding, there are many merits to buying a new car, according to managing director of InsureMyCars.ie, Jonathan Hehir. The main ones are that you will enjoy the best years of your car's life rather than someone else, you will benefit from the full extent of the manufacturer's warranty, and you can kit it out to whatever specification you wish before buying.

Once you take care of the car, it should be years before there are any significant issues or repairs, and these may be covered under warranty, Mr Hehir added. In terms of the costs, there are attractive borrowing rates at the moment on car loans and new car financing, he said. You are also going to benefit when it comes to insurance and motor tax costs.

Motor tax on cars manufactured before July 2008 is charged according to engine size, but for those made after July 2008, it is charged according to CO2 emissions output.

New cars have significantly lower emissions and the tax is much cheaper.

The key factors when taking out a mortgage are your credit history, your age, your income, the deposit amount and your repayment capacity.

There are attractive borrowing rates at the moment on car loans and financing deals. You can also benefit from lower motor tax and insurance when you buy a new car.

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