Mortgage Costs & Tax

Mortgage Interest Tax Relief

From January 1st 2002, mortgage interest tax relief was granted at source i.e. by the lender. TRS (Tax Relief at Source) replaces the system where interest relief was administered through the tax system. The new system means that the borrower's account will be debited with the amount of the full mortgage repayment when due and credited at the same time with the amount of interest relief.

The relief is limited to the standard rate of 20% and monetary limits also apply as per the chart:

A single first time buyer can for example get tax relief on annual interest paid up to €4,000. Tax at 20% gives actual savings of €800. For a married first time buyer actaul savings would be €1,600 p.a.

A married non-first time buyer can get tax relief on annual interest paid up to €5,080. Tax at 20% gives actual savings of €1,016 p.a.

Stamp Duty

The following are the Stamp Duty rates applicable from 2nd December 2004.

The floor space of an exempt property, must not exceed 125 square metres (1,346 square feet). All new properties that meet this requirement, are exempt.

Mortgage Deed Duty

If the mortgage exceeds €254,000, duty is charged at €1.27 (0.1%) for every €1,270 borrowed. On an €317,435 mortgage, for example, duty of €317 is payable, subject to a maximum duty of €630.

Legal Fees

Besides the solicitor’s customer service reputation, it can be worthwhile to compare charges. Charges can be between 1% and 1.5% of the purchase price (before VAT of 21% from March 1st 2002) if you are buying a home, or between 0.75% and 1% (before VAT) of the combined purchase and sale price if you are buying and selling at the same time. The solicitor will also charge you for administrative expenses such as telephone and fax charges together with third party costs- for example payments to the Land Registry or Registry of Deeds office.

Land Registry and Registry of Deeds

The following are the main fees applied by the Land Registry:

The following are the main fees applied by the Registry of Deeds:

Indemnity Bond

Where a loan generally exceeds 75%-80% of the purchase price of the property, a once-off indemnity bond payment has to be provided by the borrower. The bond protects the lender in the event of a loss arising on any future sale of the property.

For example, a bond on a €182,842 mortgage where the property costs €203,160 and the lender's limit is 80% of the purchase price, costs €622.

Property Valuation

A Valuation Report on the property is required from a registered valuer. The valuer's fee is usually at least about €127 including VAT or more, depending on house location for Valuer’s visit.

The Valuation Report is not a full structural survey which should also be arranged before contracts are signed. This should certainly be done at least in respect of an older property. The surveyor's report typically costs a minimum of about €381 including VAT, again depending on house location.

Insurances

Lenders also require as part of the mortgage conditions that a property be covered by suitable building insurance and a suitable mortgage protection life assurance policy covers the loan balance.

Early Redemption Charges

Some years ago, early repayment of a mortgage or a reduction in the outstanding balance via the payment of a lump sum, invariably led to a charge by the lender called a redemption fee. The advent of greater transparency and competition began a trend towards reductions to nominal levels or the elimination of the charges.

Lenders have agreed a code of practice whereby customers can on request:

a) seek information about the redemption fee charged in the case of an early settlement or partial settlement of a loan. This information is to be provided in writing where specifically requested. To avoid misunderstanding, it will be clearly stated that the quote is only valid on the date it is given.

b) information on how an additional repayment, made as a partial settlement of a loan, will impact on the account for interest calculation purposes (e.g., immediately, at year-end, etc.).

Where a borrower wishes to end a fixed-interest mortgage contract, a penalty (break funding fee) is charged. A lender may charge a flat penalty equivalent to a range of three to six months of the value of the interest payments or the actual cost incurred when the contract is broken. Some lenders have the option of applying whatever provides the greatest compensation.

For example, Permanent tsb set out its rule as follows:

Whenever repayment of a loan in full or in part is made before the expiration of the Fixed Rate Period the applicant shall, in addition to all other sums payable, as a condition of and at the time of such repayment, pay whichever is the lesser of the following two sums:

• a sum equal to one half of the amount of interest (calculated on a reducing balance basis) which would have been payable on the principal sum desired to be repaid, for the remainder of the Fixed Rate Period, or
• a sum equal to Permanent tsb’s estimate of the loss (if any) occasioned by such early repayment, calculated as the difference between on the one hand the total amount of interest (calculated on a reducing balance basis) which the applicant would have paid on the principal sum being repaid to the end of the Fixed Rate Period at the fixed rate of interest, and on the other hand the sum (if lower) which Permanent tsb could earn on a similar principal sum to that being repaid if Permanent tsb loaned such sum to a Borrower at its then current New Business Fixed Rate with a maturity date next nearest to the end of the Fixed Rate Period of the loan, or part thereof, being repaid.