Cost of Credit
What is Cost of Credit?
Cost of Credit is the total amount you will pay less the amount of the original mortgage value. The difference between the two includes interest and any other fees and charges. The faster and sooner you reduce your mortgage, the less interest you’ll pay.
How is Cost of Credit affected by how much I repay each month?
- Entering into an Alternative Repayment Arrangement (ARA) where you pay less than your normal monthly repayment means that your balance is reducing more slowly and, as a result, the amount of interest charged each month is higher than it would be if you were paying your normal monthly repayment.
- Paying your normal monthly repayment will keep your cost of credit down.
- Paying more than your normal monthly repayment means the balance is reducing more quickly and, as a result, the amount of interest charged each month is lower than it would be if you were just paying your normal monthly repayment.
Cost of Credit Examples
The examples illustrated below are based on a €200,000, 20 year standard variable rate mortgage at 4.5% APR, with the cost per month (normal monthly repayments) of €1265.30 excluding insurance. The total amount repayable is €303,672. The total cost of credit (total amount repayable - mortgage amount) is €103,672.
Examples 1 – 4 are arrangements involving lower repayments to the normal monthly repayments over a certain time-period. Consequently the cost of credit is higher where lower repayments are being made
Note: For simplicity, these examples are based on the same interest rate being applied over the entire repayment term. Any interest rate change, up or down will increase/decrease the cost of credit accordingly
|Outstanding mortgage balance today||Term||* Monthly repayment during the period of the deal||Monthly repayment when deal ends||Cost of Credit|
|Normal Monthly Repayments||Full Capital & Interest repayments||€ 200,000.00||240 months||€ 1,265.30||n/a||€ 103,672|
|Alternative Repayment Arrangement (ARA) Example 1||Positive Amortizing Reduced Repayment||€ 200,000.00||6 months||€ 1,100.00||€ 1,271.73||€ 104,185|
|Alternative Repayment Arrangement (ARA) Example 2||Interest only||€ 200,000.00||6 months||€ 750.00||€ 1,285.36||€ 105,275|
|Alternative Repayment Arrangement (ARA) Example 3||Moratorium||€ 200,000.00||6 months||€ 0.00||€ 1,314.55||€ 107,605|
|Alternative Repayment Arrangement (ARA) Example 4||Term extension||€ 200,000.00||66 months onto 240||€ 1,099.89||n/a||€ 136,567|
* Flexible payment options may appear cheaper in the short term but could be more expensive over the life of the mortgage and are subject to approval.
WARNING: YOUR HOME IS AT RISK IF YOU DO NOT KEEP UP PAYMENTS ON A MORTGAGE OR ANY OTHER LOAN SECURED ON IT
VARIABLE RATE LOANS: THE PAYMENT RATES IN THIS HOUSING LOAN MAY BE ADJUSTED BY THE LENDER FROM TIME TO TIME