Managing Debt

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


Arrangement Example

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.