New mortgage product aimed at first-timer customers

Bank of Ireland has introduced a new mortgage product aimed at customers in the 25 to 30 year age group considering their first mortgage. Customers will be able to reduce their repayments in the first three years of the mortgage, making up the amounts deferred over the remaining term of the mortgage.

In the first year monthly repayments can be reduced by 15 per cent, followed by 10 per cent per month in the second year and 5 per cent in the third year. Repayments at the full variable rate plus an addition to make up the amount of the reduction and interest on this amount will start from the beginning of the fourth year.

Available to first time borrowers taking out a mortgage over terms of 20, 25 or 30 years, the mortgage is based a fixed rate for the first three years. Bank of Ireland says that monthly repayments on a 20 year £100,000 mortgage would be £100 lower in the first year. Repayments would be £66 lower per month in year two and £33 per month lower in year three.

In year four the customer will have a choice of taking a fixed rate for a further period or moving to the variable rate at that time. From year four to year 20 there would be an additional charge of 2.9 per cent per annum (20 year term) spread over the monthly repayments to recover the deferred amount. The size of the additional charge depends on the term of the loan with a 2.5 per cent per annum charge for a 25 year loan and 2.2 per cent per annum for a 30 year term.

There will be no penalty if customers want to come out of the Low Start option before the end of the first three years.

Based on current mortgage rates, monthly repayments in the first year of a 20 year £80,000 Low Start mortgage would be £451.72, followed by £478.29 in year two and £504.86 in year three. From year four to year 20 monthly repayments, including the annual increase, would rise to £572.46.

This would mean a total reduction in payments of £1,913 in the first three years and a total increase in costs if £3,280 from years four to 20, giving a net cost of taking the option of £1,367 at current rates over the full twenty term.

Bank of Ireland's Mortgages product manager, Mr Shane O'Sullivan, said Low Start cannot be used to water down the criteria for deciding the size of any individual mortgage loan.

"Customer must meet the criteria first and then Low Start is an option for them," he stressed.