Possibility of Personal Loan instead of Mortgage

BriarPatch

Hi all,

My partner and I are thinking of purchasing our first house in the next 6 months.

Between us we have a lot of cash reserves from savings and inheritance, however for the type of houses we are currently looking at we would still need to borrow another 30k.

Would it be possible to borrow this through a personal loan over 5 years? Or would the bank flat out refuse as the loan's purpose would be to fund a house purchase?

Would appreciate if anyone had any feedback from similar experiences

Thanks!

Santa Cruz

I take it that you want to increase the amount of your deposit so that you can become eligible for a certain size mortgage. You could do it with the banks agreement or alternatively you could try and source the load from a credit union if you had the necessary deposits there to meet their lending criteria e.g. loans not to exceed twice the amount in your share account or whatever criteria they operate. I think myself that the credit union would be the best option. Of course when applying for the increased mortgage you will need to declare the credit union loan and be able to convince the bank that you can service both the credit union loan and any mortgage given. Long term ability to pay is what lending is all about now.

BriarPatch

Santa Cruz wrote: »

I take it that you want to increase the amount of your deposit so that you can become eligible for a certain size mortgage. You could do it with the banks agreement or alternatively you could try and source the load from a credit union if you had the necessary deposits there to meet their lending criteria e.g. loans not to exceed twice the amount in your share account or whatever criteria they operate. I think myself that the credit union would be the best option. Of course when applying for the increased mortgage you will need to declare the credit union loan and be able to convince the bank that you can service both the credit union loan and any mortgage given. Long term ability to pay is what lending is all about now.

No sorry to clarify- lets say we have 170K in cash but we are looking at houses that we can expect to pay 200K for so I am wondering if it is possible to take a personal loan for the 30k which could be paid off in 5 years instead of applying for a mortgage for 30k.
Thanks for your reply!

Aka Ishur

I read the OP saying that they want to go mortgage free. ie. the house they want is 100K and they have 70K from savings and inheritance.

The would like the remaining 30k as a personal loan rather than a mortgage.

I would say to the OP that a mortgage would be far cheaper.


EDIT: OP came back quicker!

the world wonders

Aka Ishur wrote: »

I would say to the OP that a mortgage would be far cheaper.

Also you can get a flexible mortgage that allows you to make extra payments and pay it off within 5 years if you want.

The only problem you might run into is that most banks have a minimum mortgage amount...

Skybox

I would think that a personal loan would be cheaper but it would really depend on the term of the mortgage. If you were to borrow €30k with AIB over 5 years, repayments are €633 per month. Total repayments amount to €37,980.

Stand corrected although as i said it depends on the term of the mortgage. Mortgage of €30k over 10 years at an interest rate of 4% results in total repayments of €36,326 and you repayments are €302 per month.

You should have no issue with either to be honest OP. It sounds like you and your partner are both working and it's not a huge amount to be borrowing. The bank would throw a mortgage at ye!

Aka Ishur

Paying off the mortgage in 5 years would reduce the total cost of course!

murphaph

The only problem here is the minimum mortgage amount. A variable rate mortgage which can be paid off early would be far cheaper than a personal loan paid off in the same time frame. You could just borrow the minimum amount (lets say it's 50k) and pay off 20k immediately in a lump sum (check the terms and conditions of course), paying the rest off over the period agreed.

The_Morrigan

OP personal loans tend to be dearer than a mortgage.
I would suggest you ring any/all banks you are willing to deal with, the credit union, and a broker or two tell them exactly what you are planning to do and the figures involved. With exact figures they can do the maths on Min borrowing figures, term of the loans and if dicuss with you any security requirements.

nlgbbbblth

The security will be the same - a first legal charge over the property being purchased.

As others have said - the minimum mortgage amount and term may be an issue - so you may have to go for personal loan.

Victor

A credit union is highly unlikely to get involved in such a loan.

I would be careful of using all your cash assets for the transaction - make sure you have something for the rainy day.

Galwayguy35

My brother went down the personal loan route OP, for a higher amount than yourself (60 k over 7 years) but the interest is very high on it.

Not trying to tell you what to do or anything but maybe try for a mortgage of say 40 k and keep some of the cash you have saved for when you buy the house.


As someone else said its handy to have cash in your account for that " rainy day".

phormium

Credit Unions would have no problem with a loan like that, they regularly give secured loans on property, mortgage by another name, they get first charge on property.

Trish56

Cheapest option Op would be to get a mortgage of 30k.. minimum loan amount with AIB is 25k at a variable rate over any term with a view of paying off lump sum payments on a regular basis in order to pay off early. You will incur legal fees however if you apply for a personal loan the rate will be circa 9% and if you apply with the credit union you will need to have a circa 15k on deposit earning 0.50% of less to borrow 30k so you are tying up 15k to borrow 30k.

When you borrow at a variable rate which would be approx. 4% for such a low loan to value you can pay off lump sum without penalty.

Mrs OBumble

A mortgage isn't necessarily cheaper if it comes with a requirement to purchase life-insurance as well, and the extra legal work of having the mortgage.

It all depends on the lending products that the bank has.

Best advice is to go and talk to a few bansk, and find out the options they would offer.

Also consider the disadvantages that the mortgage may have (eg not allowed to rent it out).

phormium

Not correct that you will need 15k on deposit with CU to get loan of 30k, that sort of requirement relates to ordinary loans, secured loans are different because they are secured on the property and not your shares/savings.

Trish56

phormium wrote: »

Not correct that you will need 15k on deposit with CU to get loan of 30k, that sort of requirement relates to ordinary loans, secured loans are different because they are secured on the property and not your shares/savings.

Just to clarify I was referring to a non secured loan.

BriarPatch

Sorry for the delay in coming back but many thanks to all who replied with your advice you have giving me some helpful pointers and things to think about!