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Personal loan and mortgage repayment capacity

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  • 22-08-2015 3:38pm
    #1
    Alter_Ego
    Registered Users Posts: 196 ✭✭


    I have some personal circumstances that require me to spend some money. I don't want to touch our savings, which I hope to use to buy a property, so I am thinking about taking out a personal loan instead.

    Our current situation (2 working/no kids) is as follows (expressed as percentage of monthly net income)

    Rent - 25%
    Daily living (food, bills, transportation, entertainment, holidays etc) - 50% - 60 %
    Savings - 15% - 25%

    Loan repayments would be 10%.

    Assuming my potential mortgage repayment would equal to the current rent, if I buy a property, I would end up with:

    Mortgage - 25%
    Daily living (food, bills, transportation, entertainment, holidays etc) - 50% - 60 %
    Loan repayment - 10%
    Savings - 5% - 15%

    Do you think taking the loan now will make the mortgage application more difficult or impossible?


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    #2
    Donutz
    Registered Users Posts: 317 ✭✭Donutz


    When we went for our mortgage earlier this year we had an outstanding credit union loan of about €12000. One of the conditions of the mortgage set out by the bank was that we had to clear the loan out of our own savings.
    Also the biggest mortgage our lender would offer amounted to repayments of about half of what we were paying in rent at the time so you should be aware that just because you can afford x amount in rent doesnt mean that the bank will offer you a mortgage to reflect that.


    This was just our experience. Different lenders apply differrent rules.


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    #3
    Alter_Ego
    Registered Users Posts: 196 ✭✭Alter_Ego


    Donutz wrote: »
    When we went for our mortgage earlier this year we had an outstanding credit union loan of about €12000. One of the conditions of the mortgage set out by the bank was that we had to clear the loan out of our own savings.
    Also the biggest mortgage our lender would offer amounted to repayments of about half of what we were paying in rent at the time so you should be aware that just because you can afford x amount in rent doesnt mean that the bank will offer you a mortgage to reflect that.


    This was just our experience. Different lenders apply differrent rules.

    Interesting. I have approval in principle for a mortgage that would roughly equal to my current rent. I suppose everyone's circumstances are different and like you said different lenders, different rules.


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    #4
    Alter_Ego
    Registered Users Posts: 196 ✭✭Alter_Ego


    Anyone any other experiences? Has anyone got a mortgage recently with an outstanding loan?


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    #5
    SweetSand
    Registered Users Posts: 148 ✭✭SweetSand


    When we were applying for the mortgage in Ulster Bank, within 5 minutes with our mortgage advisor, after her putting all our figures into their system, we were told that unless we clear both of ours credit cards and my car loan there ll be no mortgage for us. So we had to clear all our debts in order to proceed further, which we did and got mortgage successfully. I would think that you taking out loan now will complicate your mortgage application in the future.


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    #6
    farrerg
    Registered Users Posts: 133 ✭✭farrerg


    Alter_Ego wrote: »
    Anyone any other experiences? Has anyone got a mortgage recently with an outstanding loan?

    Generally, the way they look at it is that the loan repayment is competing with the mortgage repayment for your income. The balance and remaining term is pretty much disregarded, they just look at the payment.
    If they believe you can manage repayments of 1500 per month, but you have a car loan of 300 per month (even if there is only 1 year left), this will reduce the mortgage amount they will lend you significantly. They will essentially only give you a mortgage with repayments of 1200 pm instead, which could work out to be say a mortgage of 250k instead of 300k.

    If the lower amount they will approve is enough to get the house you want, then it's no problem, but if you feel you will need to borrow more than that, you will need to repay the loan (or at least reduce it and the repayments). Talk to the bank before you take out the loan and they can run the scenarios for you


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    #7
    Pac2015
    Closed Accounts Posts: 186 ✭✭Pac2015


    Alter_Ego wrote: »
    Anyone any other experiences? Has anyone got a mortgage recently with an outstanding loan?

    Most banks won't approve your mortgage fully if you have a loan outstanding, we went to a broker earlier this year after having a bad experience with one last year who gave us bad advice and we were told to clear any outstanding loans & to keep the balance of the credit card down low if we had one, he said banks now are not interested in lending to people with loan as its a risk for them plus they will not give you half as much as you need because they work based on the monthly repayment not the term of the loan so will take that off what you can afford to pay back per month.
    Some banks will approve you in principle based on you clearing your loan before they fully approve you some suggest gifts from parents others suggest use your savings which is what we did, I didnt like it at the start but now looking forward I am happy we did it because we are debt free and know we can afford a certain payment per month for a mortgage which is manageable for us.
    Everywhere is different so get some advice from banks and brokers.


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