Mortgage. How much to borrow.

from_atozinc

Cyrus wrote: »

given that the bank will have a full charge over the entire property you should be fine (i.e. a loan for 100k v an asset of 300k)

also you meet the deposit rule and the 3.5x earnings

Hi. I thought the 3.5x earnings only applies if you are single with no dependants etc.

But I have a wife who does not work and 2 kids........so because of all this, does the 3.5x change to 1.5x (or something similiar)

fits

The 3.5 limit is just a crude limit. The bank will calculate based on living expenses. Eg 2100 per couple plus 500 for the two children. + any other loans or financial comitments. Whatever is left can service your mortgage ( stress test amount)

lau1247

fits wrote: »

The 3.5 limit is just a crude limit. The bank will calculate based on living expenses. Eg 2100 per couple plus 500 for the two children. + any other loans or financial comitments. Whatever is left can service your mortgage ( stress test amount)

3.5 limit or repayment capability (Whichever is lower).

Exemption to 3.5 times limit seems to be for people on salary scale only which is a big bummer.

thierry14

from_atozinc wrote: »

OP here again.
No suitable house has come up since, so still looking !

To refresh you on the situation.

My wife and I have 300k saved. This is all our savings etc.
I work for a large multi national and earn 60k a year. Have a pension and health and life insurance via work. They pay my phone bill and broadband too.
My wife does not work in a job and stays at home with kids (no creche fees).
The 2 kids are under 3.
Currently I pay 1000 Euro a month in Rent and Save 500 euro a month and manage fine.
We have no car loans, cars are fine for at least another 3 years.
We have no other loans.


The above looks fairly good on paper, I think.
But Just on the idea of even getting a mortgage in the first place. if I wanted to get 100k of a mortgage, would I even get one.
Based on my salary and only 1 earning and having 3 dependents and being in late 30's ?

from_atozinc wrote: »

OP here again.
No suitable house has come up since, so still looking !

To refresh you on the situation.

My wife and I have 300k saved. This is all our savings etc.
I work for a large multi national and earn 60k a year. Have a pension and health and life insurance via work. They pay my phone bill and broadband too.
My wife does not work in a job and stays at home with kids (no creche fees).
The 2 kids are under 3.
Currently I pay 1000 Euro a month in Rent and Save 500 euro a month and manage fine.
We have no car loans, cars are fine for at least another 3 years.
We have no other loans.


The above looks fairly good on paper, I think.
But Just on the idea of even getting a mortgage in the first place. if I wanted to get 100k of a mortgage, would I even get one.
Based on my salary and only 1 earning and having 3 dependents and being in late 30's ?

I was in a similar situation at the start of the year

Both working and saving since our early twenties, had 140k in savings, wife was nearly due, on maternity and we decided to buy.

In Limerick county so a good 4 bed can be had for 120k - 150k

I was going to borrow 60 - 70k to leave with us with a rainy day fund and change things in house etc

Mortgage would still be a big saving over rent which is about 800 and I would have 50k or so for rainy day

Said what the hell and went without a mortgage, never liked loans

House cost 134k inc all the solicitor fees etc

At my lowest I had 3k left, baby was an expensive time with it came 😀

Was a bit crazy when I think about it now, but nearly 6 months on have nearly 10k in savings and don't regret it all.

Kinda enjoyed being broke again 😀

In your situation if you can get somewhere nice for under 280k all in I wouldn't be getting a mortgage, 3 - 4 months salary say 12k should be more then enough of a rainy day fund.

With no mortgage you just have to feed and cloth yourselves.

4ensic15

The usual situation, after buying is that there are things to be bought, improvements need to be made to the property. Cars can be written off in crashes and it can take time for insurance claims etc. It would be wise to always have some cash on hand if possible. Not having cash on hand can result in forced borrowing at high rates. Variable rate mortgages can be paid off at any time so the total interest cost can be very minor if the loan is repaid quickly.

from_atozinc

from_atozinc wrote: »

OP here again.
No suitable house has come up since, so still looking !

To refresh you on the situation.

My wife and I have 300k saved. This is all our savings etc.
I work for a large multi national and earn 60k a year. Have a pension and health and life insurance via work. They pay my phone bill and broadband too.
My wife does not work in a job and stays at home with kids (no creche fees).
The 2 kids are under 3.
Currently I pay 1000 Euro a month in Rent and Save 500 euro a month and manage fine.
We have no car loans, cars are fine for at least another 3 years.
We have no other loans.


The above looks fairly good on paper, I think.
But Just on the idea of even getting a mortgage in the first place. if I wanted to get 100k of a mortgage, would I even get one.
Based on my salary and only 1 earning and having 3 dependents and being in late 30's ?

Me again.
We have decided to use 250k and keep 50k for the rainy day.

Went through the application process with the bank today and gave them all the info.

Guesses on the MAX they will give me a mortgage for based on my circumstances - for a 20 year term ???

I know there are other institutions out there so this is just one option.

fits

Dont worry, they will give you the 50 k. They will give you whatever your wages - living expenses will cover per month including a 2% stress test on repayments. That depends on maximum term you can get. You can play around with the calculators.

from_atozinc

fits wrote: »

Dont worry, they will give you the 50 k. They will give you whatever your wages - living expenses will cover per month including a 2% stress test on repayments. That depends on maximum term you can get. You can play around with the calculators.

I know what they are going to give me, I'm asking ye to have a guess at the max they will give me over 20 years ; )

fits

Why? I dont care. And frankly its impossible to guess without knowing your expenses and take home pay.

from_atozinc

from_atozinc wrote: »

Me again.
We have decided to use 250k and keep 50k for the rainy day.

Went through the application process with the bank today and gave them all the info.

Guesses on the MAX they will give me a mortgage for based on my circumstances - for a 20 year term ???

I know there are other institutions out there so this is just one option.

Get the longest term they will give you, you can overpay on it if you want but always have the option of dropping back to the actual (lower) repayment. No advantage in going for a shorter term from the outset.

from_atozinc

Alaina Tinkling Scene wrote: »

Get the longest term they will give you, you can overpay on it if you want but always have the option of dropping back to the actual (lower) repayment. No advantage in going for a shorter term from the outset.

I know what your sayin. But the longest term just means me giving more money to the bank.

7 years mortgage free is nice.

Water John

But you have the choice with the longer loan. Make extra payments and the time period will shorten dramatically.

Gael23

Never spend all your money on a house. I know a couple who did just that and and spent 20 years living with the consequences, to a point their lives will never be the same. It's all fine thinking you have your home no matter what but when circumstances change, living off social welfare without a penny in the bank causes a lot of difficulties.

Water John

Gael, it is the cheapest money you'll ever get. I'd always try to go for balance and be prudent. Some of your savings and a reasonable mortgage.
S**t happens.

from_atozinc

from_atozinc wrote: »

I know what your sayin. But the longest term just means me giving more money to the bank.

7 years mortgage free is nice.

The longer term just means you have the option of repaying over that term. You can pay back at the rate of a 10 year or a 20 year mortgage on a 30 year one but if something comes along like a job loss, illness, career break etc yoibhave the option of dropping to the lower repayment.

Also to echo the above comment never ever spend all your savings keep at the very least 50k or maybe even more. A mortgage is the cheapest money you can borrow and it's hard to beat having a nice fall back of cash in the bank as above you can always pay off some of the mortgage with savings too if you want down the line.

Gael23

Water John wrote: »

Gael, it is the cheapest money you'll ever get. I'd always try to go for balance and be prudent. Some of your savings and a reasonable mortgage.
S**t happens.

Owning your home is nice and indeed important to some, as was the case in the situation I mentioned. But when the sh!t hits the fan in life it makes so much difference to the situation when there's a nest egg in the bank. There's little value in being mortgage free when your scraping by trying your best to make ends meet.

from_atozinc

So ye reckon so when applying........To always try and select the longest term as possible. So do 27 instead of 20 years yeah ?

Should one also always apply for the very max they can get.

Just to have it there in case you need, but in reality, just change the figure down to a lower value come actual buying time.

Water John

Longer term yes but did not see anybody say go for the maximum you can go for.
The variables I saw in the thread were simply about how much of a persons savings they would put into a house v's borrowing. Some were arguing to keep a rainy day nest egg.

athtrasna

from_atozinc wrote: »

I know what they are going to give me, I'm asking ye to have a guess at the max they will give me over 20 years ; )

Mod note

This is a discussion forum not a game show.

pwurple

from_atozinc wrote: »

So ye reckon so when applying........To always try and select the longest term as possible. So do 27 instead of 20 years yeah ?

Should one also always apply for the very max they can get.

Just to have it there in case you need, but in reality, just change the figure down to a lower value come actual buying time.

Maybe when applying, but watch the flexibilty. You want that term as short as you can. not longer term. Keep the mortgage small, the LTV low and the number of years small. This is the cheapest way. You could have gone for a personal loan the amount you are looking to borrow, the only reason you are doing a mortgage instead is to keep the interest rates lower than a personal loan. Stretching a tiny mortgage out over decades kinda defeats the purpose.

Glad you decided to keep the 50k cushion, that would give you 1-2 of wiggle room if you were in some kind of accident, lost job, couldn't work for whatever reason. I know some people are saying they don't need it, but they may still have family to rely on for help in an outright emergency. You can be years waiting for an insurance payout or court case if something serious happens. I assume you have a life policy too...

Q&A

from_atozinc wrote: »

Currently I pay 1000 Euro a month in Rent and Save 500 euro a month and manage fine.

One way of looking at it would be to say you want to keep your cost of housing the same. Borrow an amount that has a repayment close €1000 a month. That should work out about €208k (assuming you borrow over 25 years, I'm being conservative on the term the bank will give you - longer the better) if you throw your €500 monthly savings towards the mortgage you'll have a mortgage that equals your rent, over €200k in the bank and a real mortgage term of 14 years. All this without having to pay more for accommodation ( inclusive of your monthly savings) then you already are.*

Say after 5 years you realise you don't need €200k sitting there and the house is fine you can pay off a lump sum worth €100k then you'll cut your mortgage term in half. I should also point out that by just overpaying the €500 a month your monthly repayments will have reduced to €840 a month by year 5.

Another way of looking at it: Keep the €200k in case you see a better house remember you'll need a 20% deposit as a second time buyer. It might makes life easier and save on a few headaches of trying to sell and buy at the same time.

By not using all your money at once you keep your options open. Nothing to stop you paying off the debt on day 2 of the mortgage but you can't change your mind on day 200 and get it back.

Personally I'd max out my mortgage. See how the house is going 6 months in, if there's major work need doing use my savings. If not pay off the amount that reduces my mortgage repayment to my previous rent level and then just gradually over pay from there. You can always tweak as you go.

* It assumes mortgage rates don't change and I've ignored the cost of insurance and property tax but you get the idea.

coffee_cake

pwurple wrote: »

Maybe when applying, but watch the flexibilty. You want that term as short as you can. not longer term. Keep the mortgage small, the LTV low and the number of years small. This is the cheapest way. You could have gone for a personal loan the amount you are looking to borrow, the only reason you are doing a mortgage instead is to keep the interest rates lower than a personal loan. Stretching a tiny mortgage out over decades kinda defeats the purpose.

Glad you decided to keep the 50k cushion, that would give you 1-2 of wiggle room if you were in some kind of accident, lost job, couldn't work for whatever reason. I know some people are saying they don't need it, but they may still have family to rely on for help in an outright emergency. You can be years waiting for an insurance payout or court case if something serious happens. I assume you have a life policy too...

Yes, keep the term as short as possible. That way you won't be forking over so much interest.
I'm also glad you decided on keeping the cushion. 100k would have been too high. 50, well, see what the total interest will be on a calculator.
eg. this one @ 3% interest
http://www.mortgages.ie/go/first_time_buyers/tax_relief_calculator?mode=basic&go=go&term=20&amt=50000&interest_rate=3

over 5 years payment it's about ~3.5k interest
over 20 years payment it's about ... a lot more than 3.5k. Maybe 10k+


Might be worthwhile using some of your savings in conservative investments as well to offset the interest

CelticRambler

from_atozinc wrote: »

So ye reckon so when applying........To always try and select the longest term as possible. So do 27 instead of 20 years yeah ?

Should one also always apply for the very max they can get.

No, and no.

You're seeing here in this thread exactly the same attitude that got Ireland (as a whole) into the mess it found itself in in 2008.

Do not borrow the maximum you can get/afford, because you never know when you might need more.

And do not spread it over the longest term possible, because that'll leave you no room for reducing your payments later if your situation changes for the worse.

Remember that interest rates now are unnaturally low, and if they're going to change, they're going to go up. Similarly, you've got an income of 60k now, but I have a friend (in Dublin) who was on 60k last year, now he's on 30k.

The bank (and, it seems, a lot of boardsies ) want you to borrow as much as you can afford, with no safety net. Chances are, they're all living with mortgages based on a two-income household aswell.

Paradoxical as it may seem, you're already in a good position with only one wage earner (there's a video somewhere on YouTube that explains why, complete with data to back up the assertion, will see if I can find the link) and you've got a nest egg.

There is no advantage in borrowing "as much as you can afford" now to preserve your cash-in-hand with the idea that it'll give you some kind of security in the future. That kind of security comes with leaving yourself some room to negotiate, e.g. take out 100k on a 20year mortgage, if/when times get tough in 5 years, you can go to the bank and get them to extend the remaining mortgage over 20 or 25 years, thereby reducing your payments at that time.

This notion that "it's the cheapest money you'll ever get (i.e. borrow)" is misleading. The "cheapest" money you have access to is your salary; anything you get from the bank, you'll pay for. The only reason you should be borrowing now is because you'll save more on rent than you'll pay in interest, i.e. you're keeping more of your salary.

In your situation, I'd aim to have a total repayment (capital + interest) of about 800-900/mo over 15-20 years (depending on the amount of the loan), and put the 100/mo that you're saving compared to rent into a new account. You can use it later to pay off the mortage early (saving more interest) or as an insurance fund from which you can fund at least a few months' payments if you ever find yourself without an income.

from_atozinc

from_atozinc wrote: »

So ye reckon so when applying........To always try and select the longest term as possible. So do 27 instead of 20 years yeah ?

Should one also always apply for the very max they can get.

Just to have it there in case you need, but in reality, just change the figure down to a lower value come actual buying time.

No you actually take out the mortgage for 27 years but pay it off like it's a 20 year mortgage (or less if you want).

For example let's say you want to borrow 200,000. You want to borrow it over 20 years giving you a repayment of let's say for simplicity 1000 euro a month. I'm saying you should borrow the 200,000 for 30 years with a monthly repayment of say 700 a month but actually pay the 1000 a month back. Thus you are actually going to pay the mortgage off in 20 years if you keep paying at that rate but if for some reason money gets tight for you the option is there to drop back to the 700 a month for a while. The term will increase a bit but it would be less pressure on you every month. You could also use some savings to pay of a lump of the mortgage thus reducing the term also.

Others are mentioning shortest term also to save on interest but what I'm saying is go for the longest term they will give to have it a shared a fall back option but pay it off as if you have a shorter rate thus saving on interest etc.

The one thing is the mortgage has to be variable to over pay.

CelticRambler wrote: »

No, and no.

I don't think anyone said borrow as much as he could they said he should keep a good percentage of his savings. Also I and most people who advise on these things would disagree strongly with going with the shortest term. What I have described above is the best way to go about it. In fact I'd go so far as to say it's terrible advice telling someone to go for a short term rather than overpaying on a longer term.

If I was planning to pay my mortgage in 10 years I'd still take out a 35 year mortgage.

CelticRambler

Alaina Tinkling Scene wrote: »

Also I and most people who advise on these things would disagree strongly with going with the shortest term. What I have described above is the best way to go about it. In fact I'd go so far as to say it's terrible advice telling someone to go for a short term rather than overpaying on a longer term.

As someone who's negotiated directly with the banks on restructuring an existing mortgage, I stick by the advice given above.

Besides, why would anyone want to lock themselves into a contract that's going to last 30 years or longer? Unless they've bought into the whole "max out your borrowings" philosophy that causes so much stress and anxiety when stuff goes wrong (really wrong).

IvoryTower

This is very interesting I never would have looked at it that way

CelticRambler

CelticRambler wrote: »

As someone who's negotiated directly with the banks on restructuring an existing mortgage, I stick by the advice given above.

Besides, why would anyone want to lock themselves into a contract that's going to last 30 years or longer? Unless they've bought into the whole "max out your borrowings" philosophy that causes so much stress and anxiety when stuff goes wrong (really wrong).

You aren't locked in for 30 years if you pay it off early. Doing it the way I am saying you can avoid having to formally restructure that's the point and will be better for your financial history if you need to borrow again and also save the hassle and stress of going to your bank looking for a restructure.

Can't afford your 20 year term payments then just drop back to your 30years plus payment.

thierry14

Sorry for cheeky question

How did you save 300k?

Curious how people save such huge sums

Even if you put away 1k a month it would take 25 years to save 300k

from_atozinc

OP here.

So the max term I can get due to my age is 27 years.

I'm still confused as to what people are saying.

On the application, should I just just ask for the max I can get.

And then work off this.

I have no intention of using the max I can get, but on the "sanction in principle" it would be handy to have there besides having to go back re negotiating

Then at buying time, just change the figures back

from_atozinc

from_atozinc wrote: »

OP here.

So the max term I can get due to my age is 27 years.

I'm still confused as to what people are saying.

On the application, should I just just ask for the max I can get.

And then work off this.

I have no intention of using the max I can get, but on the "sanction in principle" it would be handy to have there besides having to go back re negotiating

Then at buying time, just change the figures back

No you don't change the figure back at buying time you buy with the 27 year mortgage (for the same amount of money you would on the 20 year one) but instead of paying the repayment every month that is set for clearing the mortgage in 27 years you pay back more so that you pay it off in 20 years. If however in 10 years time the monthly amount you are paying starts to stretch your finance you can fall back to the actual payment that would have been set for your 27 year mortgage. It still won't take you 27 years though even if you just paid the minimum until it's paid off as you have been overpaying for 10 years previous to that.

Simply put if you want 200,000 you take 200,000 but what I'm saying is you borrow it over the max amount of time (even if you never intend on taking that long to repay).

I'm only giving my opinion though not telling you that's how you should definitely do it but it's certainly how I will do it.