Mortgage. How much to borrow.

Gael23

I'm 5 years away from buying a house but this thread got me thinking. I currently have roughly €50k in savings which is split between 3 deposit account and 2 credit unions, I've also got 2 current accounts. I did this on purpose in order to maximise the interest I earn but to get a mortgage in the future should I tidy things up?

from_atozinc

Alaina Tinkling Scene wrote: »

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.

so id be asking the bank for a 27 year mortgage.
but the monthly pay back figures would be based on 20 years.

how hard is it to increase and decrease these monthly payback amounts?

Water John

Nox, is right. It is easy to make extra payments and shorten the loan period by default. If things run tight at any point due to changed circumstances, you simply pay the standard .

Yes Thierry, you are cheeky. Nobody's business.

Cyrus

I think people are misunderstanding the advice given

from_atozinc

Cyrus wrote: »

I think people are misunderstanding the advice given

In what way ?

Cyrus

Just the logic behind the longer term and the flexibility it gives etc ,

You can still overpay and adjust the term as you wish on a variable rate but if you wish to go back to the longer term and lower repayments for any reason you can.

You really need to get familiar with how all this works before taking a mortgage out

from_atozinc

Cyrus wrote: »

Just the logic behind the longer term and the flexibility it gives etc ,

You can still overpay and adjust the term as you wish on a variable rate but if you wish to go back to the longer term and lower repayments for any reason you can.

You really need to get familiar with how all this works before taking a mortgage out

Thanks. But if you want to overpay, do you just simply overpay.......or do you need to tell the lending institution every time you will be overpaying.

Water John

I would have the standing order as normal. Then move across an amount from a savings account every 3/6 months to reduce the capital amount on the loan further.
That way you make a decision each time to lodge it and the default position is the standard repayment.

from_atozinc

from_atozinc wrote: »

Thanks. But if you want to overpay, do you just simply overpay.......or do you need to tell the lending institution every time you will be overpaying.

You may have to tell them anytime the amount you are paying is going to change but certainly not keep telling them every month than you plan on paying extra.

Say the mortgage repayment is 700 a month and you plan on paying 1000 a month. Inform them you will be paying 1000 a month and just keep paying that every month. If you want to drop back to 700 you may need to inform them again but just when changing the amount not every month.

You me not even need to inform them at all id imagine it depends on the bank.

bee06

Alaina Tinkling Scene wrote: »

You may have to tell them anytime the amount you are paying is going to change but certainly not keep telling them every month than you plan on paying extra.

Say the mortgage repayment is 700 a month and you plan on paying 1000 a month. Inform them you will be paying 1000 a month and just keep paying that every month. If you want to drop back to 700 you may need to inform them again but just when changing the amount not every month.

You me not even need to inform them at all id imagine it depends on the bank.

With AIB I did what Nox suggests. Wrote them a letter to say I want them to increase the mortgage payment to 1000. If I want to reduce it again I'll write them again. I've also paid off a lump sum but sending a bank draft and the form they ask you to fill out.

Edups

Would it be best to buy the house outright, then use the money you'd put to mortgage repayments into the bank to build your savings again? I mean 60k a year covers you for most things unexpectedly, unless your house is taken asunder you shouldn't be too bad. You could lose your job and fall ill and the bank won't stop looking for the monthly mortgage, but buying in cash means no matter what happens you're protected. And you don't have to buy a house for 300k, but for less and you'd get a fine oul house with some money left over. Mortgages are grand if you've nothing, but I wouldn't get it if I didn't need it.
Like OP if you had 2000 in savings but wanted to buy a car, why would you get a bank loan that you'd be paying back for 2-5 years? Just because you can get mortgage doesn't mean you should. Especially since you don't need to

CelticRambler

Alaina Tinkling Scene wrote: »

You aren't locked in for 30 years if you pay it off early.

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

Alaina Tinkling Scene wrote: »

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.

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).

Cyrus wrote: »

You can still overpay and adjust the term as you wish on a variable rate but if you wish to go back to the longer term and lower repayments for any reason you can.

Once again, this is all a sales pitch for the banking sector.

Point no. 1: With a deposit of 300k (or even 250k) if you can't afford mortgage repayments over 20, you're borrowing more than you can afford. Just because the bank will lend it to you, based on the figures you give them today, doesn't mean you'll be able to afford those extra payments in six months' time, never mind ten years.

Point no. 2: Even if you overpay in the first third of the mortgage period, you're mostly paying off the interest. Your loan amount will not decrease significantly in the early stages. If you stretch a 200k mortgage over 27 years instead of (say) 18, you will pay extra interest that you didn't need to. The notion that you are saving (some) interest by repaying early is only when you compare it to what you would have had to pay if you borrowed the maximum over the longest period allowed. That's very bad financial planning.

Point no. 3: Variable rates - all the advice above about overpaying and dropping back to a lower amount if you hit a rough patch is based on interest rates not changing. Anyone aged 50 or less has only known a period of falling interest rates. Well, look at what's happening in the world right now. Can you guarantee that these derisory interest rates are going to hold for another twenty-seven years? What about twenty-seven months? Borrow the max over the longest period on a variable rate mortgage and you have absolutely no control over the future amount of your payments. If the banks hike the interest rate up to 12% (which it has been before, and higher) then your notional overpayment is now only barely covering your standard repayment.

Point no. 4: Whether it's for five or twenty-five years, when you have a mortgage and you get into trouble, the bank decides whether or not the house gets sold and for how much. You're in a very strong position at the moment. Why would you pay for some faceless bank shareholder to have first call on your primary asset for the next twenty years?

Point no. 5: If you ask for and get approval for 200k, you'll adjust your expectations for the type and location of the house you eventually buy. Are you 100% confident that you can find a house for that price that will hold its value? How many people are still in negative equity (or just starting to come out of it) having bought houses with the maximum amount they could borrow? Remember: the property bubble was caused by ordinary people competing against each other with borrowed money, and I might be looking on from the sidelines, but I see the same conditions and attitude now in Ireland as I did when I chose to take my money and run, back in 2004.

Edups

Edups wrote: »

Would it be best to buy the house outright, then use the money you'd put to mortgage repayments into the bank to build your savings again? I mean 60k a year covers you for most things unexpectedly, unless your house is taken asunder you shouldn't be too bad. You could lose your job and fall ill and the bank won't stop looking for the monthly mortgage, but buying in cash means no matter what happens you're protected. And you don't have to buy a house for 300k, but for less and you'd get a fine oul house with some money left over. Mortgages are grand if you've nothing, but I wouldn't get it if I didn't need it.
Like OP if you had 2000 in savings but wanted to buy a car, why would you get a bank loan that you'd be paying back for 2-5 years? Just because you can get mortgage doesn't mean you should. Especially since you don't need to

No it's a terrible terrible idea to use up all your savings. Someone in the ops position should be keeping no less than 50k in the bank. He can then start adding to this again, always easier to add to savings too than start again even from a psychological point of view. If a job is lost a smallish mortgage should still be payable and you also have your savings to help paying it off but you also have the savings to use for other things also.

Even if say they want to upgrade a car and need a few thousand of a deposit or buy a cheaper car outright. Not much good saying oh I'll have it saved next year if they need the car tomorrow.

As for your point about the car, yes I do this. For instance I could easily have bought my last car outright but I only part funded it from savings and got a low interest loan against my savings for the rest as I am very against using up too much savings.

CelticRambler

CelticRambler wrote: »

Point no. 2: Even if you overpay in the first third of the mortgage period, you're mostly paying off the interest. Your loan amount will not decrease significantly in the early stages. If you stretch a 200k mortgage over 27 years instead of (say) 18, you will pay extra interest that you didn't need to. The notion that you are saving (some) interest by repaying early is only when you compare it to what you would have had to pay if you borrowed the maximum over the longest period allowed. That's very bad financial planning.

This is all incorrect. Any overpayment amount comes off the capital not one cent is paying interest. There is no difference in what you will pay back if you pay pack your 20 year mortgage or pay your 27 year mortgage in 20 years.

As for the rest of your points. Yes rates can go up but there is no way they will get to levels they once were again and there is no evidence that they will increase at all in the medium term, they haven't even finished falling yet.

Again I don't know where you are getting the idea of people saying borrow to the max. I'm not and no one else is. I'm saying if the house is 350 borrow a 100k and keep 50k in the bank. This is a no brainer to be honest. It's instantly to suggest blowing all savings and borrowing that 100k over the max term and overpaying on it is the smart move not going for a shorter term and locking yourself into a high monthly repayment.

Cyrus

CelticRambler wrote: »

Once again, this is all a sales pitch for the banking sector.

Point no. 1: With a deposit of 300k (or even 250k) if you can't afford mortgage repayments over 20, you're borrowing more than you can afford. Just because the bank will lend it to you, based on the figures you give them today, doesn't mean you'll be able to afford those extra payments in six months' time, never mind ten years.

Point no. 2: Even if you overpay in the first third of the mortgage period, you're mostly paying off the interest. Your loan amount will not decrease significantly in the early stages. If you stretch a 200k mortgage over 27 years instead of (say) 18, you will pay extra interest that you didn't need to. The notion that you are saving (some) interest by repaying early is only when you compare it to what you would have had to pay if you borrowed the maximum over the longest period allowed. That's very bad financial planning.

Point no. 3: Variable rates - all the advice above about overpaying and dropping back to a lower amount if you hit a rough patch is based on interest rates not changing. Anyone aged 50 or less has only known a period of falling interest rates. Well, look at what's happening in the world right now. Can you guarantee that these derisory interest rates are going to hold for another twenty-seven years? What about twenty-seven months? Borrow the max over the longest period on a variable rate mortgage and you have absolutely no control over the future amount of your payments. If the banks hike the interest rate up to 12% (which it has been before, and higher) then your notional overpayment is now only barely covering your standard repayment.

Point no. 4: Whether it's for five or twenty-five years, when you have a mortgage and you get into trouble, the bank decides whether or not the house gets sold and for how much. You're in a very strong position at the moment. Why would you pay for some faceless bank shareholder to have first call on your primary asset for the next twenty years?

Point no. 5: If you ask for and get approval for 200k, you'll adjust your expectations for the type and location of the house you eventually buy. Are you 100% confident that you can find a house for that price that will hold its value? How many people are still in negative equity (or just starting to come out of it) having bought houses with the maximum amount they could borrow? Remember: the property bubble was caused by ordinary people competing against each other with borrowed money, and I might be looking on from the sidelines, but I see the same conditions and attitude now in Ireland as I did when I chose to take my money and run, back in 2004.

I think you have highlighted your own lack of knowledge in some detail here

from_atozinc

Jays lads, ye are making it more confusing for me now : (

Such differing opinions

Edups

from_atozinc wrote: »

Jays lads, ye are making it more confusing for me now : (

Such differing opinions

Buy a house, leaving some cash in the bank, jump out of bed merrily every morning know you're mortgage free. Circumstances can change dramatically and you can't pay a mortgage on the dole.

Water John

Well that's what happens OP on the internet and in the pub. You'll get various notions put out there and it's up to you to separate the wheat from the chaff.

BTW there's plenty chaff here.

Lumen

from_atozinc wrote: »

Jays lads, ye are making it more confusing for me now : (

Look at it this way...

Property markets are generally cyclical. The worst property losses come from being forced to sell in a market dip, like in 2011/2012. If you can hold on through those periods, you can avoid the worst losses.

Savings are like an insurance policy against this happening, and also provide peace of mind from the knowledge that you can absorb periods of sickness or unemployment. This "insurance" costs money, and that's the interest rate difference between your savings and your mortgage.

For every 10k of savings you hold on to, you're paying that interest rate difference, and there may be an additional penalty if you're not taking advantage of a better rate for a lower LTV.

For instance, if the difference between net savings interest and mortgage interest is 3%, you're paying about €125/month to hold 50k in reserve rather than paying off your mortgage.

In my view that's a sensible price to pay. Others may differ.

Ideally we'd all have offset mortgages and not have to bear this cost, but AFAIK they don't exist in the current market.

Villa05

Lumen wrote:

Property markets are generally cyclical. The worst property losses come from being forced to sell in a market dip, like in 2011/2012. If you can hold on through those periods, you can avoid the worst losses.

Who was forced to sell in 2011/2012 in a country with a near zero repossession rate. Most of the selling at that time were people exiting rentals due to tax or family members selling property where the owner was deceased

Lumen

Villa05 wrote: »

Who was forced to sell in 2011/2012 in a country with a near zero repossession rate. Most of the selling at that time were people exiting rentals due to tax or family members selling property where the owner was deceased

Good point, but there are still consequences to defaulting, like having difficulty getting credit in future. Not relevant if you're on your last mortgage but for a younger person it ought to be a consideration.

I would personally rather have a cushion of savings than rely on the bank being unable to repo or force a sale.

astrofool

I took out mortgage at the max length, but overpaid to pay back over 20 years, if anything ever happens, can fall back to the smaller repayments, but it's great to have the flexibility to change as needed, which wouldn't have been an option if borrowing over 20 initially. The overpayment is done automatically every month.

from_atozinc

astrofool wrote: »

I took out mortgage at the max length, but overpaid to pay back over 20 years, if anything ever happens, can fall back to the smaller repayments, but it's great to have the flexibility to change as needed, which wouldn't have been an option if borrowing over 20 initially. The overpayment is done automatically every month.

Good to know thanks. So from the start you just said you wanted a 27 year term.

Let's say the monthly payment of the 27 year term was 500. Depending on how you were fixed, you would just throw in 700,800,1000 etc.

Did you have to inform the banks about this or just do it ?
Is there any penalty or hidden costs with doing it like this ?

Cyrus

from_atozinc wrote: »

Good to know thanks. So from the start you just said you wanted a 27 year term.

Let's say the monthly payment of the 27 year term was 500. Depending on how you were fixed, you would just throw in 700,800,1000 etc.

Did you have to inform the banks about this or just do it ?
Is there any penalty or hidden costs with doing it like this ?

not on a variable rate

you cant do this with a fixed rate

Q&A

from_atozinc wrote: »

Good to know thanks. So from the start you just said you wanted a 27 year term.

Let's say the monthly payment of the 27 year term was 500. Depending on how you were fixed, you would just throw in 700,800,1000 etc.

Did you have to inform the banks about this or just do it ?
Is there any penalty or hidden costs with doing it like this ?

Assume you borrow €220k over 27 years, your monthly repayments would be €1k a month. If you overpaid €500 a month you'd be mortgage free in a little over 15 years.

So for what you're spending and saving a month now you could have your own house, fall-back money of €220k and be mortgage free in less than 16 years.

minikin

Buy outright, without a mortgage.
Your savings aren't wiped out - you've just converted them into a home.

You will soon rebuild substantial savings given your income.

averagejoe123

bee06 wrote: »

With AIB I did what Nox suggests. Wrote them a letter to say I want them to increase the mortgage payment to 1000. If I want to reduce it again I'll write them again. I've also paid off a lump sum but sending a bank draft and the form they ask you to fill out.

FYI you no longer have to get a bank draft to overpay AIB variable rate mortgages. You can simply transfer in any amount by bank transfer as frequently as you like.

Note that this will automatically reduce your monthly repayments and keep the term the same unless you email them to tell that you wish to keep the monthly repayments at the current level. This in turn will reduce the term.

Fian

I have two buy to let mortgages. I have paid back the mortgage on my own home early.

I wish i had not done so. Would be far better off funding the properties out of a mortgage on my own home then out of buy to let mortgages. Better tax treatment on the mortgage interest as well as better variable rates than BTL mortgages.

If you are in a position to buy a home outright imo your best bet would be to buy it with a mortgage, use the money you avoid putting into your home to fund the purchase of an apartment or other investment.

listermint

Q&A wrote: »

Assume you borrow €220k over 27 years, your monthly repayments would be €1k a month. If you overpaid €500 a month you'd be mortgage free in a little over 15 years.

So for what you're spending and saving a month now you could have your own house, fall-back money of €220k and be mortgage free in less than 16 years.

on the flip side they could be mortgage free now, and 180,000 (min) savings @1500 pm for 5 years....

from_atozinc

As of now, November 2016, who is the most competitive lending institution in Ireland?