Should I finish off drawing down mortgage?

AcidLollyPop

Hi everyone,
I am at the end of a new build. It is just myself. Am very cautious with money (i worry about a big mortgage versus social welfare, if i ever lost my job).

Am usually a saver-up'er. And I dont want a big mortgage and am wondering if the below is worth it. Ive scrimped and saved throughout the build. I cut my cloth to measure type person.

I have approval to draw down 150k.
I have so far drawn down e135k
Balance is 131k
5 year fixed @ 3% (fixed until 2023). Started off as a 30 year mortgage. 27 years left on the mortgage.
Repayments at the moment are e575 per month. Plus life assurance of e30.
I will also have 2% cashback on the mortgage (after 40 days) as soon as I stop drawing down.

My questions are:
1. If I drew down 5k more, would it be worth it? What would the cost of 5k be to me in interest over the years? The repayments would go up to 600 p/m. I know, first world problems in this day and age, but its still frustrating me that I dont know what to do. Scrimp and save another little bit to buy table/storage etc (would be a year to do this), or take the 5k now?
2. I fixed at 3% for 5 years (till 2023). What happens when my term is up? Can I pay a lump sum off the mortgage then also and then choose another mortage provider? (apparently cant do so while fixed).

Thanks very much

phormium

I would take the 5k and just get the stuff you need. I am also very debt adverse and would be a saver but I always remember not borrowing the 5k needed years ago to convert my attic to a playroom and instead saving it but by the time I had it saved the kid was a bit too old to need the playroom! Always sorry I didn't just borrow the damn thing.

It is making a very small difference to your repayments to give you a bit of comfort now, sure you can still save then and any surplus you can just pay off the mortgage in the future when fixed term is up by increasing repayments or throwing in a lump sum. When your fixed term is up you can then see if it's worth your while switching lenders, you can do that while on a fixed rate too but there may be a penalty to pay to break the fixed rate so not always beneficial which is why most people wait until fixed rate is up and then shop around.

AcidLollyPop

phormium wrote: »

I would take the 5k and just get the stuff you need.

Thanks very much for your post.

I am actually delighted to read that you too can identify with re: acquiring more debt. Its nice to get advice from someone who can understand.

I was afraid Id get the "its only 5k" type posts.

I suppose, I was brought up to use the money I have, rather than borrow. That is instilled in me.

An extra e25 over 27 years tho seems alot? i.e., e25 x 12 x 27 = 8100!

krissovo

On our self build back in the last recesson we didn't draw down the final stage payment and decided to scrimp or complete some items ourselves, big mistake on our part. We decided we would save a few bob by not finalising the landscaping or kitting out parts of the house and all that ment was that we were frustrated for years until we finished everything. Borrow the cheap money now and finish to YOUR standard.

seannash

Are the draw down stages not already defined.
What i mean is can you only draw down 5 when You've agreed to drawdown 15 as the final stage.

phormium

You can always just take some of the final drawdown, you don't need to take the lot if you don't want or need it regardless of what the schedule says, you just tell the bank you don't want the rest and get the final valuation done.

Yes the 5k is a lot in repayments over the full term of the mortgage and that's why you should make some extra monthly payments whenever you are in a position to do so. Look at it this way, if you borrowed 5k from the BoI (first calculator I found online) as a personal loan over 5 yrs at 8.5% payments are 101.87 p.m., however if you draw down your 5k on your mortgage and for example paid in an extra 100 p.m. that 5k portion would be cleared in 5 yrs and you wouldnt' be paying for it for the full term.

Now that's just a very rough example, obviously the rate on the mortgage is not 8.5% which is why drawing down the money on the mortgage is the cheapest money you will get right now and also you probably can't afford 100 extra per month but if you put in the extra money that you were going to save then it will have the same result eventually and you will not be paying for it over the full term and you'll have your stuff now!

bee06

We did a self build and at the time made a lot of efforts to reduce costs to limit borrowing because there was a bit of uncertainty around our jobs. In hindsight we didn’t need to and I wish we just sorted it all at the time. It’s a lot harder to get those final bits and pieces done after (and more expensive as well).

AcidLollyPop

seannash wrote: »

Are the draw down stages not already defined.
What i mean is can you only draw down 5 when You've agreed to drawdown 15 as the final stage.

You can draw down as much as you need, as long as it is certified by archi/engineer. Need for the draw down must be stated.

I'm no expert, but according to an online calculator I used...

€131,000 at 3% interest over 27 years will actually cost you (with interest included) €191,295.34.

If you take the extra 5k..

€136,000 at 3% interest over 27 years will actually cost you (with interest included) €198,596.69.

So 5k will cost you 7,301.35 in the difference over the life of the loan (so, roughly speaking, they'll charge you €2,300 for taking the extra €5k).


This all assumed you never pay any more than the bare minimum repayment (the sooner you pay the loan off, the less interest you'll pay). I also read on boards before that oftentimes the cost of breaking a fixed term loan can be fairly trivial, so if you do build up a large sum of cash you want to throw at the loan, it can be worth your while breaking the fixed contract, and making a large payment, if you're able to.

AcidLollyPop

Deleted User wrote: »

I'm no expert, but according to an online calculator I used...

€131,000 at 3% interest over 27 years will actually cost you (with interest included) €191,295.34.

If you take the extra 5k..

€136,000 at 3% interest over 27 years will actually cost you (with interest included) €198,596.69.

So 5k will cost you 7,301.35 in the difference over the life of the loan (so, roughly speaking, they'll charge you €2,300 for taking the extra €5k).


This all assumed you never pay any more than the bare minimum repayment (the sooner you pay the loan off, the less interest you'll pay). I also read on boards before that oftentimes the cost of breaking a fixed term loan can be fairly trivial, so if you do build up a large sum of cash you want to throw at the loan, it can be worth your while breaking the fixed contract, and making a large payment, if you're able to.

Thats mad when you put it like that! 60k on 131k.

Thanks for that. I have fixed for 5 years, until 2023. If at that stage I have any money saved up, I would try pay it off. Or indeed explore a variable rate. I think with variable you can over pay.

I had decided to go with fixed so Id know my monthly outgoings.

I am not 100% of all this, as still quite new to this mortgage game, and had concentrated on getting the thing built.

I cant do anything at the moment in a fixed (next thing I need to do is stop the drawdown and get it signed off by the bank).

daheff

if its 5k to get some necessities around the house then yes borrow it. 25e a month to repay it is worthwhile.


if its 5k to get stuff that you don't need, but would like...then save for it.

...Ghost...

Couldn't you get a short term personal loan? Or at the end of the fixed term in 2023, pay some savings off the principal to offset the interest on the 5k?

MrMusician18

To be honest, I think it depends on what you're going to spend the 5k on. If it meant converting the attic to an extra room or say making a garage a more habitable space then I'd say go for it. However if it was for furniture or other household consumables I wouldn't, who wants to be still paying for something when it's long been skipped?

Back in the days of the 110% mortgage I know a fella who threw the car in with the mortgage. Although he was warned by us, he went ahead anyway. He does agree now that it's fairly sickening to be paying for a car he no longer has, and will be for the next 20 years.

If the worst happens paying back 575 vs 600 vs 650 probably won't make much difference to affordability if you are on about 880 per month.

I would be inclined to finish as much as I could, you could be years at it otherwise.

Is there anything outstanding that whoever is signing off for the mortgage wants done?

AcidLollyPop

AcidLollyPop wrote: »

I cant do anything at the moment in a fixed

You can break it, if you wish. But they'll charge you.

Here's a thread on it:

https://www.boards.ie/vbulletin//showthread.php?t=2057970174


The gist of it is that if you can afford to pay a few euro off the loan, the, depending on how much the fee is to break the contract, it might be worth your while doing it, as you can then sign up to another fixed rate for X amount of years (at the same or lower rate if possible, not worth going into a higher rate) but as you'll only be paying interest on the amount owed, if you knocked a good few grand off the mortgage, the amount of interest you pay over the life of the mortgage can be significantly reduced.