Loan instead of mortgage?

WhiteWalls

Hi all,

Partner and I looking at an apartment. We have savings. Bank seems to be offering 65k loans for home improvements and other things.

Question is, could both of us take out a 65k loan each and added with our savings, buy without a mortgage?

o1s1n

What is the interest rate like on the loan when compared to the interest rate on the mortgage?

If you're paying a really large lump sum of the property with cash, you might be in line for a really great loan to value rate which will lower your mortgage interest rate substantially (We did this with ICS and our interest rate is 2%)

Allinall

It will cost you a hell of a lot more doing it that way.

Interest rates on term loans are typically 8- 10%.

Why not get a mortgage and pay it off at the same rate you would a loan?

WhiteWalls

Each loan would cost 6k each. They are 5 year loans, would be a lot to repay monthly but would be over in 5 years..

Makes a lot of sense to me but I'm far from an expert

XsApollo

You can pay off a mortgage in 5 years also.

will be a lot cheaper than doing what your are suggesting

Cape Clear

Mortgages are usually the cheapest money you can get while home improvements/term loans are usually from circa 5% up. Avant are currently doing a fixed rate mortgage from as low as 1.9%.

Worth having a look at these websites. Call me old fashioned but I always thinks it is good to have a reasonable savings buffer for a rainy day, illness, loss of employment etc. A mortgage plus deposit keeps you in a stronger financial position than borrowing €130K and reducing your savings in my view. I'm no QFA by the way. You can also over pay a mortgage to lessen the amount of interest and term with a home loan you may be penalised for paying it back early in some cases.

Best Home Improvement Loans in Ireland | Home Loan Calculator (switcher.ie)

Compare Mortgage Rates in Ireland | bonkers.ie

dotsman

I can't think of any benefit to getting a personal loan in lieu of a home loan (mortgage). The home loan will be far cheaper and less hassle as specifically designed for the purchase of a home.

If this is a specific product offering from your bank, can you link to it here so we can see?

What interest rate are these 65K loans? Unless severely discounted, they would cost a hell of a lot more than 5K over 5 years.

Also, how likely are you to be eligible to borrow all 65K each. It is unlikely they would allow you to do this as it would mean their exposure would be 130K.

Finally, would the bank expect a security for these loans? Highly likely if lending 130K and at a discounted rate. Do you have >130K worth of assets you can offer as security?

Snugbugrug28

Mortgage come with legal fees etc too. You might actually find its not so different in the long run. Only thing is if everything were to go tits up you'd be better off with a mortgage you can't pay than a loan.

dotsman

https://www.boards.ie/discussion/comment/119230412#Comment_119230412

The legal fees relate to the security. I can't imagine any bank lending 130K unsecured at a discounted rate. So they would likely end up paying legal fees anyway.

But we are only guessing until the OP posts a link to the product.

Cape Clear

https://www.boards.ie/discussion/comment/119230412#Comment_119230412

People are switching mortgages and the legal fees valuation etc. and getting change out of €2K. Another advantage of a mortgage is the flexibility for unforeseen events down the road.

Dodge

The bank won’t give you both 65k loans for home improvements unless you can prove you’re going to spend 130k on home improvements (ie you’ll need to show quotes, proof you own the home you’re going to improve etc etc).

I’m guessing you’re hoping to avoid the lengthy mortgage process? I’d advise going through a broker to save on some of the hassle (others will disagree) but nearly all of the paperwork is the same as a substantial loan.

I don’t think you’ll find anyone willing to give you the money you want, and a mortgage is better for you anyway

o1s1n

https://www.boards.ie/discussion/comment/119230412#Comment_119230412

I don't think mortgage specific legal fees make up that much of the fee element to buying a property though?

The legal fees you incur while buying a property relate to lots of different things, the land registry, stamp duty, surveyors fees and your solicitor's fee itself for doing all of the above.

phormium

Need to know the comparable rates?

Term is irrelevant as you can get a 5 yr mortgage too so that's not a good reason to go for a loan.

Work out the difference between cost of the loans v cost of 5yr mortgage plus fees

Unlikely to be less to get a loan, advantages - quicker to approve, disadvantages - other than cost I seriously doubt you will get approval for 65k unsecured each.

Jim2007

https://www.boards.ie/discussion/2058251143/loan-instead-of-mortgage

No. You are obliged to provide the bank with details for the purpose of the loan.

WhiteWalls

Thanks for all the responses.

I have no detail re loan, assume it's higher than a mortgage rate. I had assumed the fact that it would only be 5 years that it made it much more viable

3DataModem

The upside of a loan (compared to a mortgage) is that

• you can sell the house without having to pay back the loan immediately.
• you can mortgage the house if you need more money.
• no legal costs

The downside of a loan

• higher interest

o1s1n

https://www.boards.ie/discussion/comment/119233337#Comment_119233337

Would a bank give you a mortgage on a property though if the pair of you had outstanding loans of 130k between you? I wouldn't imagine so?

How would there be no legal costs? You'd still have to actually purchase the property, which incurs legal costs (solicitors fees, stamp duty etc) whether you have a mortgage or not.

phormium

https://www.boards.ie/discussion/comment/119233706#Comment_119233706

That would be entirely dependent on income, if you had enough they would!

Jim2007

https://www.boards.ie/discussion/comment/119234174#Comment_119234174

It does not work like that. The bank's credit officers are not fools, they are well used to people trying to circumvent the rules and the law. That is why they want to know the purpose of the loan and even evidence that the money was applied for the given purpose in the case of big loans.

phormium

https://www.boards.ie/discussion/comment/119234479#Comment_119234479

I know that, I was one! My point is if they have sufficient income to pay the loans plus a mortgage assuming the purpose of the mortgage is acceptable to the bank then it's not impossible to have a mortgage and two big loan repayments.