# SVR mortgage (EBS) -vs- Redemption loan (C.U.)



## Cabedazo (21 Jul 2013)

Current position is as follows.  The outstanding amount is 68,000e and the remaining term is 110 months.

The E.B.S. svr is 4.58%.  The rate advertised by the C.U. is 4.35% aer.  

I've not spoken to the C.U. yet, I'm just ruminating having read about the possibility of a redemption loan in a newsletter.

As I see it, the difference in repayments is marginal enough, but if the C.U. loan is automatically insured by them We may be able to save nearly 70 p.m. on our life policies.

I believe that svr mortgage rates are going one way only.  Perhaps we have a better chance of value with a variable C.U. rate?

Would anyone care to point out anything else I should be considering here?


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## Brendan Burgess (21 Jul 2013)

What is a redemption loan?  

Are the CU offering to lend you money to repay your mortgage? 

Will the CU lend you money over 9 years? 

"a.e.r" is the rate applied to deposits. I presume you mean "4.35% apr"? 

Be very wary of CU's use of APR.  In particular, if they require you to have 25% of the amount in shares paying 1%, the effective APR is much higher. 

If they require you to keep shares,  you could get badly caught later, when you  have reduced the loan to €30,000 and the shares are still €15,000. They refuse to let you set the shares against the loan so you are effectively paying around 8% APR.

In general, the EBS loan would be much more flexible than the CU.  It is protected by the Mortgage Arrears Code and you should be able to reschedule it if you need to. The CU would make it difficult for you to reschedule. 

Would you  really save €70 a month on your life policy?   That seems very dear for €68,000 of cover? Are you comparing like with like? What is the sum assured? 

How much would the legal fees be  to move the mortgage to the CU?  I would guess around €1,000.


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## Cabedazo (22 Jul 2013)

Thank you Brendan for your reply.  The fact that there's so many questions contained within only serves to illustrate how clumsy I can be when it comes to money related matters.

I'll answer as many of the questions as I can.

The loan is advertised by the C.U. as a "mortgage redemption loan" so, yes, they are offering a loan to "clear" a mortgage.  The C.U. cite examples of repayments on their website from 5yrs to 10 yrs so they appear to be willing to loan over a term of up to 10 yrs.  The rate of interest is advertised as 4.25%.  I don't have the newsletter referred to in the OP to hand but if memory serves it refers to an APR - not AER, my mistake originally - of 4.35%.

Until I approach the C.U. (if I choose to) it's not clear what terms and conditions we would be required to adhere to.  The website cites many more T+Cs than the original ad. that piqued my interest.  I've learned since my OP that the 1st legal charge on the property *may* be required by the C.U.  That suggests to me that shares may not be a huge factor, but that your suggested legal fees are probably correct.  Other T+Cs include that the max. LTV considered will be 50%, that the property must be the PPR within the state.  I could go on but I don't think it's relevant.  There's a lot of - this may be required and that may be required - but until I approach them (should I choose to) I wont know anything for sure.

Re: the life assurance; this is the position.  There's two life policies in place, mine and my wifes.  One of us required a medical due to a pre-existing medical condition and an extra premium is payable on that policy on top of what might be considered normal.  The original sum assured, in 2005, was circa 300k (reducing over 30 years).  Our circumstances subsequently (in 2008) allowed us to make a sizeable capital repayment on our mortgage and reduce the term from 30 to 15 yrs.  I considered altering the life policies in place in the interim but to be honest about it, it didn't seem worth the hassle.

What strikes me most about your reply is the point you make about the EBS loan probably being more flexible than any alternative.  It'll take an approach from me to the C.U. to put flesh on the bones of the variables involved.

Again, thanks for the reply.


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## Brendan Burgess (22 Jul 2013)

That is very interesting and something I have not heard of before.

I see that St Raphael's CU offers such  a loan

[broken link removed]

There is no mention of a need for shares, so that is good.
I checked the calculator and it gave the results for a 20 year loan,so that is good. But it does say "term and maximum amount may be restricted" 

But the terms and conditions are vague.
It says that "life cover may be required" so that might rule out your savings. 

"Cost of Legal fees carried by borrower" - this could refer to the CU's legal fees - you would need to check that out. Banks have their own in-house solicitors and don't charge you.  The CU would have to get the paperwork checked or they might rely on your solicitor. 

*Your existing life cover 

*


> Our circumstances subsequently (in 2008) allowed us to make a sizeable  capital repayment on our mortgage and reduce the term from 30 to 15 yrs.   I considered altering the life policies in place in the interim but to  be honest about it, it didn't seem worth the hassle.



I think you will find it a lot more hassle changing the mortgage to the Credit Union. 

If you have reduced the term to 15 years, I am guessing that you reduced the balance by about 50%? So you have cover for around €140k. So you are giving up cover by switching to the CU. So the saving of €70 is overstated. 

The life insurance premium is usually the same for the whole of the term. 
If the life cover is fixed, this means that it is terrible value at the start but great value when you are older and you should not cancel it.
If the lifer cover is reducing balance, then it becomes poor value as you get older and maybe you should cancel it.



> One of us required a medical due to a pre-existing medical condition and  an extra premium is payable on that policy on top of what might be  considered normal.



You need to check how much life cover for €68,000 would cost you today for a 15 year term to see how much the CU "free cover" is worth.


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## Brendan Burgess (22 Jul 2013)

I see the following Mortgage Redemption Loans from other Credit Unions

[broken link removed]    8.5%

Unless you are with a sub-prime lender, I can't see how this could be justified. And I have no doubt that some people take them up on it because of the good reputation of CUs.


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