# Credit union loan payoff?



## Money123 (27 Jul 2017)

We have recently sold our house and made a €60k profit after mortgage cleared. Building a new house currently and expect to borrow max €70k on new mortgage. We also have a CU car loan with 3yrs left and approx €6.5k still to pay.
My Q is should we clear this CU loan with the profit made from our house sale and factor in the money we use to do this into our new mortgage loan or just keep paying CU loan (€200 per month). CU loan is 9.99% rate and mortgage will be around 4% over 10 years. Thanks for any advice


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## Brendan Burgess (28 Jul 2017)

When will you be taking out the mortgage? If it's in the near future, you should not pay off the credit union loan so you can maintain maximum flexibility. 

What LTV will the €70k represent?  If you borrow €76k instead would it bring you into a higher LTV category and so a higher mortgage rate? 

4% is a very high mortgage rate? Where are you borrowing it and why over only 10 years? Why not take out a longer term mortgage? You can always pay it off faster. 

If you still have your credit union loan when you take out your mortgage , you should prioritise paying down the credit union loan first. 

Do you have shares in the credit union?  If so the true rate of interest on the net loan is much higher than 10%

Brendan


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## Money123 (28 Jul 2017)

Thanks Brendan for your reply.

Meeting bank end of Aug to do formal application, have met informally before and have been told we could have more than 70k but we don't need more as have savings plus profit from house sale. I'm not 100% sure of interest rate, we are actually moving from ROI to NI so borrowing from Ulster bank in NI. House when built will be worth approx 275k. 

Am I wrong to borrow over 10yrs instead of a longer term? I thought it would mean we paid less interest doing it over shorter term. Would I pay higher interest rate by borrowing over a shorter term?

Have about 3k savings with credit union.

Going back to original query, would it make more financial sense to clear CU loan and borrow more in mortgage? 

Thanks for your help


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## Brendan Burgess (28 Jul 2017)

Money123 said:


> We also have a CU car loan with 3yrs left and approx €6.5k still to pay.






Money123 said:


> Have about 3k savings with credit union.



OK, the answer is definitely yes. You are paying €650 per year on a net loan of €3.5k or 19% effective rate of interest. 

Your Loan to Value will be very small so that is not an issue. 

I assume that your salary comfortably supports a mortgage of €76k or more if needed? 

Brendan


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## Brendan Burgess (28 Jul 2017)

Money123 said:


> Am I wrong to borrow over 10yrs instead of a longer term? I thought it would mean we paid less interest doing it over shorter term. Would I pay higher interest rate by borrowing over a shorter term?



You should borrow over as long a term as possible. 

Then pay it off at whatever rate you like.  This definitely applies to the Republic of Ireland, but I think it applies in the North as well. 

Make sure you don't do some deal where early repayment costs you some penalty. 

The best rates available in Northern Ireland are Lifetime trackers from Coventry Building Society and First Direct.  Make sure to get a quote from them. 

Brendan


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## Money123 (28 Jul 2017)

Thanks for your advice Brendan. I will definitely pay off the CU loan first.

Unfortunately we are stuck with Ulster bank for our mortgage as they are the only bank who will take into account my Euro salary (husband has NI salary). Apparently a new EU directive came into effect in March 2016 which means majority of banks won't consider a Euro salary. Think it's the same in ROI when a borrower has NI salary?? That's what BOI NI told us anyway, they couldn't quote us even though bank manager wanted to. KBC would have quoted us also but not on a self build so UB only bank who will lend to us. Maybe you know more about this, do I have info correct??


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