# Keep savings for future deposit or reduce mortgage?



## Karen12 (8 Apr 2008)

*Age: *30*
Spouse’s/Partner's age:* 31*

Annual gross income from employment or profession: *€45,000
*Annual gross income of spouse: *€40,000*

Type of employment: *Private sector* 

In general are you spending more than you earn or are you saving? *Saving €2k pm at the moment
*
Rough estimate of value of home: *€340,000*
Amount outstanding on your mortgage: *€100,000*
What interest rate are you paying? **4.6%**

Other borrowings – *None*

Do you pay off your full credit card balance each month?* Yes*


Savings: *€45000 in First Active regular saver & esaver accounts*

Do you have a pension scheme? *Yes*

Do you own any investment or other property? *No*

Ages of children: *1 newborn*

Life insurance: *Yes

*What specific question do you have or what issues are of concern to you? *
We are planning to buy a site to build a new house and we hope to use our savings to part finance it. As no suitable site has come up, I’m wondering if we should lodge our savings into our current mortgage as the reduction in interest would yield a better return than the interest it is earning in the savings account. My concern is … Do we need to hold onto the savings for a deposit on a site or will the collateral in our present house enable us to secure a mortgage to buy a site sometime in the future.

Thanking you,
 Karen


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## bcol1 (9 Apr 2008)

Hi Karen,
i think it depends on how soon you hope to buy a site and start building really, but if the plan is anytime in the next year or two, then i'd suggest you hang on to your savings and not offset them against your current mortgage. We bought a site and built, and now it's a couple of years since we negotiated the mortgage, but i think the max amount any bank would lend for site + build was 90%, each bank have different criteria, some would lend 90% of the total, others would only lend 70% of the site, but then 100% of the build costs etc. You could check various bank websites for up to date lending criteria. So i imagine you might need some if not all your savings to pay for the site upfront. Also, depending on whether you go the direct labour route or hire a builder, you will need to pay for work and materials during the build, and certain phases of the build are more costly than others, so you will most likely need to use your own savings while waiting to drawdown the next installment of your mortgage.
Best of luck.


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## comanche (9 Apr 2008)

have you considered an offset mortgage


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## rmelly (9 Apr 2008)

whatever you do, don't leave the money here:

http://news.bbc.co.uk/2/hi/south_asia/7334033.stm


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## Karen12 (21 Apr 2008)

Thanks for the advice guys … I visited NIB during the week and they advised that I should split my mortgage in two as follows –
- Put our €45k savings onto a €45k offset mortgage (hense paying no interest)
- Put the remaining €55k into an ECB +.5 LTV mortgage.
- When it comes to purchasing a site, they advised that we should use our savings twords its purchase and they would then close the offset mortgage and transfer the balance into the LTV mortgage.
Is it worth doing? It could be next year before we find somewhere to buy but at the same time we’re anxious to get a move on as we have a small house and a young child. All advice appreciated!


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## MortgageGuy (28 Apr 2008)

if you think having a small child is stressful, balance that with building a house! 

I would talk to a financial advisor, come up with a plan and then follow it fastidiously, do you have an idea of build costs and site costs? do you know what your future outgoings will be? (even a ballpark?) i think doing some research at this juncture would be more valuable than thinking about providers, once you have the homework done then you can look to the market and see what is out there.


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## irishlinks (28 Apr 2008)

That advice from NIB sounds good to me. You have access to cash if you need it and you move your mortgage to the lowest rate available. If you are doing it - you might need to move quickly because there were reports at he weekend that NIB were considering if they need to increase the rates on the LTV product.


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