Decrease Negative equity or save for deposit on new house

K

KathyL

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Hello,
This is my first post so hopefully it is in the right section.
I have a mortgage in negative equity, Apt bought in 2008 for €270K worth 140K-150K max now.
Fixed rate until 2018 with AIB @ 5.35% ! current monthly repayment after TRS €1,291.
I am looking into buying a bigger place and rent current apartment ( possible rental income €1,000 per month) located Dublin South City Centre.
By the time my fixed rate is up, I will have about €120k savings. That is where I need some wise advise please; Should I -
1 -use that money to reduce my LTV and be in a position to get a reduced rate, reduced monthly repayment and less stress if/when apt is not rented.
or
2 -since interest will be deductable from income tax, should I use it all as a deposit against a bigger place ( circa 300K )

My annual income is 112K, I have 1 kid, no other debt but current morgage.

Thank you in advance for any insights.

Kathy
 
I would expect that 2 would be better for the reason you suggest. But you need to put some numbers on it, what rate saving would you get from a lower LTV.

As an further point I strongly recommend using a different bank for the second mortgage.
 
Hi Kathy

This is a very difficult question with a huge number of variables to consider.

1) If you are on fixed rate of 5.35%, there will be quite a penalty on paying anything off this. Have you checked this with AIB?
2) Just to be sure, check your mortgage contract to see if you are entitled to a tracker on expiry of the fixed rate. It's unlikely, but possible. If so, paying down the mortgage is unlikely to be wrong.
3) I am not sure you will find it easy to get a second mortgage when you have €120k of negative equity, so it seems to me that getting a negative equity mortgage from AIB is the most likely option.
4) The Central Bank restrictions do not apply to negative equity mortgages - in other words, the 3.5 times income or the need for a 20% deposit don't apply to you. The lenders will have their own restrictions.
5) When do you want to buy the new property? If it's within the next 12 months, you should definitely hold onto your cash rather than pay down your mortgage, as this will give you a lot more flexibility.
6) If you are not going to trade up for at least 2 years, then maybe paying down the mortgage now is the right idea - if the penalty for doing so is not too high. That is assuming that you will continue to accumulate enough savings to trade up or to buy a separate house.
7) If you are buying a second house you will need at least a 20% deposit. That means that you will need at least €60k. But again, I don't really think it will be easy to get such a mortgage while you keep your existing mortgage.



Check out the terms and conditions of the NE mortgage. I did a Key Post here over a year ago. It relates to tracker mortgages, but the principles are the same.

http://www.askaboutmoney.com/thread...en-tracker-mover-product.187831/#post-1390885

Brendan
 
I cannot pay anything against the mortgage until 2018 end of fixed date, due to breakage penalty -30k;
Balance due in 2018 will be 210k on 5.35 percent variable rate.
I am seeking for best option from 2018 only, buy or reduce the Ltv as it will take me ages to then save 20 % deposit.
120k will be the amount of savings in 2018 to make a decision. Thanks
 
Hi Kathy

Then you don't need to worry about it until 2018. The mortgage market may well have changed by then.

If you wanted to move earlier, I am not sure if AIB would allow you to move your fixed rate to the new property.
I suspect not, although it makes no sense.

Brendan
 
Brendan Burgess said:
Hi Kathy

Then you don't need to worry about it until 2018. The mortgage market may well have changed by then.

If you wanted to move earlier, I am not sure if AIB would allow you to move your fixed rate to the new property.
I suspect not, although it makes no sense.

Brendan
Click to expand...
True Brendan. Thanks
 
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