Borrowing when you have a mortgage?

Q

Qomn0001

Guest
When does this make sense?

I'm thinking of a case where you have a mortgage with a decent amount of it paid off - down to 50-70% LTV, say - and you need a personal-type loan for renovations, new car, holiday, new girlfriend.

I'm assuming it's kosher to borrow extra off your mortgage if you wanted to build an extension on your house because you'll be increasing its value. What about the other, increasingly frivolous, items? You mortgage is still the cheapest source of money, right? I'm assuming in all of this that the bank has no problem in giving you the money.

Are there specific reasons for not consolidating all your loans?
 
1) If you cannot consolidate all your loans without extending the terms of those loans.
 
NorfBank said:
1) If you cannot consolidate all your loans without extending the terms of those loans.
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Sorry, I should be more clear.

I'm assuming the term of the car loan, say, is less than the remaining term on your mortgage. So, you've 20 years remaining on the mortgage and you take out a 5 year car loan on top of it.

Presumably (if you can get the bank to agree) it would be better, certainly cheaper, to get the car loan amount added to your mortgage and then pay the money you would have been paying into a separate car loan into your mortgage instead. The extra debt will then be paid off in the same time period, with a bit to spare as well since it's cheaper money.
 
Qomn0001 said:
When does this make sense?
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Never ;) !

The source of funds should match the expected lifetime of what you use the funds for. A car loan would typically be 3 or 5 years. If you drew 'mortgage funds' down to buy a car, you would be still paying interest on those borrowings long after that car had passed from your ownership.

Fire up a spreadsheet and work out the cost of ..
a) borrowing 10K over 3 years at 10%
b) borrowing the same amount over 15 years at 5%.

The figures work out for me as
a) 11616
b) 14234

Qomn0001 said:
So, you've 20 years remaining on the mortgage and you take out a 5 year car loan on top of it.
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It would all be treated as a 20 year loan.
 
TarfHead said:
Never ;) !

The source of funds should match the expected lifetime of what you use the funds for. A car loan would typically be 3 or 5 years. If you drew 'mortgage funds' down to buy a car, you would be still paying interest on those borrowings long after that car had passed from your ownership.

Fire up a spreadsheet and work out the cost of ..
a) borrowing 10K over 3 years at 10%
b) borrowing the same amount over 15 years at 5%.

The figures work out for me as
a) 11616
b) 14234


It would all be treated as a 20 year loan.
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Nope, I'm not talking about spreading the repayments over the entire lifetime of the mortgage. I'm talking about being disciplined and increasing your mortgage repayments for the 3-5 years it would have taken to pay off a separate car loan. Obviously, for it to make financial sense you'll have had to have had a variable rate mortgage where repayments can be changed without penalty.

So, if your quoted car loan repayments were going to be €500 p.m. for 3 years, instead borrow the money off your mortgage and increase your mortgage repayments by €500 for 3 years. It's what you'd have had to do anyway, and at the end you'll have your 'car loan' paid off and more.
 
Qomn0001 said:
Nope, I'm not talking about spreading the repayments over the entire lifetime of the mortgage. I'm talking about being disciplined and increasing your mortgage repayments for the 3-5 years it would have taken to pay off a separate car loan. Obviously, for it to make financial sense you'll have had to have had a variable rate mortgage where repayments can be changed without penalty.

So, if your quoted car loan repayments were going to be €500 p.m. for 3 years, instead borrow the money off your mortgage and increase your mortgage repayments by €500 for 3 years. It's what you'd have had to do anyway, and at the end you'll have your 'car loan' paid off and more.
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If you find a bank that offers you that level of flexibility, post their name here and we'll all beat a path to their door ;)
 
TarfHead said:
If you find a bank that offers you that level of flexibility, post their name here and we'll all beat a path to their door ;)
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Ah, so that's the only catch then!

So far, I've had no problem varying my mortgage repayments (TSB tracker) but haven't yet had the temerity to ask them for more money. I presumed, probably incorrectly, that if you had a fair chunk of your mortgage paid off they'd be more than willing to throw an extra bit of money your way. You're low-risk so they're almost certainly going to make money out of you.
 
If you are topping up for holiday/new car etc, just make sure to split this loan from the main mortgage so you have say 300k (homeloan) over 30 years and the other 30k (top up) over 5 years if your bank allows you to do this.
The rate you get on the top up may not be the same rate as you are currently on and some banks will not offer the lower LTV tracker rates for a top up.
Depending on lender there may be legal fees or an admin charge for doing this.

It could be easier going to someone like Tesco and getting an unsecured loan over 5 years that you can repay without penalty.
 
TarfHead said:
If you find a bank that offers you that level of flexibility, post their name here and we'll all beat a path to their door ;)
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First Active used to offer this under their Utopia loan. Don't know if they still do.
 
EBS gives personal loan on mortgage rates if you have mortgage with them also.
 
EBS certainly do as DON 08 said. I am almost certain IIB offer the same with a small admin charge to cover the legals.
AIB will give you a top-up but I suspect there are legal charges. Worth checking.
 
TarfHead said:
If you find a bank that offers you that level of flexibility, post their name here and we'll all beat a path to their door ;)
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Don't they all facillite changes to monthly repayment or terms if rate is variable or tracker?
 
I know First Active allow up to top up your mortgage up to 65k without having to remortgage or incur legal fees. You can borrow this over 3 years all the up to the length of the outstanding mortgage. For items like a car for example this allows you to get a loan over say 4 or 5 years at mortgage rates, which are obviously better value than a personal loan. A secured loan always is as the bank cant lose. Your just releasing equity on your home.
One thing to note, legally speaking, You are entitled to get TRS on equity release for renovations on your home or buying property but are not entitled to this tax relief if you use the money for a car or a holiday. You may say, whose to know, but you could be asked for receipts and it is illegal. Guidelines can be seem on revenue website.
 
CN624 said:
Funniest thing I've read on this site in years!
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Ya - that's a classic alright.

OP - I suspect she may also be wanting new trousers given that clearly it's her that wears them and all that !
 
what is TRS on equity release? has anybody done equity release before?
 
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