best options for single income mortgage

Hey all,

I've been trying to figure out the best way to juggle future finances and would appreciate any ideas I might get. At present, my finances are as follows.

BOI loan - E33,500
Deposit account - E25000
Cash to be gathered - E15000

I own a small construction company which is paying me a salary of c. E33000 p.a., however long that will continue. Impossible to get paid for work these days. I have a regular savings account that has about a grand in it at E150 a month. Would have about a grand disposable per month and no other major income or expenditure. I'm single and am on the verge of getting planning on an inherited site.
My question is with regard to mortgaging my house. The site is obviously free and I would be doing a lot of the work myself. I was therefore thinking of getting a mortgage for E170000 which would include the E33500 loan already with the bank and should be able to complete the house for that. I'm wondering would it be better to stick all my cash, E40000, into a term deposit account and just use the interest to help pay the mortgage or should I spend the 40g on the house until it runs out and then seek a mortgage for the remainder of the build. A bit confusing, I know, but would appreciate any ideas.

Thanks.

Re: trying to be smart

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Brendan

I would say you should pay off the €33,000 Bank of Ireland loan immediately. Not only are you paying more interest on it than you are getting on your savings, but also it will adversely affect any ability you have to get a mortgage.

Apply for your mortgage before you commit to building the house.

I'd agree with Dave, pay the loan off, saving you loads on the interest. Also, you'll then have a smaller mortgage as well, which will save you even more.

baldyman27 said:

I was therefore thinking of getting a mortgage for E170000 which would include the E33500 loan already with the bank

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If the bank offer you a mortgage of €170,000 this will be for the build costs only. You will not be able to use €136500 for the build costs and clear the loan with the balance.
As previously advised, you should try to pay off that loan first.

Thanks for the posts. Should have clarified one thing, the loan is fixed rate. Also, do the banks look for a certain percentage of the value of the house, e.g. 10%, in savings before considering giving out a mortgage? Would paying off the loan with the savings give me less clout?

When I went for a mortgage a few years ago and had an outstanding balance on a car loan, still owing E 2 000. I was advised to clear it and the result was that they offered me a further 35 000 on the mortgage (which fortunately I turned down..). But, would you not consider going to our local BOI bank manager and talking about your options? It might be the best starting point, as your loan is with them.

Will you be given a mortgage for 170k on a salary of 33k? Given your loan and the nature of your work i'd think not.

You may have to sit on your plans, fight the storm and come out fighting again in a few years.

baldyman27 said:

Would paying off the loan with the savings give me less clout?

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Depending on the size of the loan, a bank would prefer to see an applicant debt free with no savings rather than having a large loan and small savings.

When the lender is calculating how much you can afford to borrow, it works on your NDI (Net Disposable Income). Your NDI is basically your cash in hand after all other loans. Obviously your NDI will be larger if you do not have any loans so you will qualify for a bigger mortgage.

Having a record of savings may influence the lender in approving a marginal case but NDI is the important figure.

If you can afford to clear the loan then do so, the bank will realise that you used savings to clear the loan showing you had the capacity to save.