Buy for cash or take out a mortgage?

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Valencia23

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Afternoon All,
we are hoping to buy a house from a neighbour who wants to sell up. He would like to sell as soon as possible so we're under a bit of pressure to get the finances in order. The house is in great condition but we will be making some changes (at an approx cost of €50k )

We have the funds to purchase the house for cash but it will more or less empty our savings. I'd prefer to keep something aside for a rainy day fund.
Or we could go for a mortgage of approx €100k to purchase then use our savings for the renovations and keep something aside for unforeseen events. We can handle the payments on this comfortably.

1. If we go the mortgage route how long is the process currently taking with the banks from application to loan drawdown?
2. If we pay cash, can we subsequently take a mortgage out on the property to fund the improvements or would it be a home improvement loan?
 
You could take out a Bank of Ireland mortgage and get 2% cash back.
Then clear the mortgage as soon as you can. You might face an early break fee if you choose a fixed rate.

It's much simpler though to buy the house for cash. When do you need to make the changes? How long will it take you to save €50k?

How long would it take you to repay it?

You might be able to get a Credit Union loan which would be dearer but much simpler.

Brendan
 
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Based on the limited info provided & assuming you have regular sufficent income & no crazy debts in the background I would:
  • take out as much mortgage as I could (reasonable terms assumed).
  • Live in the new house for 6 months - 1 year before you tear into any reno work - this is a personal cooling off period where you will really get to know the house & mature your own needs & expectations. Fund the reno work from your cash.
  • Invest the balance in S&P500 or similar index ETF.
On the mortgage timing front - just grasp that nettle & start working on it. If you provide clean paperwork in a prompt & organised manner with intuitive file naming the banks can process it more promptly. Consider using a broker to scour the market for the best deals available for you.

Best of luck.
 
I would be inclined to purchase with a mortgage. My first thoughts were the cashback argument Brendan mentioned. But also consider you could buy for cash and then look for a loan for home renovations but do home renovation loans attract the same (low) rate as a regular mortgage?

€50k might also be below the threshold for getting a mortgage.

Also you'd be delaying getting a loan when rates are expected to rise.

It would be easier to borrow more at the outset then have to go back to the bank and look for more funds if issues arose during the renovations.

Yes it might mean you borrow more than you need but it could save a headache later on. All going well you'd repay the excess borrowings reasonably quickly once the renovations were completed.
 
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Horatio said:
Based on the limited info provided & assuming you have regular sufficent income & no crazy debts in the background I would:
  • take out as much mortgage as I could (reasonable terms assumed).
  • Live in the new house for 6 months - 1 year before you tear into any reno work - this is a personal cooling off period where you will really get to know the house & mature your own needs & expectations. Fund the reno work from your cash.
  • Invest the balance in S&P500 or similar index ETF.
On the mortgage timing front - just grasp that nettle & start working on it. If you provide clean paperwork in a prompt & organised manner with intuitive file naming the banks can process it more promptly. Consider using a broker to scour the market for the best deals available for you.

Best of luck.
Click to expand...

I’ve never heard the like of it!

:)
 
I would if at all possible purchase without a mortgage,

From my experience, this will be seen as a buy to let Mortgage with the applicable interest rate.

A mortgage application always starts off great, the first phone call to source the loan was great, with an absolutely positive attitude, and quick process promised having given the basic details required and with proof to follow, it was still a long drawn out head wrecking nightmare tbh.




.
 
It always amazes me how people who seem to generate surplus cash for fun can think it’s a good idea to borrow whilst holding massive amounts of cash.

If I’ve €400,000 in cash and I want to buy a house for €400,000, I use the cash and then just build up my savings again instead of paying unnecessary interest to a lender.

Yes, there’s a lot of merit in having an emergency fund, but you shouldn’t borrow to have one.

Plus things like credit cards are an emergency fund. I view ours as part of the emergency fund and reduce the cash accordingly.
 
Valencia23 said:
Afternoon All,
we are hoping to buy a house from a neighbour who wants to sell up. He would like to sell as soon as possible so we're under a bit of pressure to get the finances in order. The house is in great condition but we will be making some changes (at an approx cost of €50k )

We have the funds to purchase the house for cash but it will more or less empty our savings. I'd prefer to keep something aside for a rainy day fund.
Or we could go for a mortgage of approx €100k to purchase then use our savings for the renovations and keep something aside for unforeseen events. We can handle the payments on this comfortably.

1. If we go the mortgage route how long is the process currently taking with the banks from application to loan drawdown?
2. If we pay cash, can we subsequently take a mortgage out on the property to fund the improvements or would it be a home improvement loan?
Click to expand...
Buy cash for reasons already outlined. Basically it offers you least amount of hazzle the least amount of risk and the greatest amount of options and flexibility in all financial areas in the years ahead.
 
Brendan Burgess said:
So you are suggesting that he borrows at 4% with no tax relief to invest in the stock market?

This really makes no sense at all. He would want a risk-free return of about 7% a year to break even.

Brendan
Click to expand...

Any quick calc that you could do to show this? Just out of curiosity really so ignore this if you want to
 
Valencia23 said:
1. If we go the mortgage route how long is the process currently taking with the banks from application to loan drawdown?
Click to expand...
I've seen a range of 10 working days to 3 months+. It depends on the lender, borrower circumstances, title issues with property, and efficiency of all parties in the process.

Valencia23 said:
2. If we pay cash, can we subsequently take a mortgage out on the property to fund the improvements or would it be a home improvement loan?
Click to expand...
It's technically possible to get a mortgage afterwards for renovation purposes, but you will pay additional legal fees to do so.
 
Brendan Burgess said:
So you are suggesting that he borrows at 4% with no tax relief to invest in the stock market?

This really makes no sense at all. He would want a risk-free return of about 7% a year to break even.
Click to expand...

bluecabbage said:
Any quick calc that you could do to show this? Just out of curiosity really so ignore this if you want to
Click to expand...

Hi bluecabgage

Take the AIB 5 year fixed rate which is about 4% depending on your Loan to Value.

So if you borrow €100k you will pay €4,000 interest.

If you invest the €100k in some fund and it goes up in value by 4% you will have to pay Income Tax or CGT on it, so say a minimum of 33%. That means that you will get a return after tax of about 2.8% , so you will lose money.

If you get a return of 7% , then less 33% = 4.6% . So you would be making €600 for all this risk. But you could end up paying 50% Income Tax on some of it.

But don't worry too much about the calculations. You will need to generate about 7% a year and you will pay about 4% a year.

It could work out. You might make a profit on it after tax.
But you are taking a huge risk that you won't get 7% consistently and you might have a huge fall.

Don't borrow to invest.

Brendan
 
RedOnion said:
Why would it be seen as a buy to let?
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Found a nice property last year, our get-a-way from Dublin at the weekends scenario, and although it was made clear, this is not a rental, I was told that as we already have a family home, a buy to let is the only option on a higher rate.

Im with AIB.
 
I presume that if someone is trading up and buys the new house before they sell their own, it's not a buy to let?

Which is what I presume that the OP is doing.

The banks sometimes suggest BTL to get around the Loan to Income limits.

Brendan
 
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