Credit union loan to clear mortgage.

P

pablo123

Registered User
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Hello guys , We have 37,000.00 euro left on our mortgage , We can get a seven year fixed rate at 3.6 % to get to the end , Trying to get to the bank during opening hours is not possible so I have no idea what the total amount would cost us , If someone could help me with the calculations I would appreciate it, That withstanding we have contacted our credit union and they are willing to loan us the 37,000.00 euro and we would end up paying back 41,500.00 euro approx over three years , Would it make financial sense to go with the credit union or stay with the bank , Thanks for any info on the subject .
 
Why would you want to pay the credit union 7.5 - 8% to borrow the money? You also seem to be shortening the term from 7 to 3 years?
 
Hi pablo

There is a bizarre feature in Ireland that Credit Unions have a great public image despite very high interest rates and some terrible lending practices.

Over 7 years at 3.6%, you would pay €4,900 interest.

Over 3 years at 7.6%, you would pay €4,500 interest.

But, over 3 years at 3.6%, you would pay only €2,000 interest.

So stick with your current lender and fix for 3 years.

Brendan
 
And, there would be legal fees to pay to switch to the Credit Union assuming it's a mortgage rather than an unsecured loan.

The Credit Union will spoof about "You can pay it off early without penalty if you wish" but you can pay off any variable rate loan early without penalty, so it's not an advantage.

Brendan
 
Thanks for your replies 24601 and Brendan , We will both turn 60 in three years time and our aim is to be mortgage free by then , We both work full time and I want to take the pressure off of my wife by then , Brendan,s advice is also my way of thinking , It would also make sense regarding serious illness cover to stay with the bank, I will have a chat with the bank as soon a I get a chance to see if they will offer a three year fixed rate at 3.6% , Again thank you for your great advice and time , Kind regards Paul .
 
Hi pablo

Which lender are you with? Their rates are published and we should be able to tell you what the best option is.

But the rate is not the only important issue. The longer you have a mortgage, the more you will pay.

So even if you are with one of the predatory lenders such as BoI or ptsb, it will still make sense to stay with them. And even if you have a fixed rate, you can overpay it. You may face an early repayment penalty but it will nearly always be justified in that it will be a lot less than the interest you would otherwise have paid.

Brendan
 
pablo123 said:
We will both turn 60 in three years time and our aim is to be mortgage free by then ,
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This all seems a bit arbitrary but if that's your objective fair enough.

I would stay with existing lender. Most likely you can overpay without penalty. Check with them.

Exchanging a lower interest rate for a higher interest rate never makes sense.
 
Brendan we are with the PTSB , I just checked and I was incorrect about the interest rate , It is actually 2.95% fixed over three years that we are being offered , We are paying 473.00 euro per month on the mortgage on a variable now, We plan to pay 1,273.00 euro a month for the duration , If the bank are agreeable then it would be a big difference in interest payments , Thank you for the information as my wife will believe you over me , No Regrets , Point taken , We are both working full time now but anything can happen so we would like to have it done and dusted sooner rather than later , Thanks for your help also .
 
Hi Pablo

You have €37,000 left on your loan.
The 3 year fixed rate is 2.95%
The variable rate is 3.6%
The difference is .65%

As you intend to pay it off over 3 years, you might be better off staying on a variable rate and not face any hassle from early repayment penalties.

@€1,273 per month, you would have it paid off in 2 1/2 years.



Alternatively, if you are sure that you can keep up the €1,273 - ask ptsb to reduce the term to 3 years and charge you the lower rate. Do this before you fix.

Brendan
 
Brendan Burgess said:
As you intend to pay it off over 3 years, you might be better off staying on a variable rate and not face any hassle from early repayment penalties.
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@pablo123 While it is strictly true that you can't make any overpayments while on a fixed rate with PTSB without potentially incurring an early repayment penalty, their mortgages have the following useful feature:
  • You can overpay by as much as you like each month without penalty, and this builds up as a credit on your account
  • You can use this credit to take a payment holiday or to reduce the monthly repayments (or to pay off part of the principal at the end of the fixed period)
  • You are only charged mortgage interest on the net balance, i.e., on the mortgage balance after the credit has been subtracted
  • See this thread for more details
Brendan Burgess said:
Alternatively, if you are sure that you can keep up the €1,273 - ask ptsb to reduce the term to 3 years and charge you the lower rate. Do this before you fix.
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This is your other option.
 
@pablo123 , what cash do you have available today?

I only ask because because a lot of credit unions use your own savings as security on the loan which is terrible for the customer as you are effectively borrowing your own money. So I'm guessing that you may have significant savings with them. Please correct me if I'm wrong

If you have €10-40k available today then just clear as much of your mortgage as you can
 
OKGO, We have about 18,00.00 euro in savings so not too significant but I see your point , It is our nest egg , Paul F and Brendan , Your suggestion makes sense , It was suggested by our bank to pay a lump sum of maybe 10,000.00 euro and then up the payments and the bank have agreed to that on a variable of 3.6%, Of course they tried to put us off by saying the interest rates are going to rocket fairly soon, Unless they rise to 7.6% in the near future this is the best deal for us , Thank you so much for your help guy,s , It is really appreciated .
 
pablo123 said:
It was suggested by our bank to pay a lump sum of maybe 10,000.00 euro and then up the payments and the bank have agreed to that on a variable of 3.6%
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Someone in PTSB said that to you??

pablo123 said:
Of course they tried to put us off by saying the interest rates are going to rocket fairly soon
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What did they try to put you off from doing?

What have you decided to to? If you decide to fix (with or without reducing the mortgage term from 7 years to 3) you need to act fast – interest rates will probably be increased in the next few weeks.
 
pablo123 said:
We have about 18,00.00 euro in savings
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Just to clarify, is this a typo? I presume you mean €18,000.00 based on the later comment of making a €10k lumpsum

pablo123 said:
we would like to have it done and dusted sooner rather than later
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pablo123 said:
but I see your point , It is our nest egg
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These statements are in conflict with each other. If you want to maximize your nest egg, you need to clear the mortgage sooner. If you have no plans for that €18k in the next year then you should really set most of it against your mortgage, e.g. €15k

I would then use a combination of @Paul F 's suggestions and take advantage of PTSB's overpayment credit option. If you need access to money in the next 3 years, you can use the credit to take a payment holiday freeing up the monthly payment of €473
 
pablo123 said:
We have about [€18k] in savings
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_OkGo_ said:
If you have no plans for that €18k in the next year then you should really set most of it against your mortgage, e.g. €15k
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@pablo123 It is a good idea to always have an emergency fund of about 3 to 6 months' living expenses at any time. Do you have an emergency fund apart from that €18k? If not, then putting €15k into your mortgage could leave you stretched in the case of unforeseen circumstances.

Also, even if you have an emergency fund, overpaying your mortgage/reducing your balance may not be the best use of your money. Your priorities should usually be:
  • Paying off expensive debt (credit cards, personal loans, car loans, etc.)
  • Building up/maintaining an emergency fund in a savings/current account (3 to 6 months' living expenses)
  • Saving money for any expenses you will have over the next few years (kids; buying a car; childcare; adult children going to college, etc.)
  • Maxing out your pension contributions (very large tax relief is given)
  • Overpaying your mortgage
in approximately that order. Consider posting a thread about your situation in the Money Makeover forum.
 
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