Does it make good financial sense to pay off partners debt?

C

curios

Guest
Hi All,

I'm in a bit of a confused state at the moment and would really appreciate some guidance. My fiance and I are looking to buy a house in the next year or so. Our current situation is as follows:

Partner:
Salary:
approx €100k per year before tax

Debt:
Mortgage €155k 1 bed apt, tracker mortgage approx €600 per month
Car loan: €20k approx €530 per month for next 4 years

Savings:
Approx €7k

Me:

Savings:
Approx €155k

Income:
Recently Self employed approx €150 per week

Debt:
Nil

My query is whether it makes good financial sense to pay off my partners mortgage and for us both to pay off the car loan?

The house we want to buy will be one we want to keep long term so we would be looking to spend max €450k.

If I pay off the debt, then I will have nothing to contribute towards the purchase of the new property however I will have an asset in the apartment and a rental income approx €800 per month. So, an income of roughly €45k over 5 years plus then if I wanted to sell it, I could put a lump sum of the new house. Hopefully, getting back most of what I put in although I know I can't count on that.

My partner will also then be freed up €600 a month which can be put towards savings or the mortgage of the new house. If we could manage to pay off the car loan too through savings in the next few months then it would mean an extra €1200 per month towards new mortgage.

I realise then that we would have to save to get a deposit for the new house which could be tricky, by that I mean take a good while.

But our position then would be that I would have an asset, a rental income of €800 a month. My partner would have a salary of €100k a year approx and neither of us would have any debt. Well, until we got the new 450k mortgage!

It's a bit of a complicated scenario and I'm not sure what would be the best move: the above scenario or use my money towards the new house and get a mortgage for the balance 300k.

Any opinions or suggestions would be much appreciated!

Thanks
 
In short, the answer is no.

The reality is that many relationships split up. There are many, many questions on askaboutmoney about sorting out the mess left behind when people bought a house together and subsequently split up. So keep your finances as separate as possible, at least, until you are ready to buy togehter.

if you do buy together, then make sure to do an agreement in writing about what you are agreeing. Here is a sample

The tracker loan is valuable and should not be paid off
It is quite possible that, at some stage, the lender will offer a discount for the early repayment of the mortgage. It might be worth considering then.

It is also possible that the lender might allow the cheap tracker to be transferred to the new property.

Your partner should use their savings to pay off the car loan
Why do they have an expensive car loan of €20k and €7k savings earning very little interest? Unless there are early repayment penalties, it would make sense to reduce the car loan to €13k. You could agree a short term loan of €13k, but you should do it in writing and insist that it be repaid to you.

Your partner has an income of €100k so does not need a rainyday fund.

If I pay off the debt, then I will have nothing to contribute towards the purchase of the new property however I will have an asset in the apartment

If you buy the apartment, you will have an asset. If you simply pay off the debt, you will have an unsecured loan to your partner of €155k

The apartment seems very profitable
You are potentially getting €800 per month or €9,000 per annum. The mortgagte interst is around €3,000 (€155k @2%) - so your partner could be making €6,000 a year profit. That would suggest that you keep the apartment and the cheap tracker.

You could consider selling the apartment
By selling the apartment, you would be debt free and have €155k in a deposit for the house. That means that you would be jointly borrowing €300k which should be doable.

I would be reluctant to sell an apartment with a cheap tracker unless I was getting a 20% discount from the lender.
 
Agree. He should have no savings if he has a regular salary. He should pay off his expensive borrowings first

Brendan
 
in short no do not pay of your partners mortgage.

There are a couple of reasons, one you are not married, you could easily split up, and it is a very large chunk of money to be throwing away on a one bed apartment. I do not believe it is a good asset as there are too many apartments out there. I would get him to sell the apartment if he can, if you have to put something to the negative equity then fine but not a huge amount. Then use your money towards buying a place together. You say you are recently self employed and have an income of 150 per week - well if that is the case then do not get rid of your savings!
 
As mentioned

Clear the car loan between yee and talk to your partner about saving habits.

Banks should have no problem with a new mortgage on a new place with savings and salary levels.

Question If they do buy together and OP puts in most to all of the deposit and initial setup cash for the house, can they get a legal agreement to reflect this until marriage?
 
Great expression
'Love goes out the window when money trouble comes in the door'
I know sooo many couples killing each other over money arrangements they thought were sensible at the time.
For lots of reasons - keep it all nice and tidy.
 
Frank said:
As mentioned

Clear the car loan between yee and talk to your partner about saving habits.
Click to expand...
Why should she pay off her partner's loan on the car? He is the one with the €100k salary. It would set a dangerous precendent for money management within the relationship.

For all the excellent reasons Brendan mentioned, keep your savings.
 
I would have taken a more positive view that hopefully they will stay together and live the dream.

Paying off the car loan would be a small enough cost towards a greater good.

Especially if something could be put in place that the car was now equally owned ish.
 
agree totally with Brendan, also would be worried about 100k salary and 7k savings
 
regvw said:
agree totally with Brendan, also would be worried about 100k salary and 7k savings
Click to expand...


You think!! OP, I think you're mad to even consider it on your current earnings. Love can really make you do silly things. On their salary, they could have that car loan paid off within a year.
 
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