Extending Mortgage term to fund children's education.

Allpartied

Registered User
A quick query on extending the term of a solvent mortgage. Fully paid, on time, without any arrears.

I have 65000 Euros left on a 160k,20 year mortgage, with just over 6 years to go. It's a joint mortgage with my wife. Our current net salary per month is around 5000 Euros, which can fluctuate a little, up or down.
Current payment is 940 per month, fixed 3.5% until Jan 2020. ( Ulster Bank)

We have four children, all aged close together, who are about to start college. Let's assume they all want to go to third level. Expenses in Ireland for each child is approx, 8000 Euros per annum.

For several years we will have three in college at the same time, so expenses will be very high.
I would like to extend the mortgage to the maximum possible, ( i am 53, wife is 50) and reduce the mortgage payment during the college years to increase the cash flow.
We have some savings ( about 30k), but this will drain fairly quickly, so reducing the monthly mortgage by 500 euros would help to get us through this period.

Has anyone had any experience of extending the mortgage term, without arrears, to deal with expected cash flow issues? What is the maximum age a mortgage can be extended to for two public sector workers?
 

RedOnion

Frequent Poster
What is the maximum age a mortgage can be extended to for two public sector workers?
For UB:
"Maximum age for repayment is 70. Where a mortgage extends beyond normal retirement age, a customer should be able to demonstrate continued ability to service the loan by way of pension or alternative means."
 

NoRegretsCoyote

Frequent Poster
If extending formally doesn't work, you can at least shop around and get a better rate from another provider. At this point most of your mortgage is amortisation but you might save up to €20 a month on the interest.

Also - if you are public sector workers, won't you get a tax-free lump sum on retirement? You could just opt to go interest-only on the mortgage for a year or two before the lump sum arrives and repay the balance once you retire.
 

Allpartied

Registered User
Thanks for the replies.
I would like to take the interest only option, but I am doubtful that a bank would agree to such an arrangement. From what I have read mortgage providers get a bit nervy when no capital is being paid down on the mortgage and usually only provide it to those in serious arrears or financial difficulties. Although I anticipate I will struggle to meet the mortgage payments when the bills start rolling in for college registration, accomodation, books, laptops, upkeep, etc, at the moment I don't have any such difficulty.

According to the pension calculator page i would be entitled to a lump sum of 72k at age 60 and my wife would get 25k. So there would be enough to discharge the mortgage on my 60th birthday, which coincidentally is the actual date that the mortgage term ends. This would enable us to put aside the non-interest part of the mortgage and have it as an accessible fund should we need it during the upcoming college years.

I will make a proposal to Ulster Bank and see what they say. If they turn it down then I will look to extend with another provider. A 17 year mortgage, for the remaining amount, with KBC, would see my payment down by 500 euro a month. I could still discharge the mortgage on my original timeline, when the retirement lump sum comes due.

I guess I'm in a slightly unusual situation, being entirely solvent, having a clear capital sum which can discharge the mortgage, on time, but facing several years where I might struggle to meet the current payments.

I'll let you know how I get on.

Cheers.
 

Coldwarrior

Frequent Poster
A 17 year mortgage, for the remaining amount, with KBC, would see my payment down by 500 euro a month. I could still discharge the mortgage on my original timeline, when the retirement lump sum comes due.
I'd go this route, switch and extend the term to the maximum allowable, you'll get a better interest rate and and will at least be still paying off some of the capital each month, and then as you've said you'll have the option to pay off the remainder with the lump sum on retirement.
 

NoRegretsCoyote

Frequent Poster
Whatever you do, try and borrow cheaply against your house, rather than expensive unsecured borrowing by you or the kids.

Good luck with it too. The system is not kind to middle-income PAYE workers who live far away from 3rd level.
 
This illustrates how dysfunctional our banking systems are.

With a good income and plenty of equity, you should be able to switch to interest only when you need to. Even further, you should be able to draw down further money to fund the shortfall.

Instead, we have an idea that a mortgage must be paid down in full over the originally agreed period, whether that suits the borrower or not.

KBC will give you €3k to switch so that would be the best deal on a small mortgage. (2% of €65k is only €1,300)

You might consider asking them for more than €65k to cover the costs of the next two or three years. If you borrow an additional €60k @3%, it would cost you only €1,800 or so a year in interest.

Brendan
 

NoRegretsCoyote

Frequent Poster
With a good income and plenty of equity, you should be able to switch to interest only when you need to. Even further, you should be able to draw down further money to fund the shortfall.
I can see why banks are reluctant.

Nothing to do with this specific case, but can go wrong when you are in your fifties even with good cashflow and positive equity. You don't have much time to make good your misfortune before retirement either.

The courts see the banks as a tool of social policy, and are very reluctant to move on people in retirement, especially as it will fall to the state to house them.
 

Allpartied

Registered User
Is that assuming they live at home.
Your right, of course, I am being supremely optimistic.
Working on the basis that accommodation can be secured, outside of Dublin, for 4000 per annum and the 3000 Euro registration fee ( some tax relief when we are paying more than one fee) and 1000 Euros for books etc. Food is going to be pre packed at beginning of week from the family shop and socialising is going to have to come from their own pocket ( to be fair they are all showing a good work ethic, babysitting, waitressing, kitchen and bar work ).
But, even so, probably going to be more than 8000 per annum.

A good student loan scheme, repayable when the graduate hits a certain income level, would be a god send, but there are too many people who benefit from the current system to change it any time soon.
 

misemoi

Frequent Poster
College costs was a massive factor in us deciding to stay in the capital. Not just for education but to give our children the opportunity to live at home in early grad years so they don't have the rent expense we had. Unless they want to fund it themselves! We both left home at 18 and rented until we bought at 34. Scary!
 

NoRegretsCoyote

Frequent Poster

Allpartied

Registered User
Credit union funding at close to 8% or whatever is much more expensive than borrowing on the strength of your home.
Yes, i think it would make sense to remortgage should I need extra cash. However, I am really hoping to get through this period with as little borrowing as possible.
I have a small AVC with Irish Life, but I stopped contributions some time ago as I wanted to save as much cash as possible into an accessible savings account. They did mention that I should fully utilise my tax free lump sum by contributing to AVC's. This is my current situation regarding the lump sum.

Gross Basic Salary 71256e, 28 years service by 2025 = Tax Free Lump Sum of 735963 form PS Pension. ( Pre 2004 scheme)

However, entitlement would be 107289 (71256 x 1.5) . So shortfall is 33693e, which it would make sense avail of, if possible. In addition I have been advised that there is scope to increase the tax free lump sum by increasing income during the last 10 years of working life. My understanding is that you can use the highest 3 years from the final 10 and average that amount to produce a figure upon which the tax free lump sum is based. I might be wrong on this so please correct me if that is the case.

Anyway, got me thinking and I was going to remortgage with KBC ( 3000 Euros to cover legal fees ) and extend mortgage to the max possible.

Calculations as follows,

16 year Mortgage KBC = Monthly repayment of 416 Euros

Current Mortgage Ulster Bank = 940 Euros

Differential is 524 Euros.

If I contribute this 524 Euros to an AVC, I can avail of 40% tax relief. Hence,

Yearly contribution 524 x 12 = 6288
For 6 years ( Potential date of retirement) = 37728

Tax relief on 37728 at 40% = 15091

Because I have extended the mortgage I will pay additional interest on the longer term loan, even if I pay off the loan in 6 years.

Differential between current interest bill for 6 years, as opposed to the longer term loan is 3372. ( I used an online amortisation calculator)

As I will get a 3000 euro cheque from KBC I will ,probably, have 2000 euro left after legal fees. So take that amount from the increased cost of loan and you get an overall cost of 1372 euros.

However, with the tax relief of 15091 I will be quids in. Approx 13719 ( 15091 - 1372).

By contributing to AVC I will have much more control over the cashflow, as I can stop the payments immediately if I need to access the money for education costs.

It seems to me this would be a good idea even if I didn't have these bills coming up. Have I got it right, or is someone able to spot a flaw in may cunning plan.
 

Laughahalla

Frequent Poster
Sorry to hijack this but anybody with children in Primary school, please take note and start investing something each month towards your childrens education. It's much better to be able to bank roll education from investment/savings or with current income. Remortgage over a longer term should be an absolute last resort. It's playing with numbers and introduces financial risk and potential for losing your home . Keep it simple and in this case, if possible encourage your children to go to the nearest college/university where they can live at home to keep expenses down or defer for a year so they can get a job and save up to pay for their own education.
 
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Allpartied

Registered User
Sorry to hijack this but anybody with children in Primary school, please take note and start investing something each month towards your childrens education. It's much better to be able to bank roll education from investment/savings or with current income. Remortgage over a longer term should be an absolute last resort. It's playing with numbers and introduces financial risk and potential for losing your home . Keep it simple and in this case, if possible encourage your children to go to the nearest college/university where they can live at home to keep expenses down or defer for a year so they can get a job and save up to pay for their own education.
Obviously a good idea. Also make sure you don't mortgage in the middle of the biggest boom in the state's history, which subsequently leads to a massive bust, coupled with 30-40% reduction in wages.
My situation might be unusual but I am at absolutely no risk of losing my house, even if I extend the mortgage. I have the capital to fully complete the mortgage on time, I just don't have the cash flow to manage current mortgage payments and college fees over the next few years.
I'm just thinking out loud of ways to manage these years.
As you say, college location is also important, as accomodation in Limerick is half the price of Dublin. If they end up doing a generic qualification ( teaching, nursing, for example), then the prestige of the training college is not relevant and I will be encouratging them to go to the cheapest town. It's not really an option to travel from our home location.
 
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Bronte

Frequent Poster
If the bank would rather sell you a loan at a higher interest rate they may not go for the extended term on your loan. So maybe come up with a 'good' reason for extension other than college costs.
 

Allpartied

Registered User
If the bank would rather sell you a loan at a higher interest rate they may not go for the extended term on your loan. So maybe come up with a 'good' reason for extension other than college costs.
That's possible, but I can always switch to another lender and extend the term.

I have written to Ulster Bank asking them to put me on interest only for the next 6 years. I have explained the circumstances as above, so i shall await their response.

If they refuse, as I expect they will, then I will switch to KBC for the longest term available (17 years). Although I will still pay my mortgage off on time when I reach retirement age using a proportion of the tax free lump sum.
 

Figrus

New Member
Have you entered figures into the susi website? Two children attending college away from home would be awarded circa €13,000. Maybe you or your wife could consider dropping work days the year before they start in order to qualify?

We have children in college who live away from home . They live in student accommodation (€4500). They come home every weekend (approx €15 return). So don't allow them study miles away as weekly transport costs will rocket. They spend €20/month on phone. They are sent back with around €25 of aldi/lidl groceries each. They buy vodka (€8). And we transfer over €20 per week for miscellaneous (taxis to clubs, coffee, house gets takeaway etc). Text book costs are minuscule but that may be their courses University term times are remarkably short so that is a saving too. They also have parttime jobs.
 
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