How to fund house refurbishment?

[IntoTheUnknown]

Age: 44
Spouse’s/Partner's age: 43

Annual gross income from employment: 38K (Part-time)
Annual gross income of spouse: 140K

Type of employment: me public sector (temporary contract), spouse private sector (full time, permanent)

Saving approx. €1,200 per month (plus I’ve been saving €200-300 a month towards annual investment property tax bill).

Rough estimate of value of home: 850K
Amount outstanding on your mortgage: 292K
What interest rate are you paying? 2.9% (2-year fixed rate, due to expire in Jan 2025. About 20 years left on mortgage.)

Other borrowings – car loans/personal loans etc – Husband car loan (€360PM until Aug 2025)

Do you pay off your full credit card balance each month I rarely use it and always pay it off, husband does when possible.
If not, what is the balance on your credit card? Husband currently approx. 5K (just paid balance of a holiday)

Savings and investments:

Do you have a pension scheme? Yes I have an old defined benefit pension worth about €16K and an old PRSA pension worth €28K. Currently contributing to public sector pension. Husband also has old DC pension, approx. €25K. He is contributing to his company pension (and company contributes 6%).


Do you own any investment or other property? Currently sale agreed on an investment property I’m selling. I expect to come away with approx. €45K after solicitor’s fees etc.

We are in the process of setting up an investment account for the children’s university education. We have €6k to put in now and then we plan to add half of our monthly savings here (we save the other €600PM in a credit union account as a rainy fund, 2 years from target of 3 months combined take-home pay).

Ages of children: 7,10, 12

Life insurance: Husband has 3 times salary through work.


What specific question do you have or what issues are of concern to you?

We are planning to do some work to our house, starting early 2025. Costs will be in the region of €65-70K.

• Should I use some of the money from my apartment sale to pay off the credit card and car loan first?
• If I do that, I’d have approx. €35K to put towards the building work. What’s the best way to finance the rest of it? I’ve heard of equity release on property but I’m not sure exactly what it entails. Or is there a better way to use the apartment money/fund the build?

I’d appreciate any advice. Thank you.

 

[Dr Strangelove]

Annual gross income from employment: 38K (Part-time)
Annual gross income of spouse: 140K

Type of employment: me public sector (temporary contract), spouse private sector (full time, permanent)

Saving approx. €1,200 per month (plus I’ve been saving €200-300 a month towards annual investment property tax bill).

Seems pretty low savings in a gross income of €178k.

What is your net monthly income for the household?

Husband currently approx. 5K (just paid balance of a holiday)

Someone with your income should not need to carry credit card and car loan debt. Pay it off immediately once property sold!

I’ve heard of equity release on property but I’m not sure exactly what it entails.

Talk to your lender. On your income and borrowing needs it should be feasible to get a release. But bear in mind that you need valuations before and after, engineer’s’ reports, receipts to builder, etc. A credit union might be more straightforward.

We are in the process of setting up an investment account for the children’s university education.

Forget it. It’s not wise to be borrowing at double-digit rates and investing at the same time. Clear all debts aside from mortgage first. Then focus on paying down mortgage aggressively to have enough free cash flow for when kids are of college age.

 

[Clamball]

You seem to have made good financial decisions in the past to have €550K equity in your home and are clearing a €45K profit (after tax?) on an investment. But your current financial aims seem a bit all over the place.

Short Term
Car loan
Credit card debt
Saving €1200-€1500 pm


Medium term
College fund for kids €600 pm
House improvement
3 month income in rainy day fund - 600 pm

Long term
Pension
Home loan

I agree with Dr. Strangelove that you need to pay off your credit card debt and car loan from your current savings. With your joint income you should not need to have these debts. Then focus on living within your income and saving for medium and long term financial goals such as car replacements, etc.

You should ask your lender based on your €550K equity in your house for a loan for the building works, ensuring the repayments are affordable within your current monthly costs.

I would not save for the kids college but instead concentrate on paying down mortgage and funding pensions, maybe a 50 50 split. And then reduce those payments for the college years, to fund that. Hopefully you live in a city where they can go to college and live at home.

You both probably still have greater earning potential and as your income increases you can reassess doing a greater saving amount for upcoming expenses such as car replacements, house repairs or college. Best of luck.

 

[dublinbay24]

It would be the cheapest to get an equity release from your mortgage provider but likely also the most time consuming and difficult (from personal experience).

Borrowing 50k from Anpost for 10 years will cost you 575 euro a month. You have monthly costs of 660 that are going to roll off (property tax bill, car loan) within the next 12 months. So taking a loan would largely be net zero from a monthly cashflow perspective.

I would just get a loan from the credit union, an post, revolut etc to fund the gap between lump sum from investment property and cost of works.

As others have pointed out, pay off the credit card and don't worry about splitting out college education pots etc.

 

[IntoTheUnknown]

Thank you for the replies, much appreciated.

I'll be paying off that credit card and loan ASAP.

Net monthly income is €8400. Our outgoings are high between mortgage, bills, childcare, food shopping, kid's activities etc. We rarely spend money on eating out/stuff for ourselves, so we are careful where it goes.

There is no CGT on the property as we are selling it for less than we bought it.

I thought we would be wise to invest (rather than having money sitting in a bank account) but it seems the advice it to put our money into the mortgage and pensions instead.

I presume we should keep building the rainy day fund too? I'd be concerned about putting it all into pensions/mortgage and possibly leaving ourselves short in the medium term (e.g. depending where the kids get into secondary school we may need to factor in fees too).

Thanks for the advice on where to get a loan for the rest of the building works, that's very helpful.

 

[Seaniemed]

The fact that you have been saving towards the annual tax bill makes me concerned that you are spending the investment rental income?
If that is true have you factored in the drop in income

You have no savings to speak of for a couple on 180k p a (seems like 10k rainy day fund)
If you're saving 1200 p m and you only have 16k - you've been saving for a year?

I know things are hard but you should really do a deep dive on your day to day spending. Adding another 40k home improvement loan is probably just going to leave you in the same position in 2 years time.