Mortgage Advice

Hi

We currently own a property in Dublin which has a conversative value of roughly €450k.

We are looking at a property which would cost in the region of €550k + stamp duty.

We have short term borrowings (over 5 years) of about €45k. This consists of 2 car loans and a personal loan for our wedding.

Spouse income: €57000 + overtime of 5k and bonus of 5k
My income: €35000 + bonus of €15k (salesperson)

The bank have told us that they wouldn't put forward an application for a mortgage for this property because our short term debt was far too high.

The person in the branch was a customer service agent and I don't know if he was right and trying to save us from embarrassment or if he was inexperienced and didn't fight our case.

Does anyone have any advice? We have equity of about €80k which would need to pay for the 8% of the value of the property plus stamp duty - and excess would clear off the wedding loan.

Any advice appreciated.

Thanks

Assuming that you have posted a monthy salary (pre-tax?) for your spouse, and an annual bonus and overtime for him. While posting an annual salary (pre-tax?) and bonus for yourself... I would agree with the agent. Get your current borrowings down before looking at borrowing more.

The other thing is that, and it is frequently said here, it is unwise to pay for short term debt over the full length of a mortgage. If you simply have to roll in your discretional unsecured debt into your mortgage, pay it off over the same term as the original debt.

Thank you for the reply and apologies for the typo - my spouse's annual pre-tax salary is €57000.00.

Our equity (80k) would not cover 8% of the purchase price, the stamp duty AND our short term debt. There is no intention of rolling up the short term debt into any mortgage - is this what you mean about paying for short term debt over the term of the mortgage. It will be kept separate and should be paid off in about 3 years - I apologise if I am mis-understanding you.

Ah my bad, I understood from this

- and excess would clear off the wedding loan.

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that you were looking to pay your wedding loan with mortgaged debt.

I would still agree with the bank's assessment, you have a combined income before tax (I will ignore bonus and overtime for the moment unless they are guaranteed) of €92k and total debt, excluding mortgage, of half that.

Looking at it from a different angle...back-of-envelope rough calculations suggest to me that you're paying over €900 per month for €45,000 over 5 years. €506,000 x 30 years is going to be >€2,750 per month (assuming you're young enough for a 30 year loan). So that's a potential €3,650 per month on debts. Ignoring your bonuses I'd say you're earning <€6,000 net per month combined. So your proposition would involve you handing over 60% of your take-home pay to service debts. Where do you go if interest rates rise? One loses their job?

Unless you pay off a good chunk if not all of the short-term debt and/or can stretch the mortgage out over a longer term than 30 years, I'd say it's inadvisable.

Liam D. Ferguson
www.ferga.com

I agree with the other posters. It would make sense to patiently pay off your debt, and then look at moving.

Or, you could sell now and move into rented accomodation, in the hope that the house you are thinking of buying will continue to decline in value.

Flax said:

I agree with the other posters. It would make sense to patiently pay off your debt, and then look at moving.

Or, you could sell now and move into rented accomodation, in the hope that the house you are thinking of buying will continue to decline in value.

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Better still.

If your current house could in fact realise €450k (many people are still grossly overestimating the value of their houses), then sell, clear your debt and bank the rest.

This might save you €2,900 per month in outgoings (€900 from the poster above for personal loans and around €2,000 for the mortgage based on €370k).

Then rent a house like the one you would like to buy. That should be available at no more than 4% yield, or €1,800 per month.

Take the €1,1000 (€2,900-€1,800) improvement in your cash flow and save it (along with the €120 per month interest you should get on your savings).

Set yourself some savings objectives (to get X% deposits + stamp duty) to go shopping to buy again.

thanks for the advise and postings.

€450k is quite a conservative value - I have a few pals who are estate agents who have given me a realistic value.

To be honest, we could sell and move in with my parents for awhile but it's not the best way to start married life!! I do appreciate that we could rent for awhile but we're in no rush to move and I think that I have the typically irish personality trait of rather staying where we are as owners than renting.

The debt is being serviced and we might get a chunk of the debt paid off with wedding presents (please don't call me a materialistic wench banking on gifts - because I'm not - hence why I'm being so up front with the numbers) I think it's just a case of being patient - it's just that we'd like a house and a garden after 3 years in an apartment

It must be some apartment to conservatively be worth 450K. There's some good advice in this thread but if you can't accept the practicalities of them then there's really not much you can do beyond waiting it out for the length of time it takes you to pay down your debt.

"HowitzerRe: Mortgage Advice
It must be some apartment to conservatively be worth 450K. There's some good advice in this thread but if you can't accept the practicalities of them then there's really not much you can do beyond waiting it out for the length of time it takes you to pay down your"


I accept all advice given and appreciate all your comments. I think that we will wait and keep reducing our debts.

It is a fabulous apartment by the way! That's why I'm not too heartbroken if we have to stay in it a little while longer!

Thanks again.

highly said:

I do appreciate that we could rent for awhile but we're in no rush to move and I think that I have the typically irish personality trait of rather staying where we are as owners than renting.

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At a cost of more than €1,000 per month, that trait is some indulgence.