Release Equity On My Home Or Top Up Mortgage

[MBoyle]

Hi Guys,

A house that I'm interested in buying has just come on the market for 269K. I currently own a house worth around 230K, on which the remaining mortgage is 26K.

I'm not sure that I want to sell my current house, so I'm thinking of keeping it on as an investment property. I went to the bank today to see what my options are. I thought my only option was to get a big mortgage (around an additional 250K) to finance buying the new house. But...

The guy in the bank told me I could release equity on my current house, which would give me 204K, which would leave a deficit of 65K for the new house, which I could take out a loan for. He told me that they would give me the 204K, and that I wouldn't have to pay it back until I sell my current house in 2/5/10 years time or whenever, and at that point I would only have to repay the 204K with no interest. Does this seem right?

Also, would this be the best option? What are the cons? It seems too good to be true!

All thoughts appreciated as don't know what to do for the best...

Cheers,

J

 

[ClubMan]

Moved from Mortgages and Buying and Selling Homes .

I'm not sure that I want to sell my current house, so I'm thinking of keeping it on as an investment property.

Have you read this thread?

Sell home or keep as an investment?

The guy in the bank told me I could release equity on my current house, which would give me 204K

Bear in mind that you can only offset interest on the outstanting €26K against rental income from the former PPR if you rent it out.

which would leave a deficit of 65K for the new house, which I could take out a loan for. He told me that they would give me the 204K, and that I wouldn't have to pay it back until I sell my current house in 2/5/10 years time or whenever, and at that point I would only have to repay the 204K with no interest. Does this seem right?

That's nice of them. Which bank is this as I wouldn't mind some free money too. No - it does not sound right. Presumably he means that this will be an interest only mortgage so you would make interest payments over the term of the loan?

Also, would this be the best option? What are the cons? It seems too good to be true!

See above. And bear in mind that financing such a purchase and retention of the former PPR as a rental property is just on aspect. You need to consider the fundamental investment issues, tax issues, property management as a landlord issues etc. If in doubt get professional advice (i.e. not from the bank).

 

[z106]

Hi Guys,

A house that I'm interested in buying has just come on the market for 269K. I currently own a house worth around 230K, on which the remaining mortgage is 26K.

The guy in the bank told me I could release equity on my current house, which would give me 204K, which would leave a deficit of 65K for the new house,

...and at that point I would only have to repay the 204K with no interest..

Cheers,

J

YEs - i'm sure you can release equiy alright.

However - I doubt you would be able to release €204k using your current house as an asset to back the loan.
HAs the guy in the bank actually used the figue of €204k ? Or did u just assume that is how much he would give ?

That would mean they are giving you a 100% loan on your current home.
Normally they wouldn't want to be involved by more than c. 90%.

Using that figure as an example that means the most the bank would want to give out is 90% of €230k i.e. €207k.
You currently have €26k outstanding which means they would only top up by a further €181k.

Maybe they are prepared to give oout 100% mortgage but this is unusual - albeit not impossible.

That would .eave you short €88k - and not €65k using a 90% LTV on your current home.

DOn't forget to add on stamp duty (€10,080 after todays budget) - plus furnishings and other feees.
BAsically you'd be looking at the guts of €110k which you could borrow against the new investment property.

That would leave you with a total loan of €110 + €207k = €317k with a total asset base of €230k + €269k = €499k.

That means an overall LTV of 63%.

And yes - he is right - when you sell you will only have to pay off the €204k with no interest as he said (or whatever amount).
However - what he meant was you will have been paying interest repayment throughout the term of the loan - which at say 5% interest would work out at c.€10k a year every year more than what you're paying now (before interest relief) - and thats before you include c. €5k a year evry year for the borrowing on the investment property.
SO basically - you will have c. €15k more a year every year than what you are paying now if you decide to only make the interest repaymenst without paying off the capital as well.

 

[MBoyle]

Moved from Mortgages and Buying and Selling Homes .

Have you read this thread?

Sell home or keep as an investment?

 

[MBoyle]

Moved from Mortgages and Buying and Selling Homes .

Have you read this thread?

Sell home or keep as an investment?

Yes - and to be honest I'm not sure I want the hassle of being a Landlord. I would just like to have my old house to fall back on incase I wasn't happy in the new house, which is probably unlikely.

Bear in mind that you can only offset interest on the outstanting €26K against rental income from the former PPR if you rent it out.

That's nice of them. Which bank is this as I wouldn't mind some free money too. No - it does not sound right. Presumably he means that this will be an interest only mortgage so you would make interest payments over the term of the loan?

It was with AIB, and he told me that the bank would give me an equity of 204K, that I could pay back when I sell the house. I asked him why the bank would do that, and he said that the bank is making money of my current mortgage, and would be making money if I took out a loan for the extra funds required. I thought it sounded strange, but he told me the same thing in a few different ways.

See above. And bear in mind that financing such a purchase and retention of the former PPR as a rental property is just on aspect. You need to consider the fundamental investment issues, tax issues, property management as a landlord issues etc. If in doubt get professional advice (i.e. not from the bank).

Like I said, I don't think I want the hassle of that long-term.

 

[MBoyle]

YEs - i'm sure you can release equiy alright.

However - I doubt you would be able to release €204k using your current house as an asset to back the loan.
HAs the guy in the bank actually used the figue of €204k ? Or did u just assume that is how much he would give ?

He gave me that figure based on the fact that my house is worth 230K.

That would mean they are giving you a 100% loan on your current home.
Normally they wouldn't want to be involved by more than c. 90%.

Using that figure as an example that means the most the bank would want to give out is 90% of €230k i.e. €207k.
You currently have €26k outstanding which means they would only top up by a further €181k.

Maybe they are prepared to give oout 100% mortgage but this is unusual - albeit not impossible.

That would .eave you short €88k - and not €65k using a 90% LTV on your current home.

DOn't forget to add on stamp duty (€10,080 after todays budget) - plus furnishings and other feees.
BAsically you'd be looking at the guts of €110k which you could borrow against the new investment property.

That would leave you with a total loan of €110 + €207k = €317k with a total asset base of €230k + €269k = €499k.

So, in other words, the 207K or 204K or whatever it is is a loan on which interest will be charged?

That means an overall LTV of 63%.

Is that good or bad?

And yes - he is right - when you sell you will only have to pay off the €204k with no interest as he said (or whatever amount).
However - what he meant was you will have been paying interest repayment throughout the term of the loan - which at say 5% interest would work out at c.€10k a year every year more than what you're paying now (before interest relief) - and thats before you include c. €5k a year evry year for the borrowing on the investment property.

So I would be paying interest on the 204K throughout the term of the loan and not just on my current mortgage and or additional loan as the guy in the bank led me to believe?