Split mortgage offer (PTSB) - opinions please

[sprinter]

Hi all,

I'm new to the forum so I'd really appreciate any opinions on an AIP from PTSB - details below. In summary, the two of us each have a property (both in neg equity) but we need a bigger home and thus a new mortgage.

PTSB mortgage AIP:

Split mortgage for a new family home -
Purchase price: € 525 k
Deposit: € 100 k
Mortgage on new property: € 425 k
Part A of the Loan [ported tracker] - € 196k @ 2025% (23 yrs)
Part B of the Loan - € 270k @ 4.59% (32 yrs)
Total monthly repaymant (A+B): € 2,254

We can retain the current familt home to rent it out (#1 below) but we must sell the apartment (#2 below; my former personal home but now rented)

Income details
Net monthly - € 3,350 [permantent employment - 10 yes with the company]

Net monthly - € 3,220
Amount of child benefit received: €130

Personal circumstances so we can calculate your reasonable living expenses
Do you need a car for work or do you use public transport?
Car + public transport
Number of children 0- 2 years old: 1
Monthly childcare costs: € 900 + related expesnes of € 200

Home loan #1 - current family home
Lender: BOSI
Amount outstanding: € 207
Value of home: € 180
Interest rate: ECB tracker: 1.1% in total
Monthly repayment € 600
Amount in arrears: zero - fully up to date

Home loan #2 - former personal home but now rented
Lender: PTSBAmount outstanding: € 196
Value of home: € 150 - 155
Interest rate: ECB tracker: 1.25% in total
Monthly repayment € 866
Amount in arrears: €9.6k in overpayments
Current rent: €865/month

No other debts, loans or overdrafts

Other savings and investments

€ 100k in savings

What is your preferred realistic outcome?

We would really appreicate any views on the above offer - all advice and opinions appreciated!

Thanks

 

[44brendan]

From one perspective the positive issue is the 100K in savings you have amassed. based on your family circumstances and excluding childcare costs plus 1 car average family expenses for the year would amount to 28K (2.3K pm). At a gross income of 6.6K and assuming that rental income will cover your other mortgage you should have circa 1K pm residual after paying your new mortgage. Bear in mind that there is no such thing as an "average" family and your own expenditure may amount to more or less than the figure quoted above. Also if you sell property 2, how will you deal with the 50/60K remaining debt?

 

[sprinter]

Hi Brendan,

Thanks for the reply and I've realised I've made a rather bad error re property #2 above. I should have said the remaining mortgage is € 196k (not € 207k). so the likely neg equity/debt is closer to €46/40 k.

PTSB have said that this neg equity will be added to the new mortgage, which will consist of:

Total mortgage: € 466 k, split according to:
- mortgage on new property: € 245 k, and
- neg equity on #2: € 41k.

The replayment on new mortgage of € 466 k will be as follows:

Part A of the Loan [ported tracker] - € 196k @ 2.25% (23 yrs)
Part B of the Loan [variable int rate] - € 270k @ 4.59% (32 yrs)
Total monthly repaymant (A+B): € 2,254

This new monthly repayment will be approx just over a 1/3 of our net monthly incomes (based on my calcs).

We have called BOSI re doing a 'deal' on selling this property (#1 above) if we cleared the debt now but got nothing from them.

 

[44brendan]

Property 1 should "wash it's own face" from any rental income. If you are on a tracker I'd consider it a reasonable long term investment!
Lifestyle/lifecycle are the main issues that would effect net income. Given your savings record, you appear to be in good control of your financial circumstances and based on my figures the mortgage is affordable, provided the income of both parties remains sustainable. If you and your partner are considering an expanded family and perhaps a career break you will need to reassess your financial position. This tends to be the main limiter in taking on a high level of mortgage debt!!

 

[kaza]

How much rent per month to do hope to achieve on property #1? It's just you haven't seemed to factor in a monthly amount for tax/expenses on the house when you rent it out.

It's just with your interest rate being so low, you are probably only paying about €190 per month in interest. You can only write off 75% of interest against your rental income for tax purposes, which would mean about €142 per month (€1710 per year) off your rental income.

So if you hope to rent it for say €850 per month, €10,200 per year. Then you'd have to pay tax on approx €8490 per year (less any expenses you incurred).

Obviously the surplus rent will cover a chunk of that - but still you probably need to allocate a certain monthly expense for taxes/expenses on the rented house.

Also, definitely factor in additional for child care costs if you plan on having more. I am pregnant on my third and having more than one in child care becomes quiet expensive.

 

[Branz]

before taking on 466k in debt, have you run the numbers to see what happens if you are 'forced' to sell both properties and have deal with the NE via additional debt.

Have you factored in some level term mortgage protection life cover so as to give you some headroom if you needed something less than full P+I repayments as some point, eg down to one income.

 

[sprinter]

Thanks all for the very helpful points to consider.

Re the potential rental income on property #1, we should get € 1,000/month, easily covering the mortgage (with excess rent set-aside for tax and maintenance).

PRSB are fine with us having to only sell property #2 - they are (thankfully!) fine with property #1 being rented (the NE on this is less than property #2 and the mortage is manageable at € 600/month).

By my calculations, we are increasing our total debt by approx € 63k; currently we have € 207 + € 196 [€ 403 k] vs a new total debt of € 466 on a split-mortgage, a 15.6% inc in additional debt.

Good point about considering mortgage protection life cover - will explore this as well; thanks.

 

[Branz]

...
Good point about considering mortgage protection life cover - will explore this as well; thanks....

Glad to help.

Just to add make sure you ask for level term cover if thats what you want, the 'reducing balance' policies are obviously cheaper so a broker will ordinarily quote the lower priced one..

You might split the cover into different policies, say with 50/75k level term, depending what you do with the second property if you hit a wall.

Finally I presume you have crunched the numbers for when the ECB rates go up.
What is 0.15% now was 4.25% in mid 2008....