To release Equity or not?

G

Gilliebean

Guest
Hi, hoping someone can advise what's best to do as we are in a bit of a quandry.
Currently live in a duplex apartment/house bought for 300K four years ago. Currently worth about 400k. Mortgage (with BoI) on house currently at 140k over 35yrs. Want to release 10k on that mortgage - BoI can give fixed rate for 2yrs at 4.79% over 31yrs (term remaining on original mortgage) adding c.€57pm onto current mortgage repayments. We want to do up the house - paint it top and bottom, and a few other improvements. Thought with the left over amount, about 5k that we would clear a 2k car loan and put remaining 3k into savings have with BoI following on SSIA scheme.
Concerns: (1) is it worth it? (2) should we just borrow a couple of grand via RaboDirect Credit account scheme and forget about increasing our savings and paying off car loan (3) should we forget about it altogether as it makes no financial sense whatsoever.

All thoughts gratefully accepted.... Thanks
 
Paying the money used for the car etc. back over decades is madness as it will most likely cost a lot more than just getting an unsecured personal loan over a 2-5 years for example. Better to schedule the repayment (either explicitly or by just accelerating repayments yourself ideally on a variable/tracker rate so no penalties) over a comparable period of time.

Remember that you can only claim owner occupier mortgage interest tax relief on amounts used to buy/renovate your home and not used for other stuff like a new car etc.

In general borrowing at mortgage rates can be the cheapest form of credit available but you need to be careful about how long you repay the loan/topup over. Use Karl Jeacle's mortgage calculator to estimate the costs. You may need additional mortgage protection life assurance cover to cover the topup (unless you have level/convertible term cover already).

Mortgage Protection and Mortgage Repayment Protection Policies
 
Thanks for the replies - given us more to think about.
Just to clarify a few points - the money is to primarily improve the house. Surely if this is the reason behind releasing the equity we'd get the interest relief on the amount we release? If we do something with whatever is left over surely that is our business?
I agree with what you are saying about clearing the old car loan - thinking about it again it makes better sense to clear it off in the 22 months that are left on it rather than 31 years!! - that's that part of the plan out the window.
With regard to what we do with an amount left over following our improvements, if it is put into a high interest savings account surely it is better than handing it back?
By the way - according to my bank the minimum that can be released on our mortgage is 10K - so we are going to have a left over sum.......
 
Gilliebean said:
With regard to what we do with an amount left over following our improvements, if it is put into a high interest savings account surely it is better than handing it back?
By the way - according to my bank the minimum that can be released on our mortgage is 10K - so we are going to have a left over sum.......
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You'll have to pay DIRT at 20% on any interest you earn in a deposit account. Inflation is currently running at around 5% per annum, so you'll lose that much in real terms each year. You should only borrow to invest if you can get significantly higher returns than the cost of borrowing.
 
Gilliebean said:
Just to clarify a few points - the money is to primarily improve the house. Surely if this is the reason behind releasing the equity we'd get the interest relief on the amount we release? If we do something with whatever is left over surely that is our business?
Click to expand...
You can only claim owner occupier mortgage interest tax relief on the amounts that you actually spend on buying/improving the house. You cannot legitimately claim if on amounts used for other purposes. To do so would be tax evasion/fraud.
I agree with what you are saying about clearing the old car loan - thinking about it again it makes better sense to clear it off in the 22 months that are left on it rather than 31 years!! - that's that part of the plan out the window.
Click to expand...
No - just a different window. :) If you need to borrow for a car or whatever then just schedule or unilaterally repay that amount over the shorter term. This will probably only work if the mortgage is a variable/tracker and not a fixed rate (in which case there will probably be penalties for accelerated capital repayments).
With regard to what we do with an amount left over following our improvements, if it is put into a high interest savings account surely it is better than handing it back?
Click to expand...
Why borrow it if you don't need it? If you do borrow and your renovations and other expenditure come in under budget then it might be better to pay the money back off the mortgage since it is unlikely (although maybe possible these days?) that you will get a better return on deposit versus paying it back off the mortgage (especially when DIRT on deposit interest and tax relief on mortgage repayments are factored int). In general it does not make sense to borrow (even at mortgage rates of interest) to save or invest. There may be exceptions but I would imagine that they are rare.
By the way - according to my bank the minimum that can be released on our mortgage is 10K - so we are going to have a left over sum.......
Click to expand...
If anything was left over then I would just pay it back.
 
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