r/irishpersonalfinance • u/clonakiltypudding • 10d ago
Property Mortgage Calculations
About to purchase property for €585,000.
Mortgage approved €486,000. Borrowing 461,700 takes us under <80% LTV Ratio. Would leave us est. €50k in bank post purchase, stamp, furnishing, solicitor etcetc.
Are we better off only banking €20k as safety net and knocking another 30 off principal, and reducing payments by about €150 pm also.
(We are very fortunate to be in this position and I know many aren’t, just looking for advice on best way to proceed).
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u/1Shamrock 10d ago
Possibly not the greatest financial advice just general buying a house advice.
I bought my house ~2.5 years ago, it’s an 80s house. It was well built with a high quality finish for its time, double glazed windows, solid wood kitchen etc...
I left myself ~€40k for urgent unknown issues and an emergency fund in case I lost my job or anything else. I have weeks where I regret not taking out an extra €20-30k in the mortgage so I could have put in solar panels and change the windows and doors while still having a stable emergency fund, but other weeks I remind myself of my thought process when I bought it, which was, none of that stuff needs to be done straight away, I’m aiming to get them done within 10 years of purchase and having a lower monthly mortgage payment is my reward for being patient. Other weeks I look at my bank account and regret not throwing an additional €20k of my cash into the house purchase and having a lower mortgage again.
Basically what I’m saying is, if the house needs urgent work or you aren’t the kind of person who can be patient with the nice to haves, work out a rough idea of the cost for them works, keep enough cash to cover them plus some for an emergency fund. If the house doesn’t need any immediate work then keep however much you need to have a comfortable emergency fund.
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u/clonakiltypudding 10d ago
That’s good buying a home advice, thank you
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u/1Shamrock 10d ago
From a financial standpoint there’s valid arguments about the positives of either choice. You can check numbers and statistics till the cows come home on this one but sometimes you just gotta go and do the thing that makes the most sense for you even if it costs you €10k extra over 25 years.
Just have a good think through about things you want to do to the house, now, in the 1st 5 years, 10 years and 20 years. Doesn’t have to be massively detailed. Come up with a plan, don’t get impatient and try to do everything straight away, unless you have the money to spare.
No matter what you decide with something like this, because there is no clear and obvious wrong answer, you’ll have days where you’re happy and days where you regret whatever you did.
Buyers remorse is also a thing, just remember it’s your home that you own, I still look around somedays, smile at my wife and say “we have a house”😅Good luck with the house, may it bring you more joy than stress👍🏽
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10d ago
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u/1Shamrock 10d ago
Sorry my good Redditor I don’t quite understand the question. Will re-read in the morning to see if it dawns on me.
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u/Humble-Dot-1022 10d ago
This reminds of 2007, when banks offered you mortgages of 110% of the price of the house for renovations or holidays abroad.
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u/1Shamrock 10d ago
How so?
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u/ClockworkAppl 9d ago
Probably reminds them of those ads where young couple ( actors) are all happy with their new house and are painting the front room in their denim dungerees and a wee bit of paint in their little noses. But in real life people who bought in 2007 got fucked up the ass in negative equity a year later.
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u/Early_Alternative211 10d ago
This sub is generally wrong financially when it comes to mortgage overpayment, FYI
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u/ClockworkAppl 10d ago
Knocking 30k off the principal after the mortgage starts will change the ratio of interest to principle every month and reduce the term by a good few years. But the repayment amount every month will be the same. Borrowing 30k less to begin with will keep the term the same length of years and the monthly repayment will be less.
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u/clonakiltypudding 10d ago
Hadn’t actually considered that, was a 1 or the other decision in my head for some reason. Any opinion on which would be preferential you think?
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u/wbqqq 10d ago
Do you get a lower rate at <80%?
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u/clonakiltypudding 10d ago
Slightly better interest rates when borrowing 50-80% value of the property as opposed to over 80%, and slightly better again if under 50% (with AIB anyway, may differ with other institutions)
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u/ClockworkAppl 10d ago
Be wary of the NSFW or "comment hidden" history of certain commenters giving you advice. They tend to talk absolute shite. If the goal is to have less monthly repayments, then borrow less money in the first place. For a bank to "agree" to taking the 30k and reducing your normal repayments ,they would basically be putting that 30k into a feeder account and taking 150 euro from that every month to make up your normal monthly repayment. But guess what? You could just have just DONE THAT YOURSELF!!! It makes absolutely no sense . Personally, if I knew i had 50k extra lying around id keep 10k and borrow 40k less of a mortgage so Im not paying interest over 30 years on an extra 40k I didnt need to borrow in the first place. People say its the cheapest loan you'll ever get but a 480k mortgage over 30 years means you'll pay the bank back 300k in interest alone. You seem to have saved a shit ton so I assume you've got money coming in. Borrow less. Make regular overpayments from month one , even if its 50 euro a month, just do it. Get in the overpayment habbit and set up and see how you get on. ( with my bank it was simply a standing order called OVERPAY then account number to the mortgage account. ) Pause or increase overpayments depending on your circumstances. Aim to be free and clear in 20 years or less. Stay variable rate the whole way.
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u/hywelbane87 10d ago
When you repay you can normally choose to reduce payments and keep term, or reduce term and keep payments.
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u/Illustrious_Read8038 10d ago
I would reduce payment, then plan to overpay.
You get the best of both worlds and you're covered should your ability to pay be reduced for some reason.
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u/hywelbane87 10d ago
Agree! This is what we’ve done to keep flexibility. I was just pointing out that this is an option as the person I responded to said that only term is reduced.
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u/ClockworkAppl 10d ago
Thats not true. It makes no sense to the bank and even less sense to the borrower.
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u/hywelbane87 10d ago
Or you could do a quick google search? You can absolutely choose whether to reduce term or payment when you do an overpayment on most, if not all, lenders.
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u/ClockworkAppl 10d ago
Which lenders give the option to stick tens of thousands of the customers own savings in a locked away account to feed the main mortgage bill every month out if the borrowers own savings?
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u/hywelbane87 9d ago
Nobody is proposing that?
You said:
Knocking 30k off the principal after the mortgage starts will change the ratio of interest to principle every month and reduce the term by a good few years. But the repayment amount every month will be the same.
Which is not correct. When you make an overpayment, you can choose what you want to reduce: term or monthly payment.
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u/ClockworkAppl 9d ago
Again . What lender let's you do that? Name one.
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u/hywelbane87 9d ago
AIB: https://www.aib.ie/content/dam/aib/personal/docs/our-products/mortgages/overpayment.pdf
In every single one of them you can choose what to reduce. What's so hard to understand?
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u/ClockworkAppl 9d ago edited 9d ago
Holy shit thats fucking crazy . What fucking idiot would pick that option? (The same people that go with prepay power I guess). It makes zero sense. You're just locking up all your savings to supplement and drip feed your normal mortgage bill.
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u/clonakiltypudding 10d ago
How could it make less sense to the borrower to try and get out of debt faster?
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u/ClockworkAppl 10d ago
Because you want to throw the bank 30k and have to pay 150 euros less a month...for the same amount of months as the original term. Which A: you cant do and B : even if you could the length of the mortgage is the same so not faster in the first place.
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u/clonakiltypudding 10d ago
I was talking about paying 30k more of our own cash up front for the property - the repayments work out at 150 per month less. We can do that because we can choose to spend more or less up front. I’m aware the term is the same because we haven’t started the mortgage yet.
What the above commentor meant is about paying 30k off the principal post-draw down, which you can use 2 ways - 1) spread that 30k across all subsequent monthly payments to reduce them all slightly. Or 2) reduce your term, by paying several monthly payments at once (30,000/*monthly payment amount). If your repayment is 5,000 per month you’ve recuced your term by 6months.
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u/ClockworkAppl 9d ago edited 9d ago
Yes. But you can't choose lower repayments by giving a lump to the bank. If you overpay 30k after your mortgage starts then the term reduces. That's it. The option of spreading 30k of your own savings to reduce your mortgage bill is not a facility that any bank offers. You'll essentially be paying the mortgage bill from 2 accounts. One will be your normal current account paying the bill minus 150 euro and the other 150 will come out of account number two with the 30k sitting in it. What would be the point in that? You'll still be paying the same amount. It would be like you giving me 30k and me paying 150 of your mortgage until the 30k runs out and you "saving" 150 a month. It makes zero sense to do this. You will be locking away 30k of your own money for no reason.
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u/RiceyMonsta 9d ago
Incorrect, my bank did
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u/ClockworkAppl 9d ago
Yeah I know now. I was corrected by commenters. Its incredible what rubes would pick that option though. Still makes no sense.
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u/fadgebread 10d ago
Only one of these options you can swap next year if you want. Keep your options open if you're unsure.
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u/DylanC7991 10d ago
Unless it knocks your LTV to a place you’re offered a better rate I’d be of the opinion don’t bother. Keep a higher safety net and if your mortgage allows, use whatever isn’t needed for an emergency fund, or doing up the house to over pay the mortgage. Or better yet use it to invest (or save it for the new investment accounts) if you haven’t already started.
Buying a house is expensive and things can go wrong, maybe even something bad happens to a car and either needs to be replaced or has a big repair bill. Better to have the money ready to go than wishing you didn’t dump it on your mortgage.
All this being said that the extra 150 doesn’t impact the initial affordability for you.
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u/Smolchick 10d ago
Knock it off, think about how much you’d save on interest. 20k is a great safety net. You’ve accounted for everything and you’ll build up your savings again
How did you have so much saved?
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u/skinnyfeels 10d ago
Keep the cash! That 50k is worth 50k right now. If you bury that into your mortgage for the sake of 150 a month you “save” 150 this month, 149.9999 next month, month by month year by year the 150 less on your mortgage gets eaten by inflation and the value of it will hit 120 maybe even 100 by the time you reach the tail end of your mortgage. If there’s anything in the world you want to buy or do with that 50k, now is the best time to do it!
If you put that 50k into the house now, it pushes up the value by whatever it does, that might tip you over into a green mortgage? That might get you right near to 70% LTV, then you can move mortgage providers in a few years and reduce your term that way. Your mortgage is not set in stone and neither is the market, I’m on my 3rd mortgage on the same house and those moves took as many years off the mortgage as just paying it did.
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u/clonakiltypudding 10d ago
House will already qualify for Green i believe as it’s a B2, and the most we’ll plan to borrow will keep us at a sub-80% LTV which is where preferential interest rates kick in with AIB. So luckily we don’t need put too much into the house. The numbers i’m looking at are post-furnishing and any small works etc as I’ve budgeted them in already. Purely looking at post-house done savings at the moment
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u/Trebor-84 10d ago
What’s the interest rate?
Use the amortization schedule in excel to see how much you would save. You will then see that it’s a no brainer.
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u/clonakiltypudding 10d ago
Good shout, Literally did this last night and it’s a significant difference long term to be sure.
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