Personal loan or Mortgage for €180,000. Any other options?

Calibos

My father along with his siblings inherited a house upon the death of my grandfather. My parents would like to live in this house with some of my siblings and thus would like to buy out the other shares in the house from my aunt and uncle. They don't want the house and would be happy with this arrangement.

My parents thought they could sell our current house and use the proceeds to buy the aunt and uncle out. There would also be some excess which would go some way towards renovating the house in question but they will also need to get a loan for the balance of renovations. A loan requirement figure of 170-180000 was mooted.

They approached the bank and were told there were only 2 options due to their age. Father is 60 and mother is 55. A 5 year personal loan with repayments of about 3000 and a 15 year investment mortage where they borrow the full amount needed to buy out the aunt and uncle plus the cost of renovations and keep their current house and rent it out. The repayments for this option were also 3000 pm.

They don't want to keep their current house and the hassles and worry of renting it out. They would be screwed if they were without tenents for longer than a month or two.

3000 pm over 5 years is too much as it is never mind 3000pm over 15 years even with the benefits of owning 2 houses after 15. So what if my siblings and I have 2 houses to inherit. I want my parents to enjoy complete financial freedom much sooner than that.

Why is there no middle option. Like 2000 pm over 10 years etc Why do the bank want them to keep the current house and rent it out. I thought the banks didn't want to loan huge amounts at the moment. Is it all about security. Do they want to loan the full amount of the house (thus meaning keeping 2 houses) so that they have a right to the deeds in case of default whereas if they just loan the 180000 for renovations they have no security in case of default. I mean the parents are prepared to sign over deeds till loan is paid regardless of it being a requirement. ie. Give us a loan of 180000 over 10 years for 2000 pm and you can hold the deeds to the whole house till its paid even if we are under no obligation to give you the deads etc

johnnyskeleton

What is the loan-to-value ratio for the house (LTV)?

For example, if the house is worth 540,000, and you want to borrow 180,000 that's an ltv of 33% (i.e. 180k / 540k x 100)

Also what are their respective incomes?

Banks will usually only give mortgages out to people below the age of 70. Therefore the maximum term that they could get the loan on is 15 years.

At the moment banks are looking to have as much low LTV homes as possible (due to the current economic climate it's a safer option) and they also want to see that people have steady jobs.

Therefore, if they just asked for a straightforward mortgage and they have a good income, low LTV and the ability to pay, I don't see why the bank won't lend them any money.

My suggestion is for them to try a different bank.

Jo King

I think the bank do not want to do business with them at all. To me the whole proposal sounds ill-advised. Most people in late middle age trade down and release cash, not trade up and assume large borrowings. You have mentioned a figure of €180,000 as the amount required. What if the current house sells for less than expected? Highly likely in the current market. What if the renovations cost more than expected? Also something which happens frequently. The borrowing requirement may thus go up. I think the bank want to keep the current house so that if something goes wrong, the new house can be sold, and your parents can go back to the old one.
To my mind this opportunity has come too late in life for your parents. They should join with the aunt and uncle and sell the house and bring in some cash which they can invest for their retirement. They are setting themselves up for major stress otherwise.

Calibos

They haven't been refused a mortage, they have just been presented with two options they don't really like. The LTV ratio would be 29% on the 15 year (owning both houses in the end) option. The 180000 renovation figure includes a 30,000 contingency and the figure they came up with for the current house was conservative even given the current market trends.

So it really does boil down to the bank wanting security on the loan then?

My father is self employed and one of the reasons for wanting the house is sentimental as it was my fathers home but also it is right next door to the family business where some of my younger brothers still at home also work. Would make life so much easier for everyone. The business used to be my grandfathers and has been here for 80 years at this stage.

Financially my father has a very good income and could just about afford 3000 pm but not have much left over for a social life/ holidays etc The rent on the current house would make all that possible as well as having the house but the parents are worried about the hassle of finding good tenants, keeping them and the slight financial pressure should the house be without tenants for a few months. They basically don't want that hassle if possible.

But then the other option presented of 3000pm over 5 years isn't great either. Like I said, can just about afford it and would be free and clear in 2013/4 but for those 5 years they would have no social life.

I just wondered why there is no option of something like 2500 over 7 years. ie something in between those two options. etc

adam.number2

Could the business buy part of the house? (purely for accounting purposes of course) a home office for your father.

astrofool

Go to other banks, approach a mortgage broker, they will usually give you a lot of potential options and offer advice on what you can do.

johnnyskeleton

What would the LTV be of the 180k mortgage against the inherited house?

If it is low (i.e. under 50%) then there are a lot of banks who would be prepared to loan the money. Age shouldn't really be that much of an issue if they have good money and the LTV is low.

€180k over 10 years should cost around €1900 pm

Try:
AIB
BOI
PTSB
NIB
EBS
Ulsterbank
First Active
Irish Nationwide
Halifax
IIB Homeloans
etc

and ultimately they could try the sub prime lenders (lenders who thrive on people who can't get normal mortgages from the other banks but who charge a much higher rate of interest).

One of the banks is bound to give them what they want. Perhaps the trouble is they went into the bank and said "This is what we want to do, what type of loan can you give us" instead of "This is what we want to do, we want €180k over 10 years".

Best of all, a lot of the lenders will even deal with you over the phone, so there is no need to go chasing around banks for the afternoon.

Calibos

johnnyskeleton wrote: »

What would the LTV be of the 180k mortgage against the inherited house?

If it is low (i.e. under 50%) then there are a lot of banks who would be prepared to loan the money. Age shouldn't really be that much of an issue if they have good money and the LTV is low.

€180k over 10 years should cost around €1900 pm..............

The Inherited house is worth about 650k, Would be worth a lot more except it is in need of a lot of renovation. A slightly bigger house across the roads asking price is 900k.

So 650k / 3 = 216k. My father inherited 1/3 so he has to come up with 432k to buy out the other 2 siblings. Current house is conservatively estimated at about 480k. Mortgage just about cleared. After fees paid they will probably have about 30k left over. Renovations will be about 200,000 but the house will be fabulous never mind so convenient for work never mind that it is right beside all amenities, ie shops, pubs, dart etc.

So they came up with a loan requirement figure of 180,000 including contingencies so the LTV would be 27%...but like I said the banks options were, we will lend you the 180,000 over 5 years at 3000+pm or we will lend you the cost of buying you siblings out ie. 430,000 + Renovations at 200,000 = 630,000 over 15 years for 3000+pm

1900pm over 10 years would a lot better!

Jo King

Calibos wrote: »

They haven't been refused a mortage, they have just been presented with two options they don't really like. The LTV ratio would be 29% on the 15 year (owning both houses in the end) option. The 180000 renovation figure includes a 30,000 contingency and the figure they came up with for the current house was conservative even given the current market trends.



I just wondered why there is no option of something like 2500 over 7 years. ie something in between those two options. etc

The bank are just too polite to say NO! Taking on those kind of repayments for sentimental reasons??? Still paying a mortgage at 67? Sounds hare brained to me.

Calibos

Jo King wrote: »

The bank are just too polite to say NO! Taking on those kind of repayments for sentimental reasons??? Still paying a mortgage at 67? Sounds hare brained to me.

Way to go Jo fixating on one word in a big post . Maybe I shouldn't have put sentimental first in the list of pro's for the move. It would be the least important. First and foremost would be the huge convenience for my father living next door to his business. Second the convenience for my siblings both working there and still living at home being beside their place of work. Third In the heart of the town, beside shops, pubs, restaurants amenities, dart. Fourth, it will be a fabulous house with much more room than they have now.

And it is madness I agree and they agree to put themselves back in hock to the bank for another 15 years even for this fabulour house and its benefits and having 2 houses at the end. Thats why they outright reject this option.

3000+ per month for 5 years is still abit mad. 1900 over 10 years is easily afforded however with no pressure or stress with al the benefits of living down there and still plenty of money to enjoy their increasing free time as he eases himself out of the day to day running of the business.

My question wasn't whether it was madness for the average person to still be paying the bank mortgage payments at 68 which will be quite common anyway in the future with all those 28 year olds that just got 35/40 year mortgages My question was more like, why is a 60 yo with a perfect credit record, in perfect health, business banking as well as personal banking with them, not offered a 10 year 180,000 mortgage at 1900pm. Why 5 year 180,000 at 3000+pm or full blown 650,000 mortgage over 15 years! You are saying he is too old and they don't want to loan him the money. Why then do they want him to borrow over 3 times more than he wants over a term that will mean he is 75 when its paid off! So the lack of a 10 year option can't be because it puts him past retirement age, cause why offer him 15 years. And retirement age is moot with the self employed surely anyway.

They are too polite to say no?? What would they do if he said Yes??!! Do they actually do that, give you bad options to put you off and only come clean and say No outright if you actually accept one of the options. Surely its a case of them just offering him the best option....for them. I'd say a previous poster is correct. He shouldn't have gone in asking what options they could offer, he should have gone in and told them what option he wanted them to give him. Probably should have used his business account with them as leverage. 1.2 million turnover he is banking with them.

DublinDilbert

Calibos wrote: »

1.2 million turnover he is banking with them.

Could the business not loan him some or all of the money? he would have to pay the business interest, but surely that would be easier...

Calibos

DublinDilbert wrote: »

Could the business not loan him some or all of the money? he would have to pay the business interest, but surely that would be easier...

That would be the amount of cash going through the account in the course of a full year, not cash in hand ie. the bank make a load of fee's from him with that kind of turnover going through them. Thats the leverage he has, not that "I have 1.2 million lodged with you and I'll move it somewhere else if you don't loan me the money." Unfortunatly there is a big wedge of that turnover going straight back out of the account, to pay taxes and suppliers and wages

SimpleSam06

Calibos wrote: »

Unfortunatly there is a big wedge of that turnover going straight back out of the account, to pay taxes and suppliers and wages

Yup, many businesses with a turnover in that range might only see a tiny percentage of it in actual take home profits.

johnnyskeleton

Jo King wrote: »

The bank are just too polite to say NO! Taking on those kind of repayments for sentimental reasons??? Still paying a mortgage at 67? Sounds hare brained to me.

Banks will lend to anyone under 70 these days, i.e. they will give a 30 year old up to a 40 year mortgage, a 40 year old a 30 year mortgage, a 50 year old a 20 year mortgage, and they should give a 60 year old a 10 year mortgage. Plus, his wife is 55 and will likely be named on the account as well.

Calibos wrote: »

That would be the amount of cash going through the account in the course of a full year, not cash in hand ie. the bank make a load of fee's from him with that kind of turnover going through them. Thats the leverage he has, not that "I have 1.2 million lodged with you and I'll move it somewhere else if you don't loan me the money." Unfortunatly there is a big wedge of that turnover going straight back out of the account, to pay taxes and suppliers and wages

A floating point charge as security for a loan perhaps?

adam.number2

johnnyskeleton wrote: »

Banks will lend to anyone under 70 these days, i.e. they will give a 30 year old up to a 40 year mortgage, a 40 year old a 30 year mortgage, a 50 year old a 20 year mortgage, and they should give a 60 year old a 10 year mortgage. Plus, his wife is 55 and will likely be named on the account as well

That certainly was not the case 3 years ago. They would give a 31 year old a 30 mortgage, 36 a 25 year, 41 20year and so on... i.e. the end age was 65, retirement.

That may have changed, but I doubt it.

johnnyskeleton

adam.number2 wrote: »

That certainly was not the case 3 years ago. They would give a 31 year old a 30 mortgage, 36 a 25 year, 41 20year and so on... i.e. the end age was 65, retirement.

That may have changed, but I doubt it.

Not only can someone get a mortgage up to the age of 70 now, but it was just as true 3 years ago in 2005:

Link

Sunday Business Post wrote:

Bank of Ireland, EBS and Permanent TSB said they would lend to customers up to a maximum age of 70 at the maturity date of the loan.

Bank of Ireland said a customer who provided proof of ongoing income might be able to borrow beyond the age of 70.

First Active and Ulster Bank said the maximum age of a customer when the mortgage was repaid would be 65 years, unless the customer was self-employed, in which case it would be 70.

Stealdo

Calibos - just skimmed through your thread there, so apologies if you've covered this but it just sprang to mind. If you have siblings in full time employment who are living at home, would they (and you I guess) not consider taking a stake in the house? This could potentially solve your problems if you guys were to buy in for say 10% each. How the money is provided to the account from which the mortgage is debited would be neither here nor there. As you say you are likely to inherit the house at a later date anyway and I would assume your siblings are likely to be contributing at home already.

Calibos

Thanks everyone for your relies and advice. Looks like the old man will have no problem getting the renovation amount over 10 years after all. He's just off the phone to the bank. 1900 over 10 years is easily affordable. Even more so if the other siblings stay for a few more years and one includes their 'rent' for the next 4 or 5 years. Which looks likely as none have partners at the moment and want to save like %@$!ards until the market bottoms out. So while if the parents stayed put they would be free of a mortgage on this house in another year or two, the move actually wont have them paying out much more than they are paying now anyway. They'll just be paying it for another 10 years instead of one or two, but with all the benefits of this other bigger, nicer, centre of everything house.

I know where the people saying its madness at their age were coming from but I don't think we were an average typical family in a typical situation. ie 9-5er hoping to retire at 65 and golf for the rest of his life, living in a 3 bed semi with no kids left at home being mad wanting to move to a 5 bed in a random location.