Mortgage -v- personal loan

ballyharpat

Hey, I am buying a second house as an investment. I would like to borrow 30k, about 30% of the purchase price. I have money in stocks but would prefer to leave a lot of it there, given the current state of the stock market. A mortgage would have me paying back 34k over 5 yrs, a personal loan 38k.
I have just started a job 3 months ago and am not permanent, I have been told that I need a letter from my employer, stating that I am full time, to be able to get the mortgage, even though I have my own house nearly paid off and have more than 30k in my stocks/shares after I withdraw my other money to pay for the house.
Any suggestions on other kinds of loans/mortgages?
If I have to do it the personal loan way, I am probably better off just withdrawing cash as that works out at nearly 10% PA that my stocks would have to make, and as you well know, that can be difficult, especially after paying tax etc.

The_Honeybadger

Job security aside you look to be in a great position financially and can obviously look after your money. The general consensus is that property in Ireland (I am assuming that is where the house is) has a long way to fall yet, so why on earth are you looking to invest in a asset that will almost certainly depreciate for the forseeable future? Sorry I know that doesn't answer your question but I am a little baffled that anybody would be considering an investment property now.

ballyharpat

Thanks for the reply, yeah I made my money by hard work and being frugal. I could see the forest in spite of the trees. I knew a few years ago that there was a major bubble and it was just a matter of time before it burst, I had some money in stocks and when the s**t hit the fan, I lost a lot, but knew it would come back up before property so worked my butt off and invested every penny, it came back strong and I sold a lot a few mths ago, before the latest drop. Currently I have $ mainly, I have been holding off waiting for the euro to get strong(er) and I have a fear that while it may get even better, there is a chance that the $ will tumble also.
I have spoken to someone that is in major need of cash, they have a house that I can get for a great price in a great rental/living location. I would like to get a mortgage so that I can get mortgage interest relief on my income and the rental income, as I will also be adding an addition to my own house and can use other funds for that, so there's a swap of money between my accounts happening-so to speak. Even if property dropped another 20%, which it may well do, I will still be in a good position and this house needs very little work and has tenents in there at the minute.
I appreciate your advice, I am going by Buffets advice- "Be fearful when others are greedy, and be greedy when others are fearful"-it has served me well in the past.

D3PO

I could be wrong but I dont believe a bank will give you a mortgage over a 5 year term or for such a small amount.

Given the costs invovled their side for the mortgage they would lose money on it. I remember last year many banks having a minimum drawdown of about 80k for a mortgage.

so basically you will ahve to get a personal loan. I could stand corrected on this though

DrPhilG

D3PO wrote: »

I remember last year many banks having a minimum drawdown of about 80k for a mortgage.

Ulster Bank minimum is €50k.

ballyharpat

I have spoken to AIB and Ulster Bank, neither have a problem with such a small mortgage, or paying it off in such a short period-or shorter if I decide-I don't see how it would make sense for them to refuse a mortgage because of the size or length of time.

D3PO

ballyharpat wrote: »

I have spoken to AIB and Ulster Bank, neither have a problem with such a small mortgage, or paying it off in such a short period-or shorter if I decide-I don't see how it would make sense for them to refuse a mortgage because of the size or length of time.

Because there are certain overheads they need to cover and a mortgage over such a short term and such a small amount may not be worthwhile to them.

Now if they have said there is no proplem fine but Im just telling you that the banks do have a minimum drawdown amount.

Im not saying they wont, but its surprising to me. I wonder if the person(s) who told you this actually knew what they are talking about and I dont mean that sarcastically. How many posts are on here about peopel talking to somebody in their bank and being told they have "mortgage approval" only for a call a few days later saying head office looked at the request and said no. I suspect you will encounter the same here.

especially as PhilG mentions that Ulsters min mortgage drawdown is 50k which conflicts with what you have been told.

D3PO

Personally speaking I wouldnt buy now anywya, however if your determined to do so I think its a bad decision not to use money you have available to you via shares and actualyl get a loan / mortgage instead.

Your shares are going to have to outperform the mortgage interest rate over the 5 years. Given the flux in the market right now thats a pretty unsure thing to back.

If you get a mortgage you will have to get additional life cover adding to your overheads.

On the flip side if your shares are in profit you shoudl at least sell enough of them to exploit the tax free allowance on profit avialable to you annually.

altenatively if your selling at a loss the fact you can offset that loss against future CGT taxable income from share profits also make that an attractice prospect.

ravendude

D3PO wrote: »

Because there are certain overheads they need to cover and a mortgage over such a short term and such a small amount may not be worthwhile to them.

Now if they have said there is no proplem fine but Im just telling you that the banks do have a minimum drawdown amount.

Im not saying they wont, but its surprising to me. I wonder if the person(s) who told you this actually knew what they are talking about and I dont mean that sarcastically. How many posts are on here about peopel talking to somebody in their bank and being told they have "mortgage approval" only for a call a few days later saying head office looked at the request and said no. I suspect you will encounter the same here.

especially as PhilG mentions that Ulsters min mortgage drawdown is 50k which conflicts with what you have been told.

Ulster's minimum is at the higher end of the scale afaik

http://www.sbpost.ie/themarket/the-big-mortgage-questions-51442.html

"With Permanent TSB and National Irish Bank, a minimum mortgage loan of €20,000 applies while, for AIB, it’s €25,000. KBC offers a minimum loan amount of €32,000 over ten to 35 years, providing the borrower is no older than 70 at the end of the term. With EBS, the maximum loan term is also 35 years.

Ulster Bank will lend between €50,000 and €1.5 million, with terms extending up to 40 years."

ravendude

Just wondering, - as regards these minimums.....

Is there anything to stop you from say applying for slightly over the minimum,- say 60K (for argument's sake) and drawing down just 30K?

or, alternatively, - drawing down 60K, and walking into the bank 2 weeks later (or some other nominal period) and paying them back 30 or 40K?

DrPhilG

ravendude wrote: »

Just wondering, - as regards these minimums.....

Is there anything to stop you from say applying for slightly over the minimum,- say 60K (for argument's sake) and drawing down just 30K?

or, alternatively, - drawing down 60K, and walking into the bank 2 weeks later (or some other nominal period) and paying them back 30 or 40K?

That's what I've been thinking. We only need €45k but Ulster Bank said their minimum was €50k so we were thinking of just getting the €50k and then overpaying by €5k straight away.

ballyharpat

D3PO wrote: »

Personally speaking I wouldnt buy now anywya, however if your determined to do so I think its a bad decision not to use money you have available to you via shares and actualyl get a loan / mortgage instead.

Your shares are going to have to outperform the mortgage interest rate over the 5 years. Given the flux in the market right now thats a pretty unsure thing to back.

If you get a mortgage you will have to get additional life cover adding to your overheads.

On the flip side if your shares are in profit you shoudl at least sell enough of them to exploit the tax free allowance on profit avialable to you annually.

altenatively if your selling at a loss the fact you can offset that loss against future CGT taxable income from share profits also make that an attractice prospect.

I think it would be no problem for shares to outperform the % charged on a mortgage, of course it's not guaranteed, prices may go down as well as up, but when there are shares that pay a dividend of up to 10%, then it's a good gamble, a gamble I am willing to take.
I can increase my current lifecover to cover the extra 30k-which won't cost much, and God forbid something does happen to me, it will mean the house will be paid off and cash left for those left behind.
My stocks are in profit, but not at their peak, I would rather pay CGT on mre profit than a little profit. The few that are suffering a loss, I am confident they will bounce back.
Just got off the phone with the two Bank Managers, the amount is a non-issue.
Although he also made the suggestions about selling the stocks and perhaps holding out for the house to drop further, I explained my reasons as above, he agreed that it was a superb price in a great location, he dismissed my claims that stocks are better for me in the long run, but this was also the advice 5 years ago when he was suggesting I invest in property, seems that not many people in Ireland trust the stock market, but everyone believes in bricks and mortar. I like diversification-hence the reason I have stocks and property.

D3PO

ballyharpat wrote: »

, seems that not many people in Ireland trust the stock market, but everyone believes in bricks and mortar. I like diversification-hence the reason I have stocks and property.

I dunno if that was the case a few years ago but I suggest it probably is now I think its more a case that people either just settle for their stock portfolio to consist of their pension fund, or just plain dont understand anything about investing (i.e loading their money into bank shares)

I mean take something at the most basic level like a prize bond, most people in this country dont actually realise that is a diversification of their investments. ok a very basic one but if they dont even understand that at a fundamental leve how can you expect them to understand or be confident in buying stocks

anyway totally off topic. If you think your shares will outperform the mortgage interest and the ROI on this property is good then clearly a mortgage over the loan is the way to go.

ballyharpat

haha, funny you should mention Prize bonds, that's where I keep cash that I don't want to tie up.
What?? You mean it's a bad idea to put everything in Bank Stocks!!! :P