Postive equity release

EdVedder

Hi all,

Am I missing something with my thinking below.

Married with a 2 year old child.
Second baby on the way.

Bought 1st home in 2012
Value of home now €370k+
Loan remaining €230k @ €1kpm (20 years left, 2 years of MIR left)
CU loan €13k @ 560pm (2 years left)
Other work, family loans €4K @ 200pm

Looking at remortgaging to clear the loans, maybe an extra €2 for some necessary home renevations. Total release around €20k

Huge deciding factor on his is my wife being on maternity leave and relying on state benefit as her employer doesn't offer anything.

It would free up around €760pm and also a bit of cash for home jobs.

Is it a good decision? My broker claims he can get us the above remortgage and with a favourable rate our monthly mortgage payment won't change too much.

coylemj

Don't fall for this 'equity release' BS, the only way to release equity in your home is to sell it. What you are talking about is borrowing money over 20 years to pay off accumulated loans.

In general terms it is not a good idea to bundle what were originally short-term loans into your mortgage because it means that you will be paying off loans that were used to pay for cars and holidays over the next 20 years, long after those purchases have faded into memory. Consider bundling those loans into a 4 or 5 year CU loan to reduce the monthly payments but I think you'd be mad to saddle yourself with new debt to be paid over 20 years unless all of it is being invested in the house in which case you will have something to show for it when the loan is paid off.

brendan86

I would disagree with above poster, it still works out cheaper to remortgage. And I would pay extra per month if comfortable.

Take for example

20k @ 9.5% credit union loan over 5 years
Monthly repayments = 420pm // Total interest repaid over the 5 years = 8,800

20k @ 3% equity for mortgage over 20 years
Monthly repayments = 110pm // Total interest repaid over 20 years = 7,650

Trish56

I agree with Brendan once you can get a more competitive interest rate than what you are paying now and that the new lender will lend funds to clear existing debt as usually they only give same for home improvements . Also nearly all the lenders now give cash back for switching of either 2% of the mortgage or 2k/3k.

You should also be able to get a split mortgage of 230k and 20k and try and clear off the 20k faster once your wife returns to work.

phormium

This reads like a post from 2007/08, are banks back doing equity releases to clear short term debt?

I agree it's a good idea but only if you have the discipline to pay extra to clear down the short term debt portion of the loan within the same term as it was but with the benefit of a lower rate. Now did anyone actually do that back in the day, very few methinks!

coylemj

I agree with the monthly repayment numbers based on your quoted interest rates but not on the gross interest .....

brendan86 wrote: »

20k @ 9.5% credit union loan over 5 years
Monthly repayments = 420pm // Total interest repaid over the 5 years = 8,800

Gross repayments are 25,200 (420 X 60) so the interest is 5,200 not 8,800

brendan86 wrote: »

20k @ 3% equity for mortgage over 20 years
Monthly repayments = 110pm // Total interest repaid over 20 years = 7,650

Total repayments are 26,400 (110 X 240) so the interest is 6,400 not 7,650.

Even with a 3X interest rate, the 5 year loan is 4X shorter so you pay less interest.

brendan86

coylemj wrote: »

I agree with the monthly repayment numbers based on your quoted interest rates but not on the gross interest .....



Gross repayments are 25,200 (420 X 60) so the interest is 5,200 not 8,800



Total repayments are 26,400 (110 X 240) so the interest is 6,400 not 7,650.

Even with a 3X interest rate, the 5 year loan is 4X shorter so you pay less interest.

Sorry coylemj you are correct, but the repayments are substancially lower 110pm compared to 420 and over the 20years your only paying the difference of 1.2k interest.

You should be able to make extra repayments on top now that all is one.

But 3% is better than 9.5% no matter what way you look at it.

coylemj

brendan86 wrote: »

Sorry coylemj you are correct, but the repayments are substancially lower 110pm compared to 420 and over the 20years your only paying the difference of 1.2k interest.

+1 but it's more than just the bare numbers. I got seriously p1ssed off watching Eddie Hobbs on TV back in the boom times telling people to roll up credit card and other short-term debt into their mortgage. This was a tactic which backfired spectacularly when those people found themselves in negative equity (thanks in no small part to the mortgage top-up) when the value of their house collapsed - so much for 'equity release!'.

Yes, it fixes the problem in the short term but it does nothing for financial discipline and I can see those people spending their way back into debt because someone has given them a painless solution which simply kicks the can down a very long (20 years) road.

You should only borrow for a term that covers the life cycle of the item or services purchased. That means money you borrow for Christmas or holidays should be paid off within a year and a car loan should be paid off on or before the car has reached end of life. Stacking up loan on top of loan is a recipe for poverty in your old age.

EdVedder

Great responses and loads to discuss with our broker. (He's a close friend so has no personal motive as such)