Financial Advice (Before I seek professional help)

Hi,

I'm looking for some feedback and guidance before I seek professional help on my finances.

Currently we have 3 separate loans (1 x mortgage, 1 x credit union, 1 x personal loan). We bought a house and renovated it. We could only get the mortgage approval for the price of the property so we had to seek money elsewhere, hence the two separate loans.

• Mortage - €95k (15 years left at €650 per month
• Credit Union - €27k (4.5 years left at €605 per month)
• Personal Loan - €18k (Further borrowings to complete the work in the house. 15 years left at €160 per month)

These loans where taken out 5 years ago. Our monthly salary have increased since then and we have now accumalated nearly €25k in savings.

My preference is to clear the credit unit loan and have no savings and at the same time remortgage to merge the personal loan into the mortgage with a view of clearing the mortgage within the next 8 to 10 years.

My partner's preference is to merge all the loans into one and keep our savings and for the mortgage term to be increased so less monthly payments.

We also have a rainy day fund of €5k which I'm in agreement not to touch and we continue to add to each month.

Due to work carried out on our house the value has increased 60% to roughly €320k or so.

Can someone better in the knowledge of finances give us some advice. We are planning to go to a finincial advisor in the next few months.

Static M.e.

First off, it is not obvious at all why you need professional help at this time which you will likely pay €1500-2000 for...this isn't complicated it is more about your personal preferences.

We can't see the rates you are paying for the loans but I would go for a version of your idea rather than your partners.

This is what I would do in your situation.

Agree with your partner how much money you need in your rainy day fund - 5K \ 10K whatever. Agree it and take that money and lock it away. After that you don't need to continue to add to it each month - review it every year to see if you need to contribute to it more.

Everything else is used to pay off debts. For instance, with 20K I would straight away pay off the Personal Loan and then use the remaining 2K to pay the Credit Union (CU). I would also divert that €160 that you use to pay for the personal loan and ADD it to the 605 that you are paying the CU, which means you are now paying the CU 765 a month which will reduce your term to 3 years - roughly.

After three years with luck and effort you will have no loans apart from your mortgage. At that point, you can either up your adjust up your rainy day fund or (my preference) use that 765 to increase your mortgage payment and then clear the mortgage in a little over 5 years.

Henry Ford III

Pay off the most expensive loan quicker if possible.

Geuze

Increase repayments towards the higher cost loan first.

You don't list the interest rates, so we are missing important information.

Geuze

No need to pay for any financial advice.

Ask here about pensions, mortgages, etc.

Donald Trump

Also depends on the type of loan. i.e. whether it might be fixed with a penalty for early repayment.

Buddy Bubs

Solid advice above.

You have 30k and owe 45k outside the mortgage. I agree with keeping a rainy day fund, maybe 5/10k so you have 20/25k to clear down debt.

Lowest cost way to do it is use the 20k to clear some debt at the highest rate of interest, whichever that is credit union or personal loan, you havent given us rates, assuming you arent penalised to do so. This is the generally accepted best advice.

However, you may wish to get an "easy win" by clearing 1 of the loans completely like the 18k personal loan, it has its merits too getting rid of a loan for your sanity. 15 year personal loan is going to attract a hell of a lot of interest so even if you clear the credit union with your savings because it is the higher rate, attack that personal loan with the freed up cash. Then attack the mortgage thats left.

All the above is dependent on how much value you place on having a significant lump sum available in savings as regards the cost of servicing debt. I have zero loans outside my mortgage now and its liberating and I am building back up my long term savings quite nicely. Also upped my spending on luxuries a bit recently but thats another matter!

AnRothar

. For instance, with 20K I would straight away pay off the Personal Loan and then use the remaining 2K to pay the Credit Union (CU). I would also divert that €160 that you use to pay for the personal loan and ADD it to the 605 that you are paying the CU, which means you are now paying the CU 765 a month which will reduce your term to 3 years - roughly.

While we are missing some details regarding the exact conditions of your personal loan the above makes best sense.

There will be a sense of "relief" to having one less loan and this will give you comfort when looking at the rest of your loans.

Mrs OBumble

Your rainy day fund may be too small. It needs to be enough to live on at least 3 months.

Also - to advise you here, people need to know what pension contributions you are making: There's little point in being old and mortgage free on a house you cannot afford to maintain because you have no pension income.

Jim2007

https://www.boards.ie/discussion/comment/120072981#Comment_120072981

We do not give financial advice, people express opinions on limited or partial data and NO ONE should act on those opinions without seeking proper advice.

walterking

This is so easy.

Use the savings to pay off the credit union loan (most likely at 6%-7%) and then put the €605 you were paying into a new savings account. In 4.5 years you will have circa €34,000 - a net gain of 7k for a very simple change.

I never understand why people have a decent amount of savings AND a high interest loan. If there was an emergency you can get a loan, but savings earning virtually 0 whilst having a 7% (average CU rate) loan is just crazy.

Q&A

With term, repayment and loan amount you've given enough info to work out the approximate interest rates

In the current environment you've got an okay mortgage rate of about 2.8-2.9%. if you consolidate you'll likely end up on a higher rate (how able you are to switch, BER rating of home will be factors).

By my calculations if you used the 25k against the CU loan your monthly repayments would fall from €1,415 to about €855 a month. That's before you remortgage.

The problem with remortgaging now is rates have probably increased since you took out your original mortgage. Looking at the best rates out there (and avoiding variable and really short term fixed rates) you can get something for say 3.25% (BOI 5 year fixed - not an endorsement just who I found from a quick comparison of rates). If you were able to consolidate all your loans into this mortgage (having spent €25k of savings reducing the CU loan) you'd be looking at a monthly repayment of about €808.

As others have suggested - you would have a very low rainy day fund. Someone mentioned 3 months expenditure. I've heard various versions of 3-6 months income/expenditure. It's a person choice what you set that at but things like job security, how reliant you are on one income and your monthly outgoings should all factors in arriving at an amount.

Alternatively if you consolidated the lot at 3.25% and kept your rainy day fund at €30k you'd be looking at a monthly mortgage bill of €983.

Up to you if you think €175 a month is worth the cost of knowing you've €30k at hand should the worst happen. Or perhaps there's a comprimise somewhere between the two extremes.

If you're only interested in loan consolidation, a good mortgage broker - that should cost nothing - should be a starting point. They will know what lenders will be happy to accept debt consolidation as part of a switch. They can also provide more informed advice based on your income/expenditure.

suilegorma

The size of your rainy day fund should be a factor of how secure your jobs are. If one or both of you work in public or civil service or can take on additional work of needed then it can be lower. If you have long service at a mnc you would get a sebbernce package if made redundant. If you are self employed or work for an sme in a precarious industry then potentially have six months, otherwise I'd keep it to 3 months of carefully budgeted living if I had high interest loans.

walterking

I don't understand these "rainy day funds" that some people think are needed.

Credit Unions will give a loan quickly if needed especially if you show a good savings rate, so as I said, pay off the CU loan which I've worked out is at 7.95% (assumed 30k @ 5 year term and 605 repayment) and then put €600 a month into a credit union savings account - you will very quickly have a strong savings record with them and therefore the ability to get a loan immediately if required.

But at the moment you are throwing away money for no reason - €2k saving this year alone on interest and then reduces as the loan balance reduces, but if they are paying interest you start benefitting from that too.

Q&A

https://www.boards.ie/discussion/comment/120077973#Comment_120077973

The rainy day fund is there to cover unexpected emergencies and financial shocks. There is a cost (in terms of a larger outstanding mortgage/repayment) but think of it as more as an insurance premium.

If you lose your job will a CU lend to if you have no income?

walterking

https://www.boards.ie/discussion/comment/120078246#Comment_120078246

Its not the 80's. Most people will be in a new job the day after leaving another job. The country is near full employment. Even is a case where someone is made redundant, the rainy day fund has a contribution from a redundancy payment

The OP is effectively paying €7,000 as an "insurance" premium by having savings earning near nothing and paying 7.95% on a term loan. Utter madness

By paying off immediately the OP would start a new "rainy day fund" growing by €600 a month and if the worst happened they would not have a €605 a month loan payment to make.

So no matter what was you look at it there is €7,000 of free money available to the OP by a a very quick and simple and sensible switch

Q&A

https://www.boards.ie/discussion/comment/120078352#Comment_120078352

That's a very short sighted view. Just because things are okay now doesn't mean they will continue that way. I'm sure people said the same in 2007. We all know how that turned out.

Redundancy payments are not always an option or sufficient.

There are other considerations as well such as serious illness. Not everyone has Income protection and it doesn't cover all types of illness.

https://www.boards.ie/discussion/comment/120078352#Comment_120078352

There are a lot of presumptions there.

We know nothing of their age, location, jobs, other obligations, ease of finding a new or equivalent job.

walterking

https://www.boards.ie/discussion/comment/120078445#Comment_120078445

But the OP has already said this is the preferred option and they have a spare €5k which is the rainy day fund and will still be there. They have 25k of savings sitting earning virtually nothing and will be starting a new savings fund immediately and with their rate of saving can probably put €1,000 a month into it

Just crazy to have 25k earning almost nothing and paying a high 7.95% on almost the exact same amount. Its literally throwing money away and the only winner is the lending institution.

Mrs OBumble

https://www.boards.ie/discussion/comment/120077906#Comment_120077906

Because no one ever got seriously ill, or had an accident or had the boiler explode.

Yes, insurance will cover some of those. But it won't pay out immediately.

If you are sick and cannot work, you'll get illness or disability benefit. Eventually. It usually takes weeks if not months. And it won't pay for your current lifestyle.

If you lose your job, you'll get another. Eventually. But if you're 50 with no recent experience in hospitality or retail, then don't expect to just walk into any old fill-in job.

IMHO 3 months is the minimum for a healthy PAYE earner. Self-employed, I'd want 12 months.

Q&A

https://www.boards.ie/discussion/comment/120078885#Comment_120078885

It's ultimately the OP's decision but the security such a small amount of money would provide in today world is likely to be limited.

I don't know about you but if I was out of work with a serious illness €5k would not last long nor provide me with any great comfort. I'd be a boiler replacement away from being broke.

If I was a household reliant on a car I would also think 5k wouldn't be much use if I needed to replace it while out of work. Especially if any return to work was dependent on the car.

The point of the rainy day fund is to have it in place before the rainy day. It's fine saying you have the potential to save 1k a month but it's not much good to you if you lose your job tomorrow.

You might think it's crazy to have a large savings buffer but I would think it's reckless to set it too low but it's a personal choice.

I would keep the buffer, try and consolidate the debt into a mortgage and then use any monthly spare cash to overpay the loan.

Jim2007

https://www.boards.ie/discussion/comment/120077973#Comment_120077973

Well you are right about not understanding rainy day funds..... The point of a rainy day fund is that it is there to cover unexpected events in your life when you need to have access to ready cash to solve the problem. There can be many situations when you need access to ready case and can't or would prefer not to have to realise assets, investments or borrow to cover them. Examples might be:

• An unexpected or larger than expected maintenance bill for your car
• Emergency repairs and related problems with your home
• Help out a child or ward who find themselves in financial difficulty
• Helping out a parent in old age with discretionary medical expenses
• Cover the penalty period when you resign at your discretion
• Cover discretionary or priority healthcare costs

In theory when you loose your job, become incapacitated and so on the state safety net should cover you, but sometimes there is a screwup and you have to wait for some weeks or months before you get your hands on your benefits. I know of two cases where this happened: one in Ireland where an employee was without benefits for almost three months. because there was some kind of screw up and they were unable to find his records and the same happened to my father-in-law here in Switzerland when he got his first pension payment it was about 10% of what he expected and like in Ireland they had lost some of his records.

If you are a young person, you can probably still rely on the bank of mum and dad or perhaps even grandparents, but as you get older this fund becomes more important because there will be no one to bail you and in most cases you will be the one that needs to do the bailing out!

As for getting a loan, most likely at the time you need to do so you'll be in a situation where you will not qualify for a loan or it will take too long to go through the process to get it done in time. For instance, say you loose your job and at the same time you have an unexpected problem with your car and it will take a lot to get it on the road again, but your need the car to get work.... what then.

Everyone should think the unthinkable and make some kind of realistic plan to cover emergencies. It's not as if they never happen.

standardg60

I'm no expert but this is how i see it. If the OP continued as is the repayments would be as follows to clear the loans

Mortgage 117k on a 95k loan

CU 32.5k on a 27k loan

Personal 28.8k on an 18k loan

So the personal imo has to go straightaway, even if there was a small penalty for clearing. I would up the rainy day fund to 10k and leave it at that as it's not going to earn anything, and then attack the mortgage. Given the low LTV i'd be investigating what the lowest interest rates the current or other bank would be willing to give and also plan to pay it down with further savings. I wouldn't worry about the CU loan, it's short term and paying it down regularly would give the OP good credit for a future loan if the sh1t ever hit the fan.

Q&A

https://www.boards.ie/discussion/comment/120079543#Comment_120079543

Based on the info provided the interest rates on the three loans are approximately:

CU 8.6%, personal loan 6.8% and Mortgage 2.9%

In the absence of any debt consolidation that is the order in which the loans should be prioritised.

walterking

https://www.boards.ie/discussion/comment/120079238#Comment_120079238

It's the op that has said the €5k is their rainy day fund.

The 25k is savings because their income has increased.

The 25k is earning nothing.

The 27k loan balance is costing over 2k this year.

Op is happy with a 5k rainy day fund. I don't understand why others think they can have a better insight on the op than the op themselves?

Hi all. Thanks for the feedback. Was away for the weekend so wasn't near the laptop to respond.

Regarding the interest rates.

Mortgage rate is 3%, CU is 8%, personal loan I'm not too sure.

We are both in our early 40's with no kids and both pay pension contributions. I work for an employee owned company on projects worldwide and the perks are good in terms of the pension scheme, death in service, and disability to work payment (75% of my salary), plus yearly shares etc. I estimate in another 1.5years I'll have about €15k in company shares available to cash out.

Our combined income at present is about €85k per year.

The rainy day fund has to stay, this is something we both agree on. My partner's father is in his 70's on the basic pension and my own mother is on the state pension also. We don't have the benefit of asking for help if we needed money in an emergency.

Jim2007

https://www.boards.ie/discussion/comment/120080133#Comment_120080133

I was responding directly to your statement, not the OP!

"I don't understand these "rainy day funds" that some people think are needed."

walterking

https://www.boards.ie/discussion/comment/120084786#Comment_120084786

I think different people (including myself) were mixing up the 25k savings and the 5k rainy day fund. 5-10k emergency fund is always a good idea, it was the 25k savings that I was saying to use to pay down the CU loan and then start aggressively saving again - and maybe bring the emergency fund to 10k within the next 6 months.

Jim2007

https://www.boards.ie/discussion/comment/120088095#Comment_120088095

Mate, you made a specific statement and I responded to that and that only. Now I'm going to leave it at that.