Advertisement
If you have a new account but are having problems posting or verifying your account, please email us on hello@boards.ie for help. Thanks :)
Hello all! Please ensure that you are posting a new thread or question in the appropriate forum. The Feedback forum is overwhelmed with questions that are having to be moved elsewhere. If you need help to verify your account contact hello@boards.ie
Hi all,
Vanilla are planning an update to the site on April 24th (next Wednesday). It is a major PHP8 update which is expected to boost performance across the site. The site will be down from 7pm and it is expected to take about an hour to complete. We appreciate your patience during the update.
Thanks all.

Mortgage or Cash?

Options
2»

Comments

  • Options
    #32
    Sleeper12
    Registered Users Posts: 16,878 ✭✭✭✭Sleeper12


    Bass Reeves wrote:
    Yes it important to look back but a kind of one up man squabble over what value a pound or euro was worth in 1970 or 1990 is not adding anything to OP question. Op has a cash lump sum in the bank at present. Deciding on spending it all on a house purchase or taking a mortgage for the house or part of the values of the house will be a life direction decision that will effect them and there family.

    OP got the only relevant answer needed in post 3
    DubCount wrote:
    I reckon this is a question you should run past an independent financial advisor.

    Everything else is just opinion by random financial experts that hang out on boards.


  • Options
    #33
    pwurple
    Closed Accounts Posts: 12,449 ✭✭✭✭pwurple


    Sleeper12 wrote: »
    Do you suppose when making a 30 year investment decision that you should take into account what the value of the rewards will be? How do we try work out today, the true value of your investment in 30 years?

    The average mortgage lasts 12 years, not 30. And OP isn't looking for a huge mortgage I'd assume.


    A lot has changed over the years, but the main one that has an impact here is the ECB. The european central bank regulates and levels out the massive financial turbulence that was here when Ireland wasn't part of a larger economic block.

    Risk of massive interest jumps is low as long as we remain in europe.


  • Options
    #34
    Sleeper12
    Registered Users Posts: 16,878 ✭✭✭✭Sleeper12


    pwurple wrote:
    The average mortgage lasts 12 years, not 30. And OP isn't looking for a huge mortgage I'd assume.


    I'm sorry but the average mortgage length does not last 12 years. Unless you are talking commercial mortgage?

    "The average LTI was 2.3 and the average gross income of borrowers with refinanced PDH mortgage loans was €106,521. The average borrower age was 40 with an average loan term of 22 years. Source: Banking and Payments Federation Ireland (BPFI)."

    Source centralbank.ie year 2019


  • Options
    #35
    pwurple
    Closed Accounts Posts: 12,449 ✭✭✭✭pwurple


    I see what you're saying but initial loan term does not indicate eventual mortgage length. Keeping the mortgage as is for the full term is unusual.

    People move or sell house (paying off mortgage)
    Overpay mortgage or add lump sum.
    Switch/adjust mortgage to reduce term/rate


  • Options
    #36
    Sleeper12
    Registered Users Posts: 16,878 ✭✭✭✭Sleeper12


    pwurple wrote:
    People move or sell house (paying off mortgage) Overpay mortgage or add lump sum. Switch/adjust mortgage to reduce term/rate

    Yes but they take out another mortgage. The actual length of mortgage /mortgages on a home is 30 years. In other words the average home isn't fully paid for, for around 30 years. Very few will be mortgage free after 22 years and only a tiny minority free after 12 years.


  • Advertisement
  • Options
    #37
    pwurple
    Closed Accounts Posts: 12,449 ✭✭✭✭pwurple


    In OPs case, where they have the funds to buy entirely in cash, a 30 year 90% mortgage is not likely.

    They are coming to their first potential mortgage with the funds of a previous house sale in their back pocket.

    Any mortgage they get in this situation would ideally be 50% or less to make sure they get the low LTV rates. AIB offer a 2.2% fixed 5 year mortgage for that LTV.

    Ten year small mortgage at 2.2% , putting the rest in pension or investment fund would be an option to explore.


  • Options
    #38
    Bobeagleburger
    Registered Users Posts: 45,262 ✭✭✭✭Bobeagleburger


    Pay with cash.

    If you've a decent paying job your money will accumulate quickly.

    Max out your pension contributions and you're in a fantastic position.

    Well done.


  • Options
    #39
    dubrov
    Registered Users Posts: 3,546 ✭✭✭dubrov


    Take out the full mortgage from one of the banks that offer 2% cashback on their variable rate then pay it off.

    You won't find any investment that will give as good an after tax return for zero risk


  • Options
    #40
    Bass Reeves
    Registered Users Posts: 18,154 ✭✭✭✭Bass Reeves


    HTB is 10% on new houses for 2021. Depending on OP,'s and there partners tax situation over the last three years they can get a tax refund of 10% of the house value up to 30k. On a 250k house they get a refund if 25k. However they have to drawn down a mortgage.

    Borrowing at less than 70% LTV Tate is 1.95% with Advant. Borrowing 170k over 20 years they will pay about 20K in interest. They can draw up to 25k back in tax and first refunds depending admittedly paid to the developer.

    House price as follows 250k

    Mortgage. = 170k
    HTP. =25k
    Personnel funds= 55k



    That is what I be doing especially if between myself and my partner I had 25k in tax and dirt paid over last three years

    Slava Ukrainii



  • Options
    #41
    dubrov
    Registered Users Posts: 3,546 ✭✭✭dubrov


    Bass Reeves wrote:
    That is what I be doing especially if between myself and my partner I had 25k in tax and dirt paid over last three years

    But what would you do with the odd 200k left over in your back account. Not much point in paying 1.95% on the borrowing and earning 0% in a back account, especially with inflation risks around the corner


  • Advertisement
  • Options
    #42
    [Deleted User]
    Posts: 0 ✭ [Deleted User]


    thomasjad wrote: »
    It really depends what you'd do with the cash if you didn't use it to purchase and instead got a mortgage.

    Option A: Use the cash to buy. No monthly mortgage price. Saving 3-4% interest a year on the mortgage.
    Option B: Use a mortgage. Invest the cash in something that gives a higher return than your mortgage rate. Example, something that gives 10% return vs your mortgage rate of 3-4%.
    Option C: Use a mortgage. Keep the cash in the bank and it will lose value. Example, mortgage interest 3-4%, savings interest 1%.

    Honestly, you're best off getting a mortgage if you can, it's the cheapest credit you'll ever get and invest the cash in something tangible like property or with a property investor if you can get a charge on a property.

    But in the real world, of course, the 10% you suggest can result from option B is (a) taxed and (b) carries significant risk. Of course, the mortgage carries risk too (a) risk the property could decrease in market value and not recover or (b) interest rates could go up. However these are greatly mitigated compared to the investment risk your Option B entails.
    thomasjad wrote: »
    No such thing as zero risk. I'm in the property industry so coming at it from that perspective. 10% for loaning an investor funds and getting first charge on a property isn't too crazy. I'm talking pre-tax.

    Of course the 10% is pre-tax. Perhaps you shouldn't be comparing the gross 10% against the mortgage interest rate of 3-4% in the circumstances, unless the OP is in a position to deduct their mortgage interest against income, which would alter the situation and, fair enough, we don't know that. So perhaps a fairer and more useful comparison would point out that up to approx 50% of the 10% could be lost to revenue. I'm not "in the property industry" myself I'm afraid so I can only do my best to apply a bit of common sense.

    So, what you're really talking about is taking on the investment risk to potentially get a couple of % ahead of the mortgage interest, and at the end of it all, if it all goes well, you don't even own a second property, you just had your loan repaid to you by the grateful investor (who for some reason couldn't get finance from a commercial lender and was happy to sign up to pay you 10% interest).

    Unless the loan defaults, which would presumably be associated with a collapse in the property market so you have the opportunity to repossess a distressed asset.

    That sounds really stupid.

    edit: not to suggest there arn't other options OP to use the money than buying a property outright, and are not limited to leaving the cash on deposit at meagre interest rates and vulnerable to inflation or chasing illusory promises of 10% gains. That is why they should discuss with a financial adviser, who will enquire into things like their pension arrangements and other important information regarding their general financial circumstances.


  • Options
    #43
    Bass Reeves
    Registered Users Posts: 18,154 ✭✭✭✭Bass Reeves


    dubrov wrote: »
    But what would you do with the odd 200k left over in your back account. Not much point in paying 1.95% on the borrowing and earning 0% in a back account, especially with inflation risks around the corner

    I use at least 50-70k as a reserve so as not to have to borrow for cars, holidays home improvements. This 70k would be partially drawn down at times like this and replenished by saving again. Personnel borrowing costs 5-8%. It also acts as a reserve against the rainy day.

    70ish in investment funds there is a myriad of them out there some capital gauranteed, some not gauranteed. If wages are not substantial enough to pay mortgage and fund pension I even use this to supplement repayments to fund pension through wages. However OP has just asked drawing down a mortgage or not. I presume repayments are not an issue. If they can afford a separate investment fund outside there pension funding this can be used for children education. I actually consider putting the funds in the Children's name as that word be more efficient tax draw down when children reach college age. You can find this over 2-5 years using the small gift method so as not to use up inheritance allowances.

    The last of the money I use as opportunity money. It would be used to invest in what ever you felt comfortable with when the next economic downturn came. Even at present you will still buy holiday apartment and houses in the west of Ireland. This could be lifestyle and investment. Return might not be huge but it is an option.

    And technically you are not paying 1.95% the HTB allowance is paying the tax on it. You could in 4-5 years time pay that off. But personally I use the full term

    Slava Ukrainii



  • Options
    #44
    dubrov
    Registered Users Posts: 3,546 ✭✭✭dubrov


    Bass Reeves wrote: »
    I use at least 50-70k as a reserve so as not to have to borrow for cars, holidays home improvements. This 70k would be partially drawn down at times like this and replenished by saving again. Personnel borrowing costs 5-8%. It also acts as a reserve against the rainy day.

    70ish in investment funds there is a myriad of them out there some capital gauranteed, some not gauranteed. If wages are not substantial enough to pay mortgage and fund pension I even use this to supplement repayments to fund pension through wages. However OP has just asked drawing down a mortgage or not. I presume repayments are not an issue. If they can afford a separate investment fund outside there pension funding this can be used for children education. I actually consider putting the funds in the Children's name as that word be more efficient tax draw down when children reach college age. You can find this over 2-5 years using the small gift method so as not to use up inheritance allowances.

    The last of the money I use as opportunity money. It would be used to invest in what ever you felt comfortable with when the next economic downturn came. Even at present you will still buy holiday apartment and houses in the west of Ireland. This could be lifestyle and investment. Return might not be huge but it is an option.

    And technically you are not paying 1.95% the HTB allowance is paying the tax on it. You could in 4-5 years time pay that off. But personally I use the full term

    I agree that you shouldn't pay down the mortgage if you expect to need to borrow in the short term. However, keeping 50-70k in cash is madness if you don't have any specific plans for it. A liquid investment would make much more sense.

    Also remember if the OP paid off the mortgage, they wouldn't have any mortgage payments so could pretty quickly build up enough cash to pay for cars/holidays or build a college fund for the kids.

    Buying funds is a good idea but remember that the profits are likely subject to income tax. No fund is going to give anything like the after tax return of paying down a mortgage in the long term.

    As you say buying a holiday home is a lifestyle choice and rarely pays as an investment.

    The OP can still get the benefit of the HTB and mortgage cashback deals by drawing down a full mortgage and paying it off shortly after


  • Options
    #45
    Bass Reeves
    Registered Users Posts: 18,154 ✭✭✭✭Bass Reeves


    dubrov wrote: »
    I agree that you shouldn't pay down the mortgage if you expect to need to borrow in the short term. However, keeping 50-70k in cash is madness if you don't have any specific plans for it. A liquid investment would make much more sense.

    Also remember if the OP paid off the mortgage, they wouldn't have any mortgage payments so could pretty quickly build up enough cash to pay for cars/holidays or build a college fund for the kids.

    Buying funds is a good idea but remember that the profits are likely subject to income tax. No fund is going to give anything like the after tax return of paying down a mortgage in the long term.

    As you say buying a holiday home is a lifestyle choice and rarely pays as an investment.

    The OP can still get the benefit of the HTB and mortgage cashback deals by drawing down a full mortgage and paying it off shortly after


    I an not sure if you read or understood my post.

    On college fees, by using a lump method and having the individuals funds in the children name even with college jobs if the tax system is the same as present the first 4-6k of drawn down will be tax free. At an average return of 5% over 15 years the fund's will slightly over double. Saving as you go would unlikely to make the same size fund. It costs about 10k+/ year to put children through college. Saving as you go as a flaw in that you will not double your fund in 15 years. Because of the shortfall as the First child starts college you will need to fund as you go to a large extent. This will incur borrowings. At 5+%.

    You might consider holding money in a cash fund as a waste but there is no such thing as a liquid investment. Liquid investments such as shares and investment funds tend to fall sharply when you get an economic shock. You may actually take a severe hit if you need to access these so called liquid funds.

    There are still holiday homes being sold at 40-70% of build costs. The most important thing about a holiday home is that it needs to be within 90 minutes of your home.

    On HTB I am not sure if there is a clawback if you pay back the money too early. I do know that these used to be a clawback on the 2% cashback with banks if you did not hold the mortgage for 3 or 5 years. After checking the conditions there dose not seem to be such a condition but it is some that you would need to check to be sure

    Slava Ukrainii



  • Options
    #46
    bridryan
    Registered Users Posts: 3 ✭bridryan


    I'm in a similar(ish) situation. I paid for my house with cash and am now considering selling up and buying a larger house. However, with the sale of my own I won't have enough funds so have mortgage approval on the difference.
    It important to know if you are buying with a mortgage, there are additional costs and effort involves - the bank will also insist on engineers sign off, mortgage protection etc.

    I would get a good broker and see what the best rate you can get approved on and then speak to an independent financial advisor to see what investments options you would if you invested the case. You could borrow a % of what you need and invest some of the case. You don't have to borrow the full amount needed.


  • Options
    #47
    Bass Reeves
    Registered Users Posts: 18,154 ✭✭✭✭Bass Reeves


    bridryan wrote: »
    I'm in a similar(ish) situation. I paid for my house with cash and am now considering selling up and buying a larger house. However, with the sale of my own I won't have enough funds so have mortgage approval on the difference.
    It important to know if you are buying with a mortgage, there are additional costs and effort involves - the bank will also insist on engineers sign off, mortgage protection etc.

    I would get a good broker and see what the best rate you can get approved on and then speak to an independent financial advisor to see what investments options you would if you invested the case. You could borrow a % of what you need and invest some of the case. You don't have to borrow the full amount needed.

    To qualify HTB if OP is entitled to it you must draw down a 70% mortgage minimum. Most indication at present from listen to financial advice on radio and TV is that 5+ year returns are at or about 5%. However there is a risk that you may have to time the access to your money to get that return. Some give you the right access funds at any stage but you have to accept the risk of a financial hit on your investment depending on market performance.

    I am not advising borrowing the maximum and most advising to borrow are not either. But accessing money at 2% a n a fixed rate for 5 years is virtually free money. This especially when projected returns on investment is 5% compounded.

    Mortgage protection is relatively cheap and I think banks will accept a term life insurance. It's a good idea anyway for any couple to have a 30 year term life insurance policy to cover an unexpected event that may never happen hopefully. You will get a dual life policy for a couple for 300k for 25year term for about 30/month.

    With any house you will need engineer signoff anyway.

    Slava Ukrainii



  • Options
    #48
    TheValeyard
    Registered Users Posts: 12,212 ✭✭✭✭TheValeyard


    I think pay in cash.

    Even from a peace of mind approach. No matter how bad things get or Job losses, you will always have a roof over your head. Never having to fear the knock on the door or phonecall from the bank.

    Fcuk Putin. Glory to Ukraine!



  • Options
    #49
    Bass Reeves
    Registered Users Posts: 18,154 ✭✭✭✭Bass Reeves


    TheValeyard wrote: »
    I think pay in cash.

    Even from a peace of mind approach. No matter how bad things get or Job losses, you will always have a roof over your head. Never having to fear the knock on the door or phonecall from the bank.

    You will always have a roof over your head anyway. We do not do repossession's in Ireland. All you have to do is put up with the begging letters and phonecalls. With mobiles it's great you can block the numbers

    Slava Ukrainii



  • Options
    #50
    Joe4321
    Banned (with Prison Access) Posts: 158 ✭✭Joe4321


    Maybe make sure your pension is maxd out first, interest rates are so low at the moment maybe do a 50/50 or 75/25 mortgage cash and then when intresr rates start to rise make sure you are able to pay a lump of your mortgage or even finish it off, pensions over the long term will give you the option of retiring early if you choose, with higher rate 49/ tax relief its a no brainer for me, but everyone have different priorities, but maybe something to consider,


Advertisement