Asset Rich & Cash Poor

I mostly agree with Oystermans view of things as well except maybe home improvements might be justfiable adding to the mortgage for if these add value to the house.
 
I couldnt agree more Oyesterman!

Just a small addition, I think living peniless but with peace of mind is more valuable than someone knocking my door to clear their payments.

I believe, your expenditure will always expand to the cash that will flow in. A nice car, a repaint of house, holiday outing, slowly there is a danger of this going outta proportion. I'm sure as the kids grow, their expenditure also grows, so I'd say keep this opportunatity for those rainy days when you'll definately require money.

My 2 cents...
 
Thanks to all for your comments.

I appreciate that this would be contentious as I am proposing to take out long term debt under the guise of "equity/wealth" release for lifestyle spending....but consider this....what If I had already completed the equity release and posted the following summary below...would I be in an irresponsible position....or are we obsessing about "equity release is bad" without first looking beyond the numbers and at lifestyle implications.

".....
  • I am a 36 year old and have been contributing 10% of salary to pension since I was 29 (5% mine & 5% top up by employer). I am also making AVCs since 3 years ago)
  • My job is no more or less secure than the next guy.
  • Married with 3 children
  • Mortgage of 260K with 27 years remaining with UB @ tracker ECB +0.85%
  • Home vaued at €750K and is the type/size/location which we would prefer (with LTV<35%)
  • No costly home improvements necessary in the short/medium term as house recently and fully redecorated.
  • SSIA is maxed and due next year.(some will go to lifestyle spending and majority will be re-invested - month amount will be used to paydown mortgage)
  • Other "investments" of approx €50K for childrens future education.
  • Retain all my employee preferential share purchase and stock options as I do not need the cashflow
  • We have a rainyday fund in place and readily available
  • Household income of €70K (€64K +10% bonus based on single income)
  • No loans or ccard balances.
  • Driving my preferred car and can financially afford to maintain/upgrade it as it is required.
  • My wife may choose to return to employment in the future but this would be out of choice rather than necessity.
  • We can take frequent and reasonible holidays and weekend breaks without too much concern for cost.
  • Children activities/hobbies/interests etc. are not restricted by cost but rather by their benefit to children
  • I have piece of mind knowing that if all goes wrong then I have sufficient equity to trade down "mortgage free" to a house in a similar location (so same schools/friends etc..)
...."


So, does this look like a grim picture? No sarcasm or smugness intended here, I am really interested to see what people think. I personally think we are sacrificing lifestyle for "debt free" status (although from what I see with current "instant" culture...maybe this statement only applies to the >30 something pre Cetlic tiger group).

Thanks,
Notabob
 
Agree totally with Oysterman. The contribution by Sarah of REA is really a classic contribution, which can be seen in all those mortgage company ads - "But Notabob is struggling at the moment when he really doesn't need to be. If taking 20/30/40k out of his property now will make a BIG difference to his family's day to day life then why not?" The message here is to take on debt to consume and make life easy. Borrowing to consume is not a good idea!
 
Askar said:
The message here is to take on debt to consume and make life easy. Borrowing to consume is not a good idea!
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Askar,

Why is borrowing to consume not a good idea? Is it not a good idea in all circumstances?

Notabob
 
Because the cost of borrowing is going up. The last 6 years have been an abberation in Ireland. Real interest rates were negative which means money was basically free! That is gradually coming to an end.
How is your pension doing? Is it defined benefit or defined contribution(DC). If it's DC what's your projected income at 65? Most people on DC plans underestimate lump sum they'll need in retirement.
 
Askar said:
Agree totally with Oysterman. The contribution by Sarah of REA is really a classic contribution, which can be seen in all those mortgage company ads - "But Notabob is struggling at the moment when he really doesn't need to be. If taking 20/30/40k out of his property now will make a BIG difference to his family's day to day life then why not?" The message here is to take on debt to consume and make life easy. Borrowing to consume is not a good idea!
Click to expand...

I both agree and disagree. Notabob is not looking to borrow speculatively but to modestly increase his standard of living. He can either do this by maxing out his credit cards or taking on 9% ish personal loans or by increasing his mortgage (at 4% ish). Borrowing to live beyond your means is really not a good idea but if you have a need for updating your living space or quality of life that will make a huge day to day improvement then why not?

Askar; I work for REA and am extremely happy to do so - the company is one to be very proud of - but I do not post on here to solicit business. I (hope) I offer realistic solutions to real life questions, 'tis all.

Sarah

www.rea.ie
 
For what it's worth, other than those balanced comments posted by Sarah, I would think that some other posters have not looked at this on its specific merits.

Many people are beginning to blindly follow the old addage of "debt is always bad" but is financially struggling through life in the hope/expectation that your mortgage free retirement will be great really better than living a little now if circumstances permit.....let's hope you are sufficiently healthy (alive!) to enjoy your mortgage free pensioned existance if/when it comes.

I am not advocating ignoring the future but have we lost the objectiveness to look at individual cases on their merits?

I appreciate that there may well be a bull sentiment of prices always go up (BTW, which I do not subscribe to) etc......but isn't there just as polarised a bear sentiment that "debt is always bad" eminating from this and other threads.....the herd runs in both directions you know!
 
Notabob said:
Many people are beginning to blindly follow the old addage of "debt is always bad" but is financially struggling through life in the hope/expectation that your mortgage free retirement will be great really better than living a little now if circumstances permit.....let's hope you are sufficiently healthy (alive!) to enjoy your mortgage free pensioned existance if/when it comes.
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Obviously debt is a fact of life, the banks would not be making as much money as they do if it was not.

If you are comfortable using a mortgage top up for lifestyle spending that is your choice and as Sarah says it can be a cheaper form of credit than a personal loan but only if you match the term to a typical personal loan term if you bowrrow it over the 20-30 years of a typical mortgage it will cost you a lot more in the long run.

Borrowing for a car and a few luxuries would be best advised over a term of 3-5 years while you could justify home improvements that add value to the house over a longer term.
 
A friend also has an Ulster Bank Mortgage (but not access to a PC apparently! :) ) and would like to get an idea of what level he would be permitted to top up this mortgage to.

Current Earning are 55K +10% bonus.....any idea what his max top up would be with Ulster Bank. Sorry but no idea of existing mortgage or if he has any loans.

thx
 
Assuming a 30 year term, no room rental, no loans his borrowing capacity with UB is €240,000. Under their top up scheme the maximum fees free additional loan is €65,000 or 80% of the property value - whichever is the lower.

HTH.

Sarah

www.rea.ie
 
Just FYI - follow my original post, I contacted UB about this top up and was advised that they have revised their lending criteria and now the maximum that they will lend will be determined by the monthly repayments not exceeding 40% of the monthly income and repayments will be calculated at a rate of 7% interest.

This means that I am now eligible to borrow significantly less than originally advised on this thread.

Interesting that UB see a significant increase in interest rates! Time to fix?!
 
Interesting thread Notabob
My opinion is that you are quite prudent financially and you are right to consider your options here. You have your rainy day fund, you have accounted for your children's education, you have acknowldged that your company pension is not sufficient so are augmenting with AVC's. I for one think your proposition is perfectly sensive. You have three youg children, and if you don't enjoy life at this stage, you may regret not living it up a small bit now. Your financial prudence thus far tells me that you are not going to be spending recklessly or foolishly and will not overstretch yourself.
I agree that long term debt for short term pleasure in general is a bad thing, but I think the stark warnings posted by some the naysayers do not take into account your proven financial conservatism and instead give the advice that they would give a 25 year old who wanted to borrow recklessly to fund clubbing, clothes and gadgets.
 
Just another quick thought - you say that most of your SSIA money will be re-invested. If your cost of borrowing is 7%, then you could say that 'investing' all your SSIA into your lifestyle spending instead of borrowing for it will yield a cast iron 7% return!
Just a thought and it'd be guilt free!
 
Notanob do you intend to borrow the extra over 27years or a shorter term? Just wondering how the repayments balance out with the extra €500 a month you'll have when your ssia matures. We've borrowed just €10,000 over 5 years through our mortgage and it costs over €200 extra a month.
 
Notabob said:
Just FYI - follow my original post, I contacted UB about this top up and was advised that they have revised their lending criteria and now the maximum that they will lend will be determined by the monthly repayments not exceeding 40% of the monthly income and repayments will be calculated at a rate of 7% interest.

This means that I am now eligible to borrow significantly less than originally advised on this thread.

Interesting that UB see a significant increase in interest rates! Time to fix?!
Click to expand...

I don't think anything's changed here. I went to see UB last May about a mortgage. They explained back then that they stress test at present rates + 2%. I think the ECB rate was 2.25% then, about to head up to 2.5%, so their rate was 3.5%. They stress tested me up to 5.5%. Are they now at 5%? In this case then 7% is the normal stress test, and AFAIK, all banks are obliged to do it by either the financial regulator or the Central Bank. I get the impression that this is often ignored by many of the banks.

Btw is that 40% of NET or GROSS monthly salary?
 
Persius said:
Btw is that 40% of NET or GROSS monthly salary?
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My understanding is that they try to ensure the max is 40% of your 'disposable income' - so any non-discretionary commitments such as mortgage and loan repayments are included in this % calculation. So say you have 5000 landing in your account every month your max loan commitments are 2000 (40%).
I think this is the way it works but open to correction
 
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