Got a credit union loan to finance secondary and college fees, after remortgage refused

G

Ger1966

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I have amended the title to reflect the outcome - Brendan

Age: 48
Spouse age: 49
Annual gross income from employment or profession: €47K
Annual gross income of spouse: €38K

Type of employment self - Private Sector IT
Type of employment spouse - Public Sector

Rough value of home: €850000
Mortgage remaining: €7400

Pension fund (from previous employment): €405000

I lost my job almost 2 years ago and used most of the redundancy package to reduce my home mortgage so hence the very small mortgage. I took a few months off when I was made redundant but have been doing contract work since and have just been offered a permanent job. The salary isn't as good as what I was earning in my previous job, but I'm happy with the security that permanency brings.

We also have investment properties that are on full repayment. The value of these properties just about matches the outstanding mortgages. When I allow for mortgage repayments, income tax, USC, PRSI, property tax and management fees there's a surplus of €450 per month.

We have 3 kids. Child #1 has just started university. Child #2 is doing Leaving Cert next June (2018) and child #3 is in 4th year (3 years remaining in secondary school). The secondary school that all 3 went to / are going to is fee paying. I've just paid the €3K university registration fee for child 1 and have paid half the fees for children #2 and #3 - the balance is due in January 2018.

I've done some projections as to how much education is going to cost from 2018 until our youngest finishes university, and I've estimated the annual cost to be as follows:

2018 - €16876
2019 - €12250
2020 - €12125
2021 - €9000
2022 - €6000
2023 - €3000
2024 - €3000

The above estimates are based on the €3K third level registration fee remaining the same and allowing for a 3% increase in secondary school fees for child #3.

From next year, I know we won't have the almost €17K saved to pay for education, and it's the same for 2019, 2020 and 2021 so I'm trying to put a plan in place to finance this. One thing I've been considering is remortgaging the PPR for €55K and using the €450 "surplus" from the investment properties to pay this. Our current mortgage is with BoI so if we were to increase our mortgage to €55K and repay this over 15 years, the monthly repayments would be €385 based on fixing for 5 years at 3.2%.

Taking on extra debt on my home mortgage isn't something my wife or I are keen on, but I just can't see any other way to finance this - apart from selling my PPR - which we don't want to do.

Apart from remortgaging our PPR, would anybody have any other suggestions?

Thanks in advance for your help!
 
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The credit unions are very supportive of education loans. The interest rate will be higher than remortgaging but there will be no fees and more flexibility.

You wouldn't be able to sort the entire thing in one go, but one year at a time would probably be possible.
 
there are rumours of some form of student loan scheme coming down the tracks - we might hear something about it in the budget.

The Banks do education loans as well at slightly discounted rates (aimed at college students rather than school fees though I think). Always a bit sketchy about CU loans as you have to have cash deposited with them already before you can borrow from them.
 
Get the kids / adults to get Summer / part time jobs so that they can finance themselves.
 
You should be able to access 25% of the pension fund (circa €100k) tax-free at age 50 (which isn't that far away); might that be an option to consider?
 
1)
PGF2016 said:
Get the kids / adults to get Summer / part time jobs so that they can finance themselves.
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+1 summer 2018 - at least university student and LC student?

2)
Gordon Gekko said:
You should be able to access 25% of the pension fund (circa €100k) tax-free at age 50 (which isn't that far away); might that be an option to consider?
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do you have to move it to arf to do that and if so are man charges much higher than a normal DC scheme ( if that's what poster has?)

3) rent a room scheme if have spare capacity is tax free too
 
mtk said:
do you have to move it to arf to do that and if so are man charges much higher than a normal DC scheme ( if that's what poster has?)
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Yes (but no imputed distribution until age 61 so no real issue there).

Unlikely to be materially higher and could be cheaper of the funds are currently in a Buy Out Bond and the OP shops around.
 
Ger1966 said:
From next year, I know we won't have the almost €17K saved to pay for education, and it's the same for 2019, 2020 and 2021
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Hi Ger

An interesting problem.

You have €850k in your family home and € 405k in a pension and you can't easily find the finance for your children's education. It shows how dysfunctional the banking system is.

When does the problem hit? Is it this time next year?

If so, you have plenty of time and should not be borrowing money now to finance expenditure in 12 months time.

First of all speak to Bank of Ireland now. Ask them if you can switch to interest only. They will probably refuse, but if they agree, then it means that your repayments will fall to almost nothing so you can build up cash over the next year which will help towards the 2018 fees.

In about 6 months review your position. If you have built up equity in one of your investment properties, then sell it and use the cash to fund the education for a couple of years.

If you are still stuck, then Pepper will lend you the money. The problem with that though is that you would probably have to borrow the entire €60,000 up front. You would pay legal charges. The interest rate would be higher than you are paying at present but probably a lot lower than the credit union.

But do check the credit union. If they give you a loan at 6% without requiring 25% of it in shares, then that might be the best route to go. But I think that they would require it to be paid off over 5 years.

What about grandparents or other family members? They might well be happy to help out.

Brendan
 
Brendan Burgess said:
What about grandparents or other family members? They might well be happy to help out.
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The last thing this well off couple should be doing is asking family members for financial assistance. They have a small mortgage, 2 jobs and a 450 euro monthly surplus on rental properties.
 
Thanks everybody for your input. I really appreciate it!

Summer jobs for children #1 and #2 is a certainty and will be happening!

Gordon Geko, I wasn't aware of drawing down the 25% from my pension fund. My 50th birthday is less than 2 years away so won't solve the immediate cash flow problem.

Brendan, the first "instalment" is due in January - the second part of child #2 and #3 secondary school fees - and is just shy of €8K. The payments for the next few years will be:
September '18 - €9K (€3K 3rd level fees * 2 and the first half of child #3 secondary school fees).
January '19 - Second part of secondary fees for child #3 (just over €3K)
September '19 - same as September '18 i.e. €9K (€3K 3rd level fees * 2 and first half of child #3 secondary school fees).
January '20 - Second part of secondary fees for child #3 (just over €3K). This will be the FINAL payment for secondary school
September '20 - €9K 3rd level fees
September '21 - €9K 3rd level fees
September '22 - €6K 3rd level fees
September '23 - €3K 3rd level fees
September '24 - €3K 3rd level fees

We have a good deal (I think) with BoI on the investment properties. The interest rate is 1.8% - we were on interest only which came to an end 3 years ago so we renegotiated new terms with them and that's the rate they gave us - and they extended the term until 2050 so I don't think asking for interest only would be accepted.

One property is probably about €10K in positive equity with the others still in negative equity so in the bigger picture, the €10K would cover the January '18 payment. Even if we were to sell, the tenant in that property is there since 2011 so we'd need to give 24 weeks notice, so the earliest the tenant would have to move out would be the start of March. Even allowing for a quick sale, I'm sure it'd still be 6 or 8 weeks until the sale went through so it'd be mid to late May before I'd actually have the money. As an aside, this apartment is in an RPZ so we can only increase the rent by 4%. We're getting €900 per month rent and based on correspondence received from the management company, similar apartments to ours are getting between €1100 and €1250. I'm not complaining or looking for sympathy, but just sharing that I'm not "gouging" the tenant for rent!

Both sets of grandparents are dead and I don't think any family members would be in a position to help us out - even for the January '18 money.

My wife and I both save with the Credit Union and have had loans from them in the past and have cleared them in full so we have a good history with them.

Again, thanks to all for your help and advice!
 
Although it mightn't make much difference to the Big Picture - find out if the college fees can be paid in instalments. Trinity fees can be paid in 2 halves for example. Also if you are paying more than 3k per year in college fees, you can get tax relief at 20% on everything over 3k.
(Up until now, you've been paying secondary school fees for 3. Were you using your redundancy for that or how did you manage?)
 
Hi POC. I'll certainly find out about monthly payments for secondary school.

I've asked child #1 and it seems the €3K 3rd level fee can be paid in 2 instalments i.e. €1.5K now and €1.5K in January. Too late for this academic year as we've already paid the full €3K, but great to know from September '18 onwards.

I was aware of the 20% tax relief over €3K and will be including this in my tax returns when child #2 (hopefully) starts next September.

Last year's secondary fees were funded from my redundancy and prior to that by a combination of my salary as well as some stock options that I had with my previous employer.
 
I don't meant to be blunt here, but you've over 5,500 net household income, with virtually no mortgage on your PPR.

Your worst year is next year, but even then fees work out less than 1,500 per month. There are couples on similar incomes paying more than that in mortgage / rent.

You might need some short term loans / overdraft to manage cashflow timing, but you need to look at your other spending to see if you can cut waste, and avoid any long term borrowing.
 
OK, looking at the bigger picture.

With cheap tracker mortgages, you are probably right to hold onto the properties.

I disagree with Red Onion that you need to avoid long term borrowing. Clearly you shouldn't be wasting money, but you are facing a few very expensive years. When they are over, you will have plenty of surplus income. So I see no harm in borrowing long term to fund your children's education.

The repayments you are making on the cheap trackers include a huge element of capital, so these too are forms of long term savings.

So you are doing fine.

Talk to the Credit Union and see what they agree. If they give you a long-term loan, that would be great.

If not, take a short-term loan and remortgage your home.

Brendan
 
Brendan Burgess said:
First of all speak to Bank of Ireland now. Ask them if you can switch to interest only. They will probably refuse, but if they agree, then it means that your repayments will fall to almost nothing so you can build up cash over the next year which will help towards the 2018 fees.
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Ger1966 said:
I don't think asking for interest only would be accepted.
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I was referring to the family home which is on SVR? Ask them to reschedule that.

Brendan
 
BOI and UB do 10 year loans which are nominally linked to the Home Renewal Incentive scheme (i.e. they're supposed to be for home improvements).

However, the bank don't look for proof of works. That type of loan might work for you.
 
RedOnion, the spending review was done when I was made redundant i.e. got rid of SkySports / SkyMovies, switched to a cheaper broadband / TV provider, moved utility providers to get better rates and I always shop around before renewing car insurance.

Brendan, I'll make an appointment with the Credit Union and discuss with them and see what they say.

Worst case scenario is that we have to remortgage. The way I'm looking at it - maybe incorrectly - is that even though we're increasing our debt, our tenants will actually be repaying the mortgages on the investment properties (like they currently are) as well as my PPR. I know it'll cost us a lot more than the amount we'll be borrowing, but if that extra amount is being covered by our tenants, isn't that a "win-win" situation for us? I know "we'll" still be repaying this loan for around 7 years after child #3 finishes 3rd level but it'll actually be our tenants who are paying it for us.

Again, thank you all for your useful input and suggestions!
 
Take a look at BoI Preferred Faculty Loan, or AIB Specialist Faculty Loan.

For certain faculties each offers interest free loans for the period of their course. I understand it would be the student taking out the loan, and if course it depends on what they're studying.
 
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