Holiday Home Purchase Timing

Hello,

Firstly appreciate that we are in a privileged position of being able to even consider the purchase of a second home.

My question is on timing of the purchase, currently we are on track to finish our current mortgage in 3/4 years (13 years remaining on term), its on a tracker at 0.8%, we are overpaying the required payment by nearly 3X. We are also lucky to be able to save approx 2K per month. While it would be (just about) affordable to have both the existing mortgage as well as a secondary (on a property of circa 300k over 10 years at 80% LTV) concurrently i'm wondering if its better to finish the existing one first, possibly in 2-3 years with a lot of focus and then look for the second property.

Do lenders permit second mortgages where one is not buy to let?, we have no interest or desire to rent it out so there won't be an income from it

thanks

DrBob72 said:

3/4 years (13 years remaining on term),

Click to expand...

It makes no sense to be overpaying a mortgage costing you 0.8% while borrowing at probably 4.8% to buy something else.

Stop overpaying your mortgage. Ask you lender if they will take the overpayments as payments in advance - they probably won't. But they will reduce your actual payment to a very small amount.

Then build up your savings as much as possible. I don't know whether there are any separate mortgage rules about holiday homes. I presume that they would just classify it as an investment property - so you will need a 20% deposit.

But if you stop overpaying your cheap tracker, you will have well over the 20%. The lower the Loan to Value the lower the mortgage rate you will pay.

Brendan

thanks Brendan, had not thought of it that way as the original goal had been to finish mortgage soonest we had started over paying before the second property was a consideration. Have spoken with bank, seems like we can "recover" the overpayment amount if we want, of course that sets us back to a higher outstanding capital but seems like it is an option.

Dr Bob

Let's say you have a mortgage today of

€50k @ 0.8%

You pay it off over three years and borrow €300k @ 4.5% to buy a second property.

You will have a mortgage of €300k @4.5%

If you don't have to make any further repayments on your tracker because of your credits, then in three years you will have

A mortgage of €50k @ 0.8%
A mortgage of €250k @4.5%

So you will save €50k @ 3.8% or €1,900 a year interest.

In the meantime you will have paid maybe 2.4% interest by not repaying the €50k early.

But you will also have €50k more cash which makes it easier and cheaper for you to borrow for the second home.

Brendan

So it seems my bank (KBC) will allow you to withdraw the capital over payment, still not sure on the "advanced payment option". withdrawing the capital overpayment there by increasing the outstanding balance on the mortgage at 0.8% and using that lump sum + savings to reduce the mortgage amount on the second property (between2.3 (avant) - 4.8(legacy banks)) does seem like the optimal approach, as it reduces the interest cost on the second mortgage considerably. thanks again

Dr

Some old KBC mortgages did have this option, so you are very lucky to have it. It makes overpaying the tracker mortgage correct in retrospect. KBC has disputed this a few times, so do check your mortgage contract or get it in writing from KBC so that you can plan accordingly.

It might be better to give the figures.

1) Value of your home
2) Amount outstanding on your mortgage today.
3) Amount of overpayment which KBC will refund you
4) Term left on your mortgage - 13 years.
5) Amount of savings you have

Brendan

Brendan Burgess said:

Dr

Some old KBC mortgages did have this option, so you are very lucky to have it. It makes overpaying the tracker mortgage correct in retrospect. KBC has disputed this a few times, so do check your mortgage contract or get it in writing from KBC so that you can plan accordingly.

It might be better to give the figures.

1) Value of your home
2) Amount outstanding on your mortgage today.
3) Amount of overpayment which KBC will refund you
4) Term left on your mortgage - 13 years.
5) Amount of savings you have

Brendan

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Hi Brendan,

w.r.t to KBC overpayment access, KBC have confirmed same overphone, have requested statement of value which they will issue this week. hopefully that will suffice as confirmation, and furthermore hopefully mitigate BoI being able to renage on same if / when they acquire KBC loan book (hopefully).

on the other items -

1. current value approx 750K
2. approx 150K (130 at 0.8, 20k at 3.6 - 3 years remaining on same)
3. tbc
4 13 on main, 3 on secondary
5. presently approx 75k, EOY approx 100K and potential to increase by 50-60K per annum there after

thanks

DrBob72 said:

1. current value approx 750K
2. approx 150K (130 at 0.8, 20k at 3.6 - 3 years remaining on same)
3. tbc
4 13 on main, 3 on secondary
5. presently approx 75k, EOY approx 100K and potential to increase by 50-60K per annum there after

Click to expand...

OK

I am now more confused. Are you saying that you have been overpaying a 0.8% mortgage while you have a 3.6% top up?

If you have been overpaying a 3.6%, that is fine. It's probably still better to get it back when you need it to buy a holiday home.

If you get back €50k of an overpayment, you will have €125k which is enough to start looking for a holiday home of €300k now. You seem to be in no hurry, so start looking. If the perfect place comes up, go for it.

But just to stress - don't take back the overpayment from KBC until you need the money.
I suspect that overpayments on the top-up loan are not reclaimable.

If you decide not to buy for three years, then use your cash to clear the top-up.

Brendan

I have moved the fundamental question as to whether you should or should not buy a holiday home to a separate thread.

Brendan Burgess said:

OK

I am now more confused. Are you saying that you have been overpaying a 0.8% mortgage while you have a 3.6% top up?

If you have been overpaying a 3.6%, that is fine. It's probably still better to get it back when you need it to buy a holiday home.

If you get back €50k of an overpayment, you will have €125k which is enough to start looking for a holiday home of €300k now. You seem to be in no hurry, so start looking. If the perfect place comes up, go for it.

But just to stress - don't take back the overpayment from KBC until you need the money.
I suspect that overpayments on the top-up loan are not reclaimable.

If you decide not to buy for three years, then use your cash to clear the top-up.

Brendan

Click to expand...

I had originally thought that overpayment could be targetted at the main or the top up and had requested that it be against the top up. However as i subsequently learnt, regular (monthly) overpayments go against the main and not the top up. If i wanted it to go against the top up i can

• a) do it as a lump some, not regular payment - (have done this a number of times) or
• b) write to them every month and have the overpayment directed to the top up. a very cumbersome option.

w.r.t to the overpayment fund, intend to leave it in place and amconsidering keep overpaying for the time being. Given zero rate for current / savings accounts that arn't tying up cash for 5 - 10 years, overpaying will reduce interest on capital levels which if we elect not to purchase somewhere which will help finish original mortgage faster.

thanks again, has been most helpful

DrBob72 said:

a) do it as a lump some, not regular payment - (have done this a number of times) or

Click to expand...

Do this with your cash.

Or else withdraw the overpayments and make them against the top-up.

Make sure that when they refund the overpayments that they don't add them to the top-up if they were made against the main tracker in the first place.

Brendan