Mortgage Reduction Plan

eyesgreen_1

Registered User
Messages
95
Hi everyone, interested in your input to see if this idea makes sense.

I’m on a low income (Unable to apply for mortgage) and want to create more cash flow, reduce debt and become mortgage free as quickly as possible.

Current home:
Bank of Ireland mortgage Balance: €52,950
Term: 11.7 years remaining
Interest rate: 2.9%
Monthly Repayment: €449.35
House valuation: €147,500

Financial Plan

Sell Current house and move to cheaper property.

Leftover Amount after House sale and legal fee: €88,500

New house price (Including stamp duty): €119,180

Apply for credit union loan for shortfall for cheaper house €30,680
Interest rate: 7.5%
Monthly repayment: €356
Term: 10 years

I intend to pay another €5000 lump sum off this amount when I receive it from a recent Work contract. This will reduce my monthly payment to €296

With this scenario the Credit union loan with interest would sit at around €25,000 (€35,600 with interest). My intention would be to pay it down as quickly as possible so as to avoid paying 7.5% interest rate as much as possible.

The advantage of credit union loan is I can pay off as much as I want and this can keep reducing monthly repayment over time so creating more cash flow.

So overall with this proposal I would estimate to:

(A)
Reduce my overall debt from €52,950 to around €35,000 or less

(B) Reduce my monthly payments to €296 or less

(C) Reduce my loan term from 11.7 years to 10 years or less

I know I’m moving from a loan at 2.9% to a loan of 7.5%, but it would still seem to reduce my overall debt situation.

Does this make decent enough financial sense or am I missing anything here?

Kind thanks
 
Sorry, I don't understand how you would qualify for a 30k credit union loan, but not a minimum mortgage amount (40 or 50k)?
Have you checked with your credit union?

You can repay your mortgage as early as you want too, so I don't see the advantage of using credit union?
 
Thanks for your reply Red Onion,

I have a BTL debt on my credit report which Is set to be removed in Dec 2021 and although
I haven’t applied for credit union loan, I have made a general enquiry at my local credit union Informing them of my debt situation and they said it really would come down to my ability to pay back the loan.

So it would have been my expectation that my local Credit Union may have more scope to offer me finance than the banks, and that was my only reason for considering a credit union loan, A mortgage would certainly make more sense but certainly at present my income and credit report wouldn’t support an application.

I just thought a local credit union may have a more flexible approach But you may be quite right and I could be turned down flat by the credit union also until my credit report is clear.
 
Also I’ve been deliberately saving intently every week for the past year with my local credit Union so as to re-establish a good financial history. If my financial situation improved over the next few years I could replace the Credit Loan with a small mortgage. My view was a credit Union loan is presently the only possibility of moving from my present situation.
 
If I was able to obtain the above credit union loan, I’m interested to know if these figures stack up in the interim Until my credit situation improves? Thanks for any opinions.
 
have you asked BOI about downsizing using your current mortgage?

Other alternative would be to rent out your house and use the proceeds to rent a smaller place yourself, but you'd have to inform the bank and your interest rate would increase.
 
Thanks for your reply Shweeney,

To my knowledge, I would have thought the Bank would treat any Re-mortgage or mortgage reduction on another property as a new mortgage application so usual Strict lending criteria would apply, but I could look into that idea further.

I was doing rent a room (Two rooms) up until Covid, but the tenants work and college situation changed so they both returned home. I think I would have to return to renting two rooms again if the above plan won’t suffice. At present I am on the lower covid social welfare payment (Due to my work ceasing) so this is why the credit union seemed my only option as I’m sure even my own bank wouldn’t entertain me. The credit union do seem to be more lenient if you can show the ability to pay back the loan.

In this regard I can show 5 years of fully up to date mortgage payments and 2 years of regular (as clockwork) Weekly credit union savings and no other loans of any kind. I also have around €8000 of savings.

Pre- Covid I was doing fine building up my credit situation and planning Some debt reduction but it would seem that Covid is the straw that may have for now broken the proverbial (and already fractured) Camel’s back.
 
It makes very little sense to downsize from a house worth €147k to a house costing €119k.

There are legal and other costs in moving.

There is a lot of risk involved e.g. You sell your own house and then prices rise before you buy the other one.

You have a €53k mortgage @2.9% . The annual interest on this is €1,500 .

So you should try to hold onto this house.

Talk to Bank of Ireland. With such a low Loan to Value, they might be happy to extend the term of the mortgage.

If they extend the period to 20 years, the repayment falls from €450 to €290.

It doesn't make sense to be paying €5,000 off your mortgage which is the equivalent of a year's repayments and then switching to a lender who charges double the interest rate.

Use the €5,000 to fund the BoI repayments over the next year.

Or talk to BoI and offer to pay €5k off the loan and ask them to reschedule to 20 years.

If they refuse, just use the €5k to fund the repayments over the next two or three years.

Brendan
 
Brendan thanks so much for your reply,

You advice does make sense and thanks for laying it out so clearly. I think possibly stretching out the mortgage a few extra years maybe worth thinking about, or just doing the rent a room scheme for a period again.

My kids are grown up now so I have an empty nest and It’s been on my mind for some time to try and free up some money from my asset by downsizing and also reducing my monthly outgoings so as to have some more disposable income so I could maybe travel more and do other things. So that’s my reason for this line of thinking.

Unfortunately the last recession put a big dent in my financial situation, and after a PIA a number of years ago I’ve been busy trying to get ahead again. Having been self employed, I could earn a lot or sometimes a little so I’m just trying to financially work how I can free up my financial situation so I’m not just living to pay the mortgage and bills (I can hear everyone on AAM say join the club! ).

Food for thought and thanks again for your advice, it’s much appreciated.
 
No,
My home mortgage was not part of any write down in the PIA. Main write-down was a BTL property. I contacted my pip recently and he has assured me that due to my own home not being involved in any write down there is no clawback clause and I am free to sell it if I wish. My home mortgage repayments at the time we’re fully up to date.
 
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