Case study Pay mortgage to get cash flow to fund second house that relative lives in rent-free?

Fish

Registered User
Messages
3
Age:
40
Spouse’s/Partner's age:
39

Annual gross income from employment or profession:
€80,000
Annual gross income spouse:
€70,000

Type of employment:
Both in private sector
Expenditure pattern:
Not great savers, not great spenders

Rough estimate of value of home
€350k
Mortgage on home
€280k remaining - we've been paying this mortgage for ~8 years now. Payment of ~€1250 per month.
Mortgage provider:
Danske bank
Type of mortgage: Tracker, interest only, fixed rate
Tracker
Interest rate
ECB + 0.5%

Other borrowings – car loans/personal loans etc
None

Do you pay off your full credit card balance each month?
Yes

Savings and investments:
Savings: €250k...spread across various banks, state savings etc
Stock: €80k (after tax, if cashed in)

Do you have a pension scheme?
Yes, we max out at ~20% per month

Do you own any investment or other property?
Yes….and this is where it gets complicated.
My widowed Father (aged 80) lives in a house that I bought him. He lives there rent-free, and has been for the past 8 years
Mortgage : €240k with Ulster Bank (Tracker of ECB + 0.9%)
Paying interest-only of €240 per month

Ages of children:
Three children < 10 years, all in school

Life insurance:
Yes.

What specific question do you have or what issues are of concern to you?
We were due to come off the interest-only tracker with Ulster bank three years ago (5 years was agreed interest-only period in contract) but they have not yet come looking for me and I haven’t been in touch with them. But we need some resolution to this.

My question: we need to start paying capital off the Ulster Bank mortgage but we can’t easily pay capital + interest on two houses from monthly wages.

There are two options that we are seriously considering, and can’t make up our minds which path to go down:

1) We have enough cash/stock to pay off the mortgage of our primary residence. If I do that, I could then start paying off the capital on my Father’s house each montha and resolve the Ulster Bank issue. Benefit of this is that we get to own our house but it would wipe out a significant amount of our cash buffer, leaving €50k. And I would be doing Danske Bank a nice favour in off-loading such a decent tracker.

2) Just to drip-feed our savings into the Ulster Bank Mortgage. Benefit of this is that we keep our cash buffer in case of any shocks (e.g. redundancy, kids’ schooling, illness). But is the buffer that we have too large?

Even though my Father’s house is on a higher tracker rate, I would prefer to pay off my primary residence first rather than that house. To be blunt, my father's not going to live forever and my plan was always to just sell that house when he passed away as it's not somewhere I would want to live. I always viewed the interest-only path as a low cost (cash-flow efficient) approach of providing for him.

Thank you in advance.
 
Last edited:

Brendan Burgess

Founder
Messages
44,678

We were due to come off the interest-only tracker with Ulster bank three years ago but they have not yet come looking for me and I haven’t been in touch with them. But we need some resolution to this.


Why do you need any resolution to this?

Just continue paying interest only as long as Ulster Bank allows you. When they start asking for capital and interest, then and only then, start paying the capital and interest.

They might not ask you for 3 more years. Then your father may live a further 7 years say.


Not great savers, not great spenders
  • Savings: €250k...spread across various banks, state savings etc
  • Stock: €80k (after tax, if cashed in)
  • we max out pension scheme at ~20% per month
  • You are paying over €1,000 per month in capital off your Danske mortgage


My question: we need to start paying capital off the Ulster Bank mortgage but we can’t easily pay capital + interest on two houses from monthly wages.


You should retain your cash as you might get a deal on your Danske mortgage

Either Danske or UB could bring in a deal for early repayment of trackers. If you pay off UB and Dankse introduce a deal, you will kick yourself, and you will deserve that kicking.

Danske is more likely than Ulster to bring in such a deal as they wish to leave the Irish market. They may sell your mortgage to someone else who might give you that deal.


2) Just to drip-feed our savings into the Ulster Bank Mortgage. Benefit of this is that we keep our cash buffer in case of any shocks (e.g. redundancy, kids’ schooling, illness). But is the buffer that we have too large?

Do not do this until Ulster Bank asks you to do it. Then you will be able to do it.


Savings and investments:
Savings: €250k...spread across various banks, state savings etc
Stock: €80k (after tax, if cashed in)

You are very well off.
You have huge savings.
You have a good pension fund
You have good earnings.

You should not have €250k in cash. You should move this money into a diverse portfolio of shares. You are likely to get a much higher return than you will get on deposit. There is a risk that share prices will fall over the longer term, but you can comfortably handle that risk.

 

Fish

Registered User
Messages
3
Thanks for the response Brendan. I have edited my post to clarify that our contract with Ulster Bank was interest-only for 5 years, and we are now into year 8. They have not contacted us. There are other posts on AAM discussing this issue with UB.
 

Brendan Burgess

Founder
Messages
44,678
Hi Fish

I had understood that so it does not change my advice.

Unless you want to contact Ulster Bank and tell them? I am not sure that you need to do this.

Brendan
 

Bronte

Registered User
Messages
14,165
Even though my Father’s house is on a higher tracker rate, I would prefer to pay off my primary residence first rather than that house.

There is no logic to this, which ever you did decide to pay off should be based on financiall sense. Because either way, you owe, and always will owe for both.

What is the tax situation in relation to your father having rent free accommodation, maybe there is none, but you should make sure of it. There would be of course NPPR, household charge and now the property tax.

In relation to what to do, no way would I contact Ulster bank, if they ever do contract you, then you just pay the monthly capital out of your savings.

You are underestimating yourself, you are very big savers indeed, ie pension, cash, equity, stocks, repayment of capital on home ....
 

Fish

Registered User
Messages
3
This is my logic : yes, I do owe money on both houses but one I can sell i.e. when my Dad passes away, I can sell that house and pay off that debt. I have no plans on selling my primary residence as it's my home for life so that is a debt that I do indeed need to pay off.

I have been in touch with Revenue about this and there is no tax situation with my father living rent-free beside having to pay property charges etc. Indeed, there is a benefit that I'm not liable for any CGT if the house appreciates in value when I sell.

Thanks for your advice. I won't contact Ulster Bank but will invest the money and be ready in case they do come calling. Brendan also makes a very good point about potentially Danske Bank doing deals on trackers so that's something for me to take into account.
 
Top