Pay off mortgage with savings good idea?

A

Alanmcgrath40

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My partner and myself currently have a small mortgage of 46k with 13years left. The mortgage is BTL as we bought the property while we were abroad and this was the only mortgage available to us. It's is with PTSB and has a variable interest rate of 4.8%.

Because the interest rate is so high I was hoping to switch my mortgage to another lender, but it seems the banks won't go near me as I am only back to the Irish workforce 4 months and currently on a fixed term contract, my partner isn't working as we just had our 2nd child. A couple of banks told us come back in 6-12 months when my work history is a better.

We have savings of 69k but we plan on using some of this to build an extension on the house in a couple of years. My question is would there be any benefit in paying off the mortgage now and take out a new mortgage on the house to build the extension in two years as the interest on our savings is terrible and we would be saving all the extra money that originally would have been going on the mortgage in those two years.

I suppose what I'm wondering is can you take out a small mortgage on a house you own outright and if so would the interest rates be the same as standard variable mortgage.
 
In a couple of years, all going well career-wise, you will have built up a history that the banks will be a lot more comfortable with. Holding onto savings that aren't producing a return while paying a mortgage at a high rate makes little sense.
 
This is a tough one.

In pure financial terms, yes, you should pay off the mortgage immediately. You will be getting the equivalent of 4.8% guaranteed tax-free return on your savings. So you will save €2,200 a year in interest.

Your repayments are about €5,000 a year, so you won't have to make them.

The problem is that you may well find it difficult to borrow to fund the extension in a few years. I don't think any banks are giving out loans on mortgage-free houses now. They should be.

It might be easier to get a top-up if you have an existing mortgage.

I suggest that you pay off €40,000 and leave the term the same. So in a couple of years you will still owe most of the €6,000. It just might be easier to get the finance from ptsb. €6,000@5% is €300 a year in interest. Well worth paying if it increases your chance of getting a loan.

Brendan
 
That's what I'm thinking, but is it possible to take out new a small mortgage on our house once it's paid off to build an extension our would we have to get a home loan? I had quick look into it and all I can find is an equity release mortgage but from reading about it they seem aimed more at people in in their later years and I'm not sure what the interest rates are. I just don't want to go down the road of having to get a home loan and end up paying interest rates of 9%.
 
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The trouble is you can't predict the future, it could be possible to take out a small mortgage on your mortgage free house or it might not. The banks used to do this years ago no problem then after the whole mess they stopped doing it, they could start again any day or they might not.

In theory it would the same as taking out a normal mortgage and should be at normal home loan rates, most banks though would have a minimum mortgage amount, probably anything less than 50k would not be a runner, as well as that you will have to factor in legal fees for setting up the mortgage similar to any new mortgage.

Hedge your bets and make sure you have an account with a credit union that advances secured loans, the bigger ones in effect do mortgages but call them secured loans, they take your property as security so you get a better rate than the usual (not as good as a bank mortgage though) and terms are usually shorter 10 to 15 yrs max.
 
As above, nobody knows what the banks will be doing in 2 years.
As far as I am aware, Pepper will provide you a loan secured against your home currently, at their Mortgage rates.
Others might follow over the coming years.
 
Some good points, but I think I'd be inclined to go down the route Brendan mentioned and pay off a chunk of the mortgage at least that will get rid of the bulk of the interest and it should be easier to just top up my mortgage if I need when planning to build the extension.
 
Ok I misread your original post, I thought the BTL and the house you hope to extend were different houses. Definitely would be easier to get a top up if there is an existing mortgage on the house so yes paying off a chunk could be the right way to go.

Be even better if you could pay off that chunk and just leave it as a credit on the account that could be drawn down again at some future stage, worth asking the bank anyway. It would still save you interest but just wouldn't reduce the payments, again something that was common back in the good old days but may have been stopped entirely by the banks at this stage.
 
Yeah sorry I should have mentioned that we moved into the BTL property once we returned from Australia. I already tried to leave money in the account as credit, but they wouldn't leave me draw it down once it was in there.

If the interest rate wasn't so high I wouldn't be to pushed but 4.8% is crazy considering AIB are offering 2.75% and KBC are offering 3.00% and both are willing to pay cash back towards the legal fees. I'm amazed more people don't shop around.

Era I suppose I'm still in a pretty good position regardless of what route I go.
 
Well they always say people are more likely to divorce than move banks! Customer inertia, works very well for the banks, amazing how many people still operate with the bank that gave them a free one pound account when they were in secondary school!
 
I too advice paying off most of the mortgage. Far easier to get a loan for more if you already have a mortgage. Have you tried switching bank, on another thread they said Ulster is offering a 4 year fix for 2.6% with legal fees included of 1.5K.
 
While using the savings to pay off a chunk of the mortgage seems like the best suggestion to save interest it depends on how much you were planning on borrowing for your extension.

Most banks have a minimum borrowing amount to avail of mortgage lending. In Ulster Bank for example it is €40000, so if you reduced your current mortgage to €6000 per Brendan's suggestion, and then in a years time wished to switch banks ,but only wanted to borrow an additional €30000 for home improvements, you would be below the borrowing threshold for mortgage rates.

Other banks may have lower limits, but something to bear in mind.
 
hfp if that were the case they could borrow 40K. And then lob in 10 K off the mortgage once they had it drawn down. There is more than one way to skin a cat.
 
I am currently trying to switch my mortgage from TSB, at the moment KBC seem to be the only bank willing to entertain me. AIB & BOI told me contact them in another 6 months as I am currently on a fixed term contract which only has another 3 months on it. I checked out TSB's top up interest rate and they are 4.5% which is not much better than the 4.8% i'm currently paying. KBC have a variable of 3.2% or 3% if you open a current account and their minimum top up mortgage is 20K with the same interest rates. So ideally i would switch my mortgage to KBC pay off around 30-35k of the mortgage and then in 2 years get apply for a top up. That's the plan anyway;););).
 
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