Sort out loans and save for deposit

R

RayChandler

Guest
Age: 29
Spouse’s/Partner's age: 29

Annual gross income from employment or profession: 49K + 6K bonus/stock (this is quite reliable, even now)
Annual gross income of spouse: 0K, she is giving up work

Type of employment: e.g. Civil Servant, self-employed . Private Sector

In general are you:
(a) spending more than you earn, or
(b) saving? I would say we are neutral right now, want to save more

Rough estimate of value of home: N/A (Renters)
Amount outstanding on your mortgage: N/A
What interest rate are you paying? N/A

Other borrowings – car loans/personal loans etc
26K Euro in loans ( but denominated in dollars ), 16 year term, ~7.5% interest rate

Do you pay off your full credit card balance each month? Yes
If not, what is the balance on your credit card?

Savings and investments:
10K total:
6.5K in stock tax shelter, cannot access for 3 years without paying 42% tax
2.3K cash
1.2K in stock

Do you have a pension scheme? Yes, Hybrid DB and DC. Partner has none

Do you own any investment or other property? No

Ages of children: One due later in year
Life insurance: None


Main monthly outgoings:
Rent: 750
Car insurance: 75
Loan repayments: ~260 (depends on USD/EUR exchange rate)
Charity; 100
ESB/GAS:100
Broadband/Mobiles: 100


We are moving from a double income to a single income in advance of the birth of our first child in the autumn. I would like advice on what I should do regarding the US loans mentioned above (We are both originally from the states0. Eventually we would like to buy a house here for somewhere in the 200K range. Do the loans affect our borrowing ability over here? How big a risk is the exchange rate?

We might be getting 20K from a relation to help with a house deposit when we decide to buy, but this is not certain, so we really need to start saving more for a deposit if we are to buy. I think we could maybe save about 300/month when the single income kicks in, but at that rate, we would be a very long time saving the 20K needed for a 10% deposit.

Any advice?
 
Hmm - always risky earning in one currency and paying in another. Much harder to plan. You probably have a closer idea of how much the exchange rate varies over time. What have you noticed? From the ECB website I found this graph http://www.ecb.eu/stats/exchange/eurofxref/html/eurofxref-graph-usd.en.html
Quite a degree of variability. Have you considered if it would be possible to take a loan here and repay the loan in the US with it? Though that might not be easy I think you should investigate it. Judging by that graph in March you owed about €3k more!

In general repaying loans looks good on your credit record, your trouble would be that the ICB in Ireland would have no record of the loan and it would just appear as a variable outgoing on your bank statements - you would need to explain what the outgoing is for. A loan in Ireland would give you a credit history as well as stability.
 
Hi Socrates,
Thanks for the reply.
There has been very large volatility in the USD/EUR exchange over the past year, going from 1.20 to 1.60.

My nightmare scenario is US comes out of this recession quicker than Europe, jacks up the interest rates and the exchange rate follows, and then suddenly we are repaying 50K euros at a higher interest rate.

The main problem I see with tranferring the loans over here is most personal loans advertised seem to be for 5 years max, and 26K unsecured is probably a lot to ask for in this environment? A 5-year term would probably triple our repayments, which would not be feasible on one income.

Raymond
 
I'd agree that is the risk that would worry me too if I was in your position. Last time rates were near parity was around 2000 but that would be nightmarish for you if it went back there (or worse). It is quite a sizeable loan. Is it possible to overpay on your US loan? If you were to overpay it would clear quicker, given that your repayment this month has to be lower than your March repayment, keeping it at the March level would be a stable repayment in Euro but an overpayment in dollars. In other words could you play the market to your advantage?
 
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