Thursday 22 August 2019

Your Questions: Our son is off to college and we can't get a grant. Can we borrow?


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Charlie Weston

Charlie Weston

Q: We live in Sligo and our son deferred his place from last year and is going to college in Galway in September. It is working out pricey, but we know it is an investment in  his future.

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We thought he would be eligible for a grant, but it turns out we are not and we are a little unsure as to how we will afford it. He is going to take out a student loan. Are there any similar credit lines available for parents of students?

A: There are credit lines for parents, according to the chief executive of the Credit Union Development Association Kevin Johnson. Credit unions offer special rates on loans for parents to help fund their child's third-level education.

Depending on the credit union, rates can be anywhere from 6pc to 8pc APR (annual percentage rate), Mr Johnson says. This is less than a typical personal loan rate of 10pc.

These types of loans also afford you greater flexibility around terms, so you only draw down money as you need it each year.

The basics you need to apply are a copy of your son's college acceptance letter, a payslip from your current employer, three months of recent bank statements, a form of identification, and two proof-of-address documents.

You may already be aware of this, but you might also be able to claim some Revenue relief for what you pay in tuition fees, which could help ease the financial burden.

Essentially, if your son's tuition fees for his full-time college course are in excess of €3,000, and you pay these in full, then you can claim tax relief of 20pc of the amount over €3,000 (subject to an annual cap of €7,000).

Q: I am pregnant with my first child which is due in mid-August. However, our health insurance is due for renewal on September 1 and I have been advised that the free cover for newborn children is only up to the renewal date. Is this correct?

A: Yes, this is correct. All health insurers offer free cover for newborn children from their date of birth up to the renewal date of the policy.

As your baby is due approximately two weeks prior to the renewal of the policy, it is likely that you will only get this short period free of charge. From the renewal date, the normal premium for a child under 18 will apply, based on whatever cover you have in place at present. One point to note is that insurers often have discounted offers in place for children under 18, which may reduce your cost somewhat, so it's worthwhile shopping around at renewal to see if this is the case.

Q: We bought our family home five years ago. We have 30 years left on a €600,000 mortgage. Our house has really grown in value in the past few years. A neighbour's went for €800,000 recently. We are currently paying a rate of 4.5pc, which seems to be quite a lot. Our monthly repayment is €3,040, which we can afford, but I still think we could be getting a better deal. If we can, what would you think of keeping our mortgage payments at the same level, but reducing the term of the mortgage? We both make about €75,000 per year, gross. We are paying the higher tax rate on about €80,000 of this income.

A: That rate is far too high for someone with a loan-to-value of 75pc, which is what yours is, based on the figures you have provided.

In this market, no mortgage holder should really be paying more than 3pc interest, according to the head of credit at Joey Sheahan.

Banks are offering rates as low as 2.3pc, often with cashback offers thrown in.

Some of the best rates out there include four-year fixed at 2.6pc; five-year fixed at 2.85pc; seven-year fixed at 3.29pc; and 10-year fixed at 3.3pc.

The idea of keeping monthly repayments the same, but on a lower interest rate, is a very savvy one, Mr Sheahan says.

If you can afford it, then it makes financial sense, he says. It could cut your working life by years.

For example, your mortgage repayments are currently €36,480 annually, which means you and your partner need to earn over €70,000 annual gross income just to pay the mortgage.

If you switch to another lender, at a variable rate of 2.95pc, which it looks like you could, and keep your payments at the level you are currently paying, then you will have reduced the term of your mortgage from 30 years to 23 years, and your payment would be just €2,997 monthly.

That is seven years where your salary will not be needed to go towards a mortgage.

Credit unions offer special interest rates on loans for parents to help fund their child's third-level education.

All health insurers offer free cover for newborn children from their date of birth up to the renewal date of the policy.

Irish Independent

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