Decisions to make - striking balance between - lump sum and switching morg. vs investing

[tedcrilly]

Personal details

Age: 53
Spouse’s/Partner's age:47

Number and age of children:
2, 11 &!13

Income and expenditure
Annual gross income from employment or profession: 110,000

Annual gross income of spouse:0

Monthly take-home pay: 5500
Type of employment: e.g. Civil Servant, self-employed: Private, PAYE

In general are you:
(a) spending more than you earn, or
(b) saving?
Saving overall annually

Summary of Assets and Liabilities
Family home worth €895 k with a €171k mortgage

Cash of
1. € 295 k (inheritance - wife’s)
2. € 30 k other cask savings
3. € 30 k gparents gifted to kids - invested

Defined Contribution pension fund: €450k
Company shares : €0 k

Family home mortgage information
Lender: KBC
Interest rate: 3.05 (svr)
If fixed, what is the term remaining of the fixed rate?


(No need to tell us the monthly repayments or what term is left)

Other borrowings – car loans/personal loans etc
None but car is giving problems so likely need replacing

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


Buy to let properties
Value:0
Rental income per year:0
Rough annual expenses other than mortgage interest :0
Lender
Interest rate
If fixed, what is the term remaining of the fixed rate?

Other savings and investments:

Do you have a pension scheme?

Do you own any investment or other property?

Other information which might be relevant

Life insurance:
Work death in service x10 salary
Joint life policy €65 per month (no medical conversion )

What specific question do you have or what issues are of concern to you?
(Understand in lucky/good position with cash on hand. )

Trying to make decision(s) with cash available - to balance amount for investing, Vs paying lump sum off mortgage.

Also wife has no pension so had mentally been treating inheritance as her pension.

As with KBC leaving market and with morg rates going up, considering to change to AIB 5 year < 50 fixed green @ 2.1

(Expect replace car expense to arise in coming months, considering biting bullet on new electric ??)

 

[noelÓm]

I would just pay off the mortgage. Doing so guarantees that you don't have to pay any more interest on the loan. That's a guaranteed investment return. While your outstanding balance isn't huge, you are still paying a relatively high mortgage rate at 3.05% and this SVR is likely going to increase sharply. A valid alternative would be to roll the dice on an investment that could generate a higher after-costs return on average, but that comes with some risk. Such an investment would ideally be done through a tax-relieved pension structure. If you went with this approach and kept the mortgage, then call up KBC ASAP and fix at a reasonable rate. I think you've probably missed the boat on switching to another lender. But, I would just pay off the mortgage and be done with it.

€325k-€171k = €154k should be more than enough to finance a reasonable car and an emergency cash fund. There may be excess that can be invested in a pension.

You will have an expensive house at retirement, but €450k will probably not buy you a lot of retirement income. Having cleared the mortgage, I would contribute heavily to your pension and make full use of the income tax relief on offer. Others will have a better sense of how much larger this pension pot number needs to be to provide you with a comfortable retirement income.

Your children are going to generate a lot of cost for you right up until and possibly after your retirement. But you are still in good financial shape, with a strong net income and the potential to be mortgage-free right now.

The big risk here seems to me to be your income. If you became seriously ill, lost your job, or your income somehow took a big hit, then you might struggle to make pension contributions over the next few years. It would be worth thinking about how to reduce this risk.

Does your wife have any scope to work? Even if it is not until the youngest child starts school? 10-15 years of additional income would take some of the pressure off you.

If you wanted or needed to, you could downsize to a different house nearer to retirement and free up extra cash for retirement provision.

 

[NoRegretsCoyote]

Annual gross income of spouse:0

What does your wife's PRSI record look like? Time spent in full-time care for under-12 is disregarded for state pension qualifcation but subject to certain limits.

Also wife has no pension so had mentally been treating inheritance as her pension.

Then it shouldn't be sitting in cash being eaten away by inflation!

There are various options to look at here. One is to start a pension fund for her, am not sure what the most tax-efficient way of doing this is though. Another option is that she purchases some an income-producing asset like property so she is paying Class S PRSI if this is needed to qualify for a full state pension down the line.