First World Problems!

[Bakewell]

Personal details

Age: 54
Spouse’s/Partner's age: 54

Number and age of children: 3 (17, 17, 10)

Income and expenditure
Annual gross income from employment or profession: €165K
Annual gross income of spouse: €35K

Monthly take-home pay €9K

Type of employment: Both Private Sector

In general are you:
(a) spending more than you earn YES


Summary of Assets and Liabilities
Family home worth €1.3M with a €850k interest only mortgage for full term, expiry 2035
Cash of €10k
Defined Contribution pension fund Myself: €460k
Defined Contribution pension fund Spouse: €130k
Company shares : €10k
Share investment portfolio worth €120K (loss of 570K)
2 x Buy to Let Property worth €600k with mortgage of €372k


Family home mortgage information
Lender Pepper
Interest rate .5 over ECB
Type of interest rate: Interest Only Tracker ECB +.5%
Remaining term: 11 years
Monthly repayment: €3700

Other borrowings – car loans/personal loans etc

Do you pay off your full credit card balance each month? No
If not, what is the balance on your credit card? €10K

Buy to let properties
Value: €600K
Rental income per year: €33K
Rough annual expenses on rental properties other than mortgage interest : €6K (Accountant, Maintenance Fees and upkeep etc.)
Mortgages repayments €29,376 or €2448.00pm
Lender AIB
Interest rate ECB + 1% Trackers on both, remaining Term of repayment mortgages 15 years

Other savings and investments:

Do you have a pension scheme? Yes, pay in 12% pa of Gross salary (6% employer contribution)
Wife makes a small contribution to her pension.

Do you own any investment or other property? As above

Other information which might be relevant

Life insurance: Employer death in service 4 X Salary in both cases, mortgage protection (cost €165pm)

I'm in steady employment in an in demand role and can safely say that barring ill health I should be able to work until I'm at least 65.

What specific question do you have or what issues are of concern to you?

Currently struggling to make ends meet in the current interest rate environment. Although it seems from the outside that all is good its a balancing act.

I have a very large mortgage, interest only which has been a cross to bear, its starting to affect me psychologically. Wife won't sell PPR although I'd happlily trade down to something more manageable.

With the increased rates I'm making ends meet but dont have much left after all the bills are paid. God forbid when the children begin college we'll be out the door.

Whats even worse is I had the cash on hand to nearly pay it off and lost the majority of it on some ill timed investments.
I had reasonable success in the stock market over the last ten years and took my eye off a ball during a significant illness and saw my portfolio decrease from $700K to $120K.

I now want to clear down as much of this mortgage as possible and I'm considering the following:

Cashing in my pension yeilding €230K ( I cannot avail of the tax free lump sum as I waived this entitlement in an earlier redundancy)
Selling my 2 RIPs yeilding €220K
Sell my shares yeilding €120K

This will give me €570K to pay down the mortgage.

I can then pay off the rest between future savings and an inheritance of circa €400K

I will be left with no pension but I can pay the max 35% for the next 13 years which should get my pension to a half decent level.

This situation is a result of a combination of my stupidity (wedded to a stock or sector + not exiting) the transition between low interest rates and todays risk off, higher rate environment.

When rates were low I had lots of cash and my investment portfolio was doing well.

I'm also conscious we are likely at the end of the interest rate cycle and If I can weather the storm for 6 more months things should improve.

I'm also dealing with the RIPs just about washing their face, both which are in RPZ and are well under market rent, my tenants are on lower incomes and can't tolerate rent increases anyway. I may have an option sell one to the council (with a tenant on HAP) which should make things a little smoother.

 

[Brendan Burgess]

The first thing is absolutely clear - you should sell your shares in their entirety.

At the moment you are borrowing money at 5% while having a concentrated i.e. not diversified holding in shares. So you must sell the shares.

You mention elsewhere that you have a tax liability of €30k so you need to pay this immediately, as it's racking up interest at 8% per annum.

It can be difficult to sell shares for €120k which cost you €700k, but you must do that.

Brendan

 

[Brendan Burgess]

Buy to let properties
Value: €600K
Rental income per year: €33K
Rough annual expenses on rental properties other than mortgage interest : €6K (Accountant, Maintenance Fees and upkeep etc.)
Mortgages repayments €29,376 or €2448.00pm
Lender AIB
Interest rate ECB + 1% Trackers on both, remaining Term of repayment mortgages 15 years

Next, review the investment properties.

Rental income: €33k

Mortgage €372k @ 5.5% = €20k a year in interest.
Fees €6k

Profit before tax: €7k
On equity of €230k

If you paid the €230k off your home loan, your interest would fall by €11k (€230k @ 5%)

On the face of it, you probably should sell the investment properties.

The only thing is that ECB rates are high now and should fall.
So if they fall back to 2%, your investment properties would be very profitable.

However, you have too high borrowings overall. My concern would be that a property price fall would cause you real problems.

So, I think - sell the investment properties.

Brendan

 

[Brendan Burgess]

So where does that leave us?

You have an €850k mortgage which you will reduce by €300k bringing it down to €550k.

The interest at 5% will be about €2k a month, so very easily affordable.

If interest rates fall, it will become even more affordable.

Brendan

 

[Sarenco]

Wife won't sell PPR although I'd happlily trade down to something more manageable.

That would seem to be the obvious answer to your problems.

It’s not without its risks, but you could probably struggle on for a few years until the kids have flown the nest and then downsize.

In your shoes, I would sell your shares in their entirety. Pay your CGT bill, clear your credit card and throw the balance at the mortgage.

I think you should also sell the two rentals - they are barely making a profit. Again, throw the realised equity at your mortgage.

If you are still struggling day-to-day, you could consider reducing your pension contributions to whatever level is necessary to get the employer match.

But I would be very slow to cash in your pension at this stage - you will get hammered by the taxman.

Fair play to you for looking to tackle your issues and not simply burying your head in the sand.

Best of luck.

 

[Brendan Burgess]

So you should not cash in your pension as you don't need to.

It's growing tax-free.

If you get an inheritance before the mortgage is due to be repaid, you can clear the mortgage from that.

Brendan

 

[Brendan Burgess]

Cashing in my pension yeilding €230K ( I cannot avail of the tax free lump sum as I waived this entitlement in an earlier redundancy)

Does this make contributing to a pension now less attractive?

If you are not getting 25% of your fund tax-free on retirement, then your drawdowns from your pension will be taxed at 20% and possibly 40%.

If your employer's contribution of 6% is dependent on you contributing 6%, then you should do so.

But if you can stop contributing while maintaining your employer's 6%, then I think you should do so and put the net proceeds against the mortgage.

Brendan

 

[Brendan Burgess]

Annual gross income from employment or profession: €165K
Annual gross income of spouse: €35K

This income is well above the average.

I wonder if your expenditure likewise is well above the average?

When you had lots of cash and investments, you would have had no reason to rein in your expenditure.

You should review your expenditure now and you will probably find that you can cut it back considerably.

Brendan

 

[Brendan Burgess]

Wife won't sell PPR although I'd happlily trade down to something more manageable.

I agree with your wife on this.

You have a good income.
You have a well funded pension.
Your mortgage is going through a period of high interest rates.
You have a substantial inheritance coming.

I don't see any need to trade down.

Brendan

 

[Sarenco]

Profit before tax: €7k
On equity of €230k

If you paid the €230k off your home loan, your interest would fall by €11k (€230k @ 5%)

Or €3k profit after-tax. You could get a better return on a cash deposit!

It’s actually a good example of how the combination of rent controls and higher interest rates has made BTLs unviable.

 

[Pinoy adventure]

I’d put the cash of 10k off the credit card bill of 10k as the interest rate on the credit card might be higher than the cash on deposit

 

[Steven Barrett]

There is a serious debt problem that needs to be addressed aggressively. Otherwise you are going to carry this into retirement and it will cripple you.

Your wife won't sell the family home but you will never own it anyway while it's on interest only. What does she think is going to happen with it?

I would sell your shares, sell your RIPs, clear tax bill, clear credit card bill and use the rest to pay down capital on your mortgage. Then you need to go onto a capital and interest plan to clear down your mortgage.

There is a good overall income coming into the house but you have overextended yourselves. It needs to be fixed and there will have to be a reduction in consumption too so you can fix this. You don't have that much time to do so either. Downsizing the home in the future may be another source of tax free income that you can avail of but you need to address your debt issues quickly.


Steven
www.bluewaterfp.ie

 

[Brendan Burgess]

Buy to let properties
Value: €600K
Rental income per year: €33K
Rough annual expenses on rental properties other than mortgage interest : €6K (Accountant, Maintenance Fees and upkeep etc.)
Mortgages repayments €29,376 or €2448.00pm
Lender AIB
Interest rate ECB + 1% Trackers on both, remaining Term of repayment mortgages 15 years

Summary of Assets and Liabilities
Family home worth €1.3M with a €850k interest only mortgage for full term, expiry 2035
Cash of €10k
Defined Contribution pension fund Myself: €460k
Defined Contribution pension fund Spouse: €130k
Company shares : €10k
Share investment portfolio worth €120K (loss of 570K)
2 x Buy to Let Property worth €600k with mortgage of €372k

I can then pay off the rest between future savings and an inheritance of circa €400K

The debt is high, but let's not panic.

The mortgage on the family home is €850k
After selling the shares and the investment property, it will be down to €550k
After the inheritance, it will be down to €150k

If you pay nothing else off, you will have a mortgage of €150k on a property worth €1.3m in 12 years.

You will have plenty of options at that stage;
1) Cash from your pension fund
2) A life loan
3) Trade down

You do need to address your expenditure. And after educating your kids, if you have money over, you should pay down your mortgage.

But you do not need to panic yourself into selling your home now or living on bread and water.

Brendan

 

[Clamball]

Your BTL is costing you €2376 per annum
income 33000
Mortgage 29376
Costs 6000

In 15 years you will have assets worth €600K
Plus inheritance €400K

Potentially you will be able to pay the capital off your PPP in 12 years time with both of these alone at a current cost of €2+ K per annum. Of course the risk is potentially big.

So take your €140K assets currently and use them to pay off debt and fund the 17 yr olds through college you should be in a lot better position in 3/4 years.

Your risks on the shares did not pay off but perhaps they will on the property. The level of risk is very much down to you personally, it is not for the faint-hearted.

On the other hand your spouses decision not to sell is causing you damage and does she realise that. You say you had a significant illness - will this or other illnesses impact you in the future? If your wife does not want to sell what is her solution? At €35K pa can she increase her income? Would she take on responsibility for funding the kids college from her income etc?

Selling the house, the BTLs and cashing out all the shares may allow you purchase a house with a repayment mortgage within your means and you would reduce your risk to 0. The last thing I would do is cash out the pension,

 

[Gordon Gekko]

By moving your pension into a PRSA, you can get access to the tax-free lump sum again. That’s another €115k to throw against the home mortgage.

Sell all the shares, sell the investment properties, access your tax-free lump sum, use the proceeds from each of those to pay down your mortgage, and then focus on paying that off.

Factoring a potential inheritance into your own planning is misguided, that’s only a possible and, parking the grief, it should be the cherry on the cake rather than the cake itself.

 

[Brendan Burgess]

Factoring a potential inheritance into your own planning is misguided, that’s only a possible and, parking the grief, it should be the cherry on the cake rather than the cake itself.

With respect, I think that certain assumptions must be made about the future.

Those assumptions may turn out to be wrong and then the plans may change.

But it seems much better to hold onto the pension fund and expect to clear the mortgage from the inheritance.

And if it turns out that no inheritance is received, then the pension fund can be cashed at that stage.

Brendan

 

[RentingD]

Surely no inheritance is guaranteed? Who knows what money will be needed to finance elder care. I personally wouldnt count on it.

 

[Fortune]

Does this make contributing to a pension now less attractive?

If you are not getting 25% of your fund tax-free on retirement, then your drawdowns from your pension will be taxed at 20% and possibly 40%.

If your employer's contribution of 6% is dependent on you contributing 6%, then you should do so.

But if you can stop contributing while maintaining your employer's 6%, then I think you should do so and put the net proceeds against the mortgage.

Brendan

This pension is clearly from an earlier employment, and the waiver on the taxfree lump sum doesn't apply to current employment pension.

 

[Fortune]

I agree with your wife on this.

You have a good income.
You have a well funded pension.
Your mortgage is going through a period of high interest rates.
You have a substantial inheritance coming.

I don't see any need to trade down.

Brendan

An interest only mortgage that's due to be repaid in 12 years; something definitely needs to be done here and maybe that something is to downsize

 

[Ceist Beag]

Monthly take-home pay €9K

I have a very large mortgage, interest only which has been a cross to bear, its starting to affect me psychologically. Wife won't sell PPR although I'd happlily trade down to something more manageable.

With the increased rates I'm making ends meet but dont have much left after all the bills are paid. God forbid when the children begin college we'll be out the door.

Monthly repayment: €3700

Do you pay off your full credit card balance each month? No

Rental income per year: €33K

Mortgages repayments €29,376 or €2448.00pm

These are the starting points for me. You have a nett income of €5300 per month after the mortgage is paid off yet you are saying that you don't have much left after all the bills are paid. What is worse, you are not clearing your credit card each month. The rental income seems to be covering the rental mortgage so that doesn't appear to be an issue (other than the fact it possibly isn't worth the hassle).
The first obvious question for me is, what are you doing with the €5300 each month? You should comfortably be able to manage a family of 5 on that amount as well as setting some aside for a college fund.