Invest in lump sum payment on which mortgage or property/shares/gold??

B

BiddyMaggie

Registered User
Messages
11
Age:
46
Spouse’s/Partner's age:
45

Annual gross income from employment or profession:
E70,000
Annual gross income spouse:
E300,0000

Type of employment:
Public and private sector employees

Expenditure pattern:
We are both generally 'savers'

Rough estimate of value of home
E500,000
Value of rental property
€350,000
Mortgage on PPD home
E280,000 5 yr fixed green with aib 2.15%
Overpay by €2.5k per month
6 years term left
Mortgage on rental property
€115k on tracker 4.5%
8 years term left

Other borrowings – car loans/personal loans etc
None

Do you pay off your full credit card balance each month?
Yes

Savings and investments:
E200,000 savings. €100,000 shares
Saving €1500 p/m in Zurich funds for kid’s college expenses. Zurich funds at €20k presently.

Do you have a pension scheme?
Yes Defined Benefit with AVC top ups to offset tax bill from rental
Wife’s pension currently at €750,000

Do you own any investment or other property?
Yes rental 3 bed house

Ages of children:
14 & 12

Life insurance:
Yes.

What specific question do you have or what issues are of concern to you?
Having nearly €200k cash at bank doing nothing only depreciates due to inflation which mortgage is better paying lump sum off. Waiting on AIB to respond if paying €100k off 5 yr fixed is allowed without breakage clause.

So should we make lump sum payment of €100k off PPD €280k @ 2.15% or
Rental property €100k off €115k @ 4.5%

We think we are saving enough to manage kids college expenses so where should we invest the other €100k cash at bank. I would be happy to invest in property a fixer upper for kids or cheap apartment for their college years but am cautious as market supply has property overpriced at the moment.
Should we invest €100k diversifying in shares/gold etc

Alternatively should we borrow on top of the €200k savings and buy another investment property as investment/ kids. Feel we could be crucified by Sinn Fein taxing investors if they get into power.

Both hoping to retire at 57-60 yrs or when youngest finishes college
 
Don't pay off the rental property mortgage - you're getting tax relief on that! (Deduction from rental profit.)

Don't leave €200k in cash deposits - that's costing you €20k pa in loss of purchasing power doe to inflation.

Absolutely maximise allowable pension contributions for both of you - that's a no-brainer.

You should be maximising your investments and building up wealth. Historically, equity investment has been the best way to go. You're looking at a fifteen year plus span so you can take the ups and downs that go with equities if you buy and hold for the long term. You can invest directly or via a low cost ETF that tracks, say, the S&P500. (That's Warren Buffett's advice for the amateur investor, by the way!) I'd avoid funds such as Zurich / Irish Life due to the high costs which really eat into your returns. Overpaying the mortgage is fine, but that's only yielding 2.15% pa. Put it into equities instead

Rental property is fine too, despite noises to the contrary. Yields of 8% plus the chance of capital appreciation are easy enough to come by. Choose wisely and you could get a property which could accommodate college going kids as well as giving them an income through rent-a-room.

Also, with your high incomes and accumulated investments, and the sky high rates of personal tax you're inevitably paying, you can look at making a relatively modest EIIS investment each year. There are some absolute clunkers out there so, perhaps better to stick to a pooled EIIS fund from the likes of Goodbody and BDO. With 40% tax relief, all you need is for it to hold its own and you're doing fine.

Personally, I wouldn't buy gold. It's a possible hedge of value in bad times, but has historically underperformed equities by a considerable margin. Like I say, you can afford to ride out dips in the market.

Finally, you should think of estate planning as you look set to leave your children substantially in excess if the CGT threshold. Might be worth paying for some advice especially around the possibility of CGT tax free transfer of their PPRs.
 
You have 300k in savings and shares
You owe 350 home loan
It would be fantastic if you could clear the home loan
You could then comfortably save for college fees
 
Right Winger said:
Don't pay off the rental property mortgage - you're getting tax relief on that! (Deduction from rental profit.)

Don't leave €200k in cash deposits - that's costing you €20k pa in loss of purchasing power doe to inflation.

Absolutely maximise allowable pension contributions for both of you - that's a no-brainer.

You should be maximising your investments and building up wealth. Historically, equity investment has been the best way to go. You're looking at a fifteen year plus span so you can take the ups and downs that go with equities if you buy and hold for the long term. You can invest directly or via a low cost ETF that tracks, say, the S&P500. (That's Warren Buffett's advice for the amateur investor, by the way!) I'd avoid funds such as Zurich / Irish Life due to the high costs which really eat into your returns. Overpaying the mortgage is fine, but that's only yielding 2.15% pa. Put it into equities instead

Rental property is fine too, despite noises to the contrary. Yields of 8% plus the chance of capital appreciation are easy enough to come by. Choose wisely and you could get a property which could accommodate college going kids as well as giving them an income through rent-a-room.

Also, with your high incomes and accumulated investments, and the sky high rates of personal tax you're inevitably paying, you can look at making a relatively modest EIIS investment each year. There are some absolute clunkers out there so, perhaps better to stick to a pooled EIIS fund from the likes of Goodbody and BDO. With 40% tax relief, all you need is for it to hold its own and you're doing fine.

Personally, I wouldn't buy gold. It's a possible hedge of value in bad times, but has historically underperformed equities by a considerable margin. Like I say, you can afford to ride out dips in the market.

Finally, you should think of estate planning as you look set to leave your children substantially in excess if the CGT threshold. Might be worth paying for some advice especially around the possibility of CGT tax free transfer of their PPRs.
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Thanks for your reply very informative. The tax relief on the rental property is minor on €115k mortgage. Forgot to say the Zurich savings scheme are in the kids names and are declared as €6k each per year as gift exemption. Was thinking I could lump €100k off rental at 4.5% but don’t know if it’s a bigger saving than off PPD. €100k invested would be liable to cgt so realistically you are investing in your mortgage at a rate return of approximately 5% guaranteed. Was close to investing in EIIS scheme but lumping into avc to write off tax bill on rental seemed much more straightforward. Am concerned that will have to be paying 40% tax rate when drawing down pensions. Is there a way of minimizing this. We are jointly assessed. Should we go individually assessed nearer retirement. Retiring at different ages make a difference to tax paid on pension? Think property is overpriced at moment willing to sit and wait a couple of years. If we pay off mortgage rent will replenish the fund in 6/7 years
 
4.5% where it’s tax deductible means an effective cost of around 2.25%.

Your non-deductible home mortgage is at 2.15%.

The fact that there’s €115k left on the rental property, and the above numbers, make it the more attractive target in my view.

I would:

- Ensure that you’re both maximising pension contributions
- Clear the mortage on the rental property
- Sell the shares
- Use the net proceeds plus remaining €85k of savings to pay down the mortgage
- Kill off the mortgage ASAP, which you can probably do over the next year and a half or so
- Then build a diversified portfolio of global equities over time
 
BiddyMaggie said:
Waiting on AIB to respond if paying €100k off 5 yr fixed is allowed without breakage clause.
Click to expand...
A break fee will be calculated, but it will be zero. If you try to shorten the term after paying the lump sum, they will say that requires giving up your rate at refixing at new rates, so so keep term the same and keep overpaying.

BiddyMaggie said:
Should we go individually assessed nearer retirement.
Click to expand...
Why? I can't think of a single scenario where there's a benefit to single assessment.
 
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