Savings and tracker mortgage - what to do next?

[cyopian]

Age: 40
Spouse’s/Partner's age: 40

Annual gross income from employment or profession:
Annual gross income of spouse: Stay at home mother

Monthly take-home pay: 5000

Type of employment: Private employment

In general are you:
(a) spending more than you earn, or
(b) saving?
Saving small amounts per month

Rough estimate of value of home: 500,000
Amount outstanding on your mortgage: 300,000
What interest rate are you paying? 1.15 (I think - ulster bank tracker)

Other borrowings – car loans/personal loans etc None

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: 80,000 in various fixed term accounts for last few years. 40k in current/regular saver/online deposit accounts. 15k prize bonds

Do you have a pension scheme? Yes, work provided (only 5 years, nothing before that). Wife has pension built up with 15+ years contributions.

Do you own any investment or other property? No

Ages of children: 8, 6

Life insurance: Yes, to cover mortgage + a little extra. My work has plenty of additional benefits for me.

What specific question do you have or what issues are of concern to you?
Over the last number of years; interest earned has been at least on par with the tracker rate of the mortgage if not substantially better so we've generally been keeping our savings in 1 yr+ fixed term accounts. As interest rates on all types of accounts have dropped, I'm now considering the best option for what to do with our savings.
The options I see right now are:
1) Pay a lump sum off the mortgage. We're very happy in our current home and have no plans to move, nor do we foresee any need for large amounts of cash anytime soon.
2) Move savings to current highest fixed term - possibly long term (5 year gov or similar)
3) Pile into pension/shares/some other form of long term stock market investment

From what I've read here, it's not a good idea to borrow to invest, is this true when money is borrowed at such a low tracker rate? I also realise that it's wise to invest in stock market for long term - so if I don't invest now, it might be too late to help with any retirement fund. I'm generally risk averse. The thoughts of paying 1/3 off the mortgage appeal to me, but I just can't figure out if that's my best move.

Any advice? Any options I've missed?

 

[Brendan Burgess]

Discussed here:


Should I overpay my tracker mortgage?

It might need to be updated for the very low deposit rate environment.

You definitely should not put your money on a long term fixed rate. Things can change suddenly and you might need the money. For example - UB sells your mortgage to a third party who offers a discount for early repayment.

€300k is a large enough mortgage, but it's at a tracker rate and you have plenty of equity.

If you buy €100k worth of shares, you are effectively borrowing at 1.15% to buy shares. This is likely to be a good investment. If it goes wrong, you can handle the downside.

Brendan

 

[Sarenco]

Hi Cyopian

In my opinion (and this view definitely won't be shared by everybody), somebody in your circumstances should apply your savings in the following order of priority:-

1. Set aside a rainy day fund of ~€25k in an instant access savings account;
2. Maximise your pension contributions (and invest the bulk of your pension in equity funds); and
3. Pay down your mortgage.

I don't think it makes sense for somebody in your circumstances to invest in equities, outside of a pension wrapper, before their mortgage is substantially paid off (even if it's a cheap tracker). Others will argue that this is overly conservative.

Hope that helps.

 

[rob oyle]

If you buy €100k worth of shares, you are effectively borrowing at 1.15% to buy shares. This is likely to be a good investment. If it goes wrong, you can handle the downside.
Brendan

While I'd be a fan of equity investment where possible, I would suggest a risk averse person (as the OP describes himself) shouldn't borrow, even at such a low rate, to invest in shares. Paying down the mortgage is a guaranteed return that outstrips deposit rates, without taking on additional risk.

 

[North Star]

Hi Cyopian,

As you have one income and two young dependants, we would strongly recommend you consider one other issue before you then look at the various options in the 'repay debt or invest' agenda. Your biggest risk is any risk to your income if you were unable to work or an untimely demise for you or your partner before your dependeants are financially independent.
Find out exactly what life cover and income protection is provided by your work. Work out how mich life cover you would reasonably need. The level of cover should decrease over time as your children move towards financial independence. Hopefully your work provides more than enough life and income protection, if it doesnt then we suggest this should your first priority. If the cover is not required at any stage in the future then the cover can be reduced or stopped at that point.

 

[cyopian]

You definitely should not put your money on a long term fixed rate. Things can change suddenly and you might need the money. For example - UB sells your mortgage to a third party who offers a discount for early repayment.

If you buy €100k worth of shares, you are effectively borrowing at 1.15% to buy shares. This is likely to be a good investment. If it goes wrong, you can handle the downside.

Brendan

Thanks Brendan.

So, if I rule out long term fixed and include the slim chance that maybe at some point (Brexit might help this?) that UB or someone who buys their portfolio in Ireland might offer some sort of discount, I'd probably be as well off holding onto cash for the next year or two and see what happens?

Investment in shares could mean I miss out on that option (if share prices dropped I'd have less capitol available for any deal and share purchase should be over long term really?).

 

[aristotle]

Very slim chance of getting a discount. Even during the depths of the financial crises I thought Danske who left Ireland might do something and offer discounts for repaying tracker mortgages early but it never happened and wont happen now I don't think.