Want to be mortgage free by 45

Discussion in 'Money makeover' started by mojoask, Oct 15, 2016.

  1. mojoask

    mojoask Registered User

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    11
    Hi all, we're recent returning emigrants, delighted to be home, and thankfully in good financial health. I tend to work long hours though and frequently travel, my wife balances her career and the lion's share of looking after our baby. Any other time we have is spent with friends and family (the reason we came home). Financial planning is coming way down the list of priorities!

    That being said, I have a dream to be mortgage free by the time I'm 45, which I'd equate with financial freedom. This would mean doubling the current mortgage payment I would estimate, but it might be doable.

    However (there's always a "however") another baby is likely on the cards in the next year, which means either extending our current house, or finding bigger one to fit us all in (needing anywhere from 50 to 150k I would guess).

    In short, my dream is in jeopardy!

    Age: 34
    Spouse’s/Partner's age: 34

    Annual gross income from employment or profession: 107k (+ 12k bonus which goes as an AVC)
    Annual gross income of spouse: 42k

    Monthly take-home pay: 7.6k

    Type of employment: PAYE / Private sector

    In general are you:
    (a) spending more than you earn, or
    (b) saving? = Yes

    Rough estimate of value of home: 425k
    Amount outstanding on your mortgage: 275k
    What interest rate are you paying? 3.3% / 28 years remaining

    Other borrowings – car loans/personal loans etc: None
    Monthly expenses: 4.6k
    Mortgage: 1.3k
    Childcare: 1k
    Family living expenses: 2.3k

    Saving: 3k

    Do you pay off your full credit card balance each month? Yes
    Savings and investments: 75k (30k of which is in cash)
    Do you have a pension scheme? Yes
    Do you own any investment or other property? No
    Ages of children: 1
    Life insurance: Yes
     
  2. Brendan Burgess

    Brendan Burgess Founder

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    30,514
    You currently have net borrowings of €200k on a house worth €425k. So you have €225k of assets as well as your pension assets. You are in your 30s.

    €200k over 28 years at 3.3% would drop to €142k after 11 years. That would be a very comfortable mortgage.

    You should not be making sacrifices now to achieve financial freedom at 45. You are well off. You have good earnings and a comfortable mortgage.

    If you want to trade up, then trade up. You can afford to do so.
    If you want to have another child, go right ahead.

    Your financial objective should be comfort which you have already.
    Now focus on your life objectives.

    With your level of income, I don't think you need to have €75k in savings and investments. Pay it off your mortgage. By doing so, you get a tax free and risk free return of 3.3% which is a lot better than you are getting on your cash and whatever other investment you have.

    Brendan
     
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  3. mojoask

    mojoask Registered User

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    11
    Appreciate the feedback Brendan. While you're right about the return, and cashing in the investments to repay the mortgage is tempting in that regard, putting the entire nest egg into an illiquid asset isn't entirely appealing either. Having thought about it, the highest priority is really to have enough space at home for a second bambino and directing our savings to achieve that goal is probably the best way of using any additional cash funds over the next year.
     
  4. Brendan Burgess

    Brendan Burgess Founder

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    30,514
    OK, Good point.
    If you are planning to extend your current home, rather than move it might make sense to hold onto it in some form of liquid investment.

    But you could also check with your lender. They will probably extend your mortgage quite happily at that stage. 75k@3% is €2,000 a year, less whatever you are earning on it where you have it invested.

    Brendan
     
  5. gnf_ireland

    gnf_ireland Frequent Poster

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    604
    @mojoask I can relate to a lot of what you said above. 10 years ago I was also a returning ex-pat (although I did not buy until 2011), and also dream of being mortgage free by 45 !!! That said, I now have 2 kids not yet in school, and I can assure you they are an expensive hobby - both money and time wise!

    If you are seriously planning a second child, you will end up with 2 under 2, or at least close to it. Depending on when the first was born, that could mean 3 odd years of double childcare costs - easily equal to a second mortgage. Depending on your level of family support, your childcare commitments will continue for a good number of years to come until they end primary school, although should reduce from the peak.

    And that is before you think of extending the house/relocating or whatever.

    I assume you are happy with the location you live, and the schools etc in the area. Have you thought about the plan for secondary schools and where (private or not), and we wont mention 3rd level at this stage :)

    I assume you have also factored in the impact of any extended maternity break either of you would like to take post second child arriving. From what you said above, it may be your last opportunity and you would not want to regret it in the future. Although everyone has their own opinions on this one.

    I think you need to make a decision on the plan for the second child, and also what it would mean for the housing situation (extending or moving or deferring until they are older). Once you have done that, you should do up a 3 year financial plan as to what you see happening in this window and the major expenses which are likely to come along. That will tell you how much you have to play with in the period [I wont call it fiscal space :) ]

    Personally I think 75k savings is plenty for you, assume you have not committed it to the house project. Anything above that I would pay down the mortgage in the short term and get that little bit closer to your dream. But dont get too hung up on it in the short term - as @Brendan Burgess said life objectives should take front and centre for a few years
     
  6. thedaddyman

    thedaddyman Frequent Poster

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    621
    you're in a good position but a couple of things in general to consider
    • ensure you have a will made, I know it's morbid but it's good to plan for the worst
    • Review your tax credits, are you using them in the best way and have you claimed for everything you can. If not, you may be able to claim past years
    • Look at opening some sort of long term saving for the kid(s). €100 a month into a fund will add up by the time junior is ready for college
    • You need to factor in maternity leave and also if your wife wants to take a career break or longer leave.
    • 2.3k a month on "living" strikes me as high for 3, even allowing for a toddler which I know are expensive. You should do a full review of just what you are spending the money on and see can you make savings. it doesn't have to be crazy but for example we feed 4 easily for around €400 a month without going near a German supermarket.
     
  7. gnf_ireland

    gnf_ireland Frequent Poster

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    604
    Solid advice from @thedaddyman above, although I will 'challenge' two points below

    The other thing I would add in is everyone should be reviewing their utiliity spend annually, and switching to a cheaper provider. It takes about 10 minutes on bonkers.ie and can save a couple of hundred quid a year.

    This is reasonable on a number of levels. However, the best college saving plans would be to clear the mortgage down before then, meaning more disposable income for everyone. Its personal choice after that - but you would need ~5% interest before tax, to match the saving on the mortgage. That said, a balance between both may be the best answer for some. Have you any intention of sending your children to private secondary school or boarding school - if so you will need access to that fund earlier.

    As per another thread, the 'living' cost depends on the family and the personal circumstances they have. It also depends on what is included in living expenses and whether it is month on month expenses such as food, utilities, car etc or also includes annuals such as holidays, property tax, insurances etc or capital expenses such as home improvements. The latter two can skew the number considerably.
    I would agree though that you should know what you are spending your money on, and if you make the decision to continue to spend it in the same manner thats absolutely fine - at least it is an informed decision. I know lots who are shocked at the results when they do a spending review over a period of a few months. There are a number of apps out there to help with this, or a spreadsheet will do the trick. Contactless is also an easy way to do this over a short period of time.
    Removing a weekly takeaway from the menu for a year could be swapped for a dinner in every Michelin star restaurant in Dublin (for example)- I know which I would remember more ! Its not always about reducing your spend, more what you spend the money on.
     
  8. mojoask

    mojoask Registered User

    Posts:
    11
    Thanks for the advice, I've been away and have just realised you've all responded!
    Some good points above, a few comments on them:
    • The 2.3k is a holistic figure, and includes all sorts of incidentals. That being said it's an estimate though so fully agree that more work is needed to confirm this amount and confirm we're happy to continue to spend it
    • If we have #2, family could support, but we don't want to have to rely on them, so the Mrs salary will effectively all go on childcare for a few years. She loves her job however and wants to go back to it, so the plan isn't to take an extended career break
    • Savings for the kids is something I'd considered, but overpaying the mortgage is always going to be more tempting while savings rates remain on the floor, something for the future when rates rise.
    • The big conundrum is whether to move or extend. We like our house, and the area we live in. There are schools and good public transport nearby. The only rub is that while extending will definitely be cheaper, from what I understand I doubt the house would immediately be worth 50k more as a result.
    I like the idea of a financial plan, and will make this a prerequisite for deciding what we do about the house.
     
  9. mojoask

    mojoask Registered User

    Posts:
    11
    Quick update on proceedings. I've reflected on the advice and have been considering a few options vis-a-vis our accommodation needs.

    1) Extend current house (€ 60-65k, could probably be paid for in cash if we wait till 2019)
    2) Move house, sell current one (additional € 175-200k on mortgage or less if savings & investments are liquidated)

    And a shot in the dark...
    3) Move house and keep/rent out current house (additional € 450-500k mortgage, how far I'm getting from my original post...)

    The last option would involve liquidating most of the savings & investments and wouldn't turn a profit for 2-3 years from what I've estimated. In its favour, 1) we know the property is sound, 2) it has strong rental potential (near reliable public transport, good energy efficiency, identical house rents for 2,300 p/m near by) 3) it can always be sold should our circumstances change or we could always return to it 4) we're relatively young, our additional mortgage (over 31 years) will be less than 1/3 of our net income.

    Am I crazy to even consider doing something like this?
     
  10. PGF2016

    PGF2016 Frequent Poster

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    142
    What difference does it make if the house is immediately worth 50k more or not? This shouldn't come in to it unless you're trying to sell the house.


    Personally, being the conservative type, I'd go for the extension. Sounds like the house and location will match your needs. What is the benefit of moving? Will the house you move to be worth ~175k to 200k extra in terms of quality of life?
     
  11. gnf_ireland

    gnf_ireland Frequent Poster

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    604
    Personally I would not consider being a landlord at the moment in Ireland. The government are swapping and changing rules every 1-2 years and there is no clear direction for the sector. All the odds are stacked in the tenants favour (in my view). I can see landlords leaving the market over the next 12-18 months as the new rules take effect

    if you want to seriously consider this, you have to really crunch the numbers and decide is it something you want the hassle of, especially with 2 small kids (assuming you go for the second)? Also is it wise to have that level of debt hanging over you at 3.3% - bearing in mind you would not be able to remortgage as it would be considered BTL. I would post the numbers into the property thread if you are serious about that as an option - the experts in the area hang out there :)
     
  12. Blackrock1

    Blackrock1 Frequent Poster

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    114
    Just on the extension, how sure are you that you can get what you want done for 65k?

    when we were looking at houses i had a figure in mind for modest works to some fixer uppers and when i got someone to look at it properly it was more than double what i was estimating.

    get someone in to give you an idea just to make sure the figures are reasonable as there may be other things you want to do at the same time if you have building working going on
     
  13. mojoask

    mojoask Registered User

    Posts:
    11
    That's a good point, I've already had a couple of architects take a look to give me their view, they gave me ballpark figures of 60-65k. I can potentially avail of the home renovation scheme grant which would knock a few grand off it.
     
  14. mojoask

    mojoask Registered User

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    11
    It's hard thing to tell when you've never been a landlord before, but you're absolutely right, it's not something to take lightly. The question of how much of my time will it take I suspect depends on many factors. Another important issue is that I would be tying up all my capital in an illiquid asset.

    What's the alternative? Investing what I would be spending on the new house's mortgage to build up my existing investment portfolio is the only other viable option I can see, certainly it would be more liquid, but no investment is risk-free.
     
  15. gnf_ireland

    gnf_ireland Frequent Poster

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    There is two factors here you need to consider, and you should look at a thread I have in the Other Financial Questions on some of the contributions.

    I think there are two factors here.
    1. You are actually borrowing to invest in this case. In either case you have a mortgage around 3.3%, and any money you are accumulating outside the 'emergency fund' has an associated opportunity cost. The best return you can get, without question, for 0 risk is to pay it off your mortgage. This gives you a 3.3% tax free (i.e. no DIRT or CGT) gain, which is zero risk. The only downside is you would not have access to the funds. There is a solid agreement by most on here that you should not be carrying excessive cash reserves while having costly debt, but again that is covered in that other thread.

    2. If you had no borrowing and you had money to invest, where would you do so. That is one I cannot answer, but if you were interested in property I would definitely consider a REIT.

    By the way, out of my discussion on the other thread I mention, I am actually liquidating a current investment I have and using it to pay down against the mortgage - so I am going the opposite way to what you are considering.