# Couple in late 30's with 2 kids



## DJC-2018 (9 Jul 2019)

Age: 37
Spouse’s/Partner's age: 38

Annual gross income from employment or profession: 56,000 Private Sector
Annual gross income of spouse: 55,000 Public Sector, at upper limit of pay scale

Monthly take-home pay – 6,500

Type of employment: e.g. Me – private sector and Wife – Public Sector. I would have potential to earn 10 – 15% more by moving companies but would have to give up working from home 2 days per week and would lose flexibility in general, something that I value with kids being so young.

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

Rough estimate of value of home: 650,000
Amount outstanding on your mortgage: 500,000
What interest rate are you paying? Recently fixed for 5 years at 2.65% - paying 2,055 pm

Other borrowings – car loans/personal loans etc. Credit Union Loan of 56,000 repaying 740pm for 10 years also 32,000 loan from family and repaying 500 pm. We both own our cars outright, I drive a 2008 while my wife drives a 171. No intentions to change in the short term, my car in 11 years old, it cost me 4k 2 years ago, so appreciate it won’t run forever.

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

Savings and investments: Savings of 4,000. Saving 1000 pm.

Do you have a pension scheme? Yes 78k pension pot, employer contributes 7.5%, I was contributing 3%, recently upped to 6%.

Do you own any investment or other property? No

Ages of children: 2 kids, 2 Year old and new born. We will have crèche fee’s of 300 pm from Sept, family help out with kids outside of crèche.

Life insurance: Through work, death in service benefit


We bought our home for 401k in 2014 with a mortgage of 350k. We got a top-up mortgage and credit union loan in order to extend and fully renovate the property – works completed at the end of 2018. This is our forever home and meets all our needs now and into the future.

My wife will be on unpaid leave for 4 months (Jan to Apr 2020) – so focusing on building up savings between now and then, we would also be able to pause repayments on the family loan during this period.

We probably over extended ourselves financially in order to get the work done on the house but we are agreed it was worth it.

My aim in the short term is to build up our savings, in order to get through the period of unpaid leave next year. I would then like to build up a lump sum for a rainy day around 10k, for anything unexpected – new car etc.

I would then plan to make additional repayments on the credit union loan and reduce the interest we are paying and shorten the term.

In terms of longer term aims, the credit union loan should be cleared by the time the eldest child gets to secondary school, we would then focus on saving/paying for education, pay down mortgage and make additional contributions to pension.


In terms of advice, I just want to get an opinion on our plan in the short term, anything we are overlooking etc. ? I have increased my pension contribution to 6%, I would like to increase it further but not until we get through the period of unpaid leave next year. Another question is should I maximise my pension contributions or pay down the credit union loan sooner ?


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## Andrew365 (9 Jul 2019)

Your Debt / Net income is 51% on a monthly basis (Net Income / sum of debt) which is on the high side. Including savings it goes to 66% which in my opinion is a warning sign of potential risk if a large unexpected risk comes along on a given month.  This also leaves you with a net monthly income for 2200 prior to insurance, bills etc have you been sustaining this monthly expenditure for a while or is it a new budget? 

My view is that you need to try and reduce the Debt / Income ration to <40% to make it sustainable in the long term. To do this look at what you can be flexible with and that is pension contributions, family loan and savings amount. You should consider pausing pension contributions (catch up later), reducing the monthly payments of the family loan. I would then focus on paying off the credit union loan.


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## Brendan Burgess (9 Jul 2019)

1) You are way overborrowed - you should not be making any contributions to your pension fund unless they are compulsory or matched by your employers. 

2) 


DJC-2018 said:


> Other borrowings – car loans/personal loans etc. Credit Union Loan of 56,000 repaying 740pm for 10 years
> 
> Savings and investments: Savings of 4,000. Saving 1000 pm.



What interest rate are you paying on this loan? 
Do you have shares in the Credit Union to "secure" the loan? 

Could you ask the family to suspend payments on the loan now and use it to accelerate payments on the credit union loan? 

Brendan


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## Brendan Burgess (9 Jul 2019)

DJC-2018 said:


> My aim in the short term is to build up our savings, in order to get through the period of unpaid leave next year. I would then like to build up a lump sum for a rainy day around 10k, for anything unexpected – new car etc.



Do you have to take this unpaid leave?  Sorry to break it to you, but you can't afford it.   You are effectively borrowing at a very high rate to take a 4 month holiday. 

Set the €10k against the credit union loan.   When you have the Credit Union loan paid off, then you can consider taking a career break. 

When you have reduced your mortgage to about twice your income, you can resume pension contributions.

Brendan


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## Brendan Burgess (9 Jul 2019)

DJC-2018 said:


> my wife drives a 171





DJC-2018 said:


> My wife will be on unpaid leave for 4 months (Jan to Apr 2020)





DJC-2018 said:


> Amount outstanding on your mortgage: 500,000





DJC-2018 said:


> Credit Union Loan of 56,000





DJC-2018 said:


> 32,000 loan from family


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## Fire away (9 Jul 2019)

DJC, Im not in a position to give professional advice but as comments above you have way too much debt. Im in similar position to yourself same age bracket, similar income, two kids under 3 and wife is on unpaid maternity leave.  We are just living week to week at the moment as our total debt repayments is 1,400 including mortgage and similar take home income to yourself. Once wife goes back to work and starts earning we will be back on track. I dont know how you manage with that debt, and once your wife goes on unpaid materntiy leave you will be in trouble.  I presume you are at least paying 12% APR on that credit union loan for 10 years. If i were you i would switch mortgage provider and consolidate that CU loan. It is easy overpay then.  Go for cashback opiton and repay that family member with the cash and start living a bit and enjoy the kids growing up stress free.


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## Blackrock1 (9 Jul 2019)

in the words of CJH you are living beyond your means and effectively reliant on others to get through it (family subsidising child care costs and the 32k loan)

You need to sort out that cr union loan for sure, either add it to the mortgage or accelerate the payments.

you must have spent a lot on the remodeling of the house if your mortgage is now 500k on a 400k purchase + cr union loan. Are you sure the house isnt worth more with the level of expenditure on it?


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## Coldwarrior (9 Jul 2019)

I agree with the other comments that your debt is too high, there's steps you can do though to get out of this position over time and make yourself more resilient to any unexpected adverse events.

First cut back the AVCs to the minimum required to get the employer's contribution.

Next I'd ask the family if the loan repayments can be suspended for now until you get your interest bearing loans down to more sustainable levels. If agreed I'd put the monthly savings on the AVC and family loan repayments into increasing your rate of saving until you had _at least_ 10k in an emergency fund. This doesn't make the most sense in terms of maximising savings on debt interest but personally I'd be very uncomfortable having such high loan repayment commitments each month without having something of an easily accessible safety net sitting in a savings account. This account is only for emergencies and not to be touched for any day to day spending or things like holidays or the purchase of a car (essential car repair is ok).

Next I'd look at switching mortgage. I see you've recently fixed for 5 years so there'll likely be a breakage fee, find out how much that is and then look to avail of the cashback offers. 2% of 500k is 10k so the breakage is likely to be a fair bit less than this. Look into doing the cashback switches multiple times if feasible to take advantage of the high mortgage, picking up the 10k each time (check out this thread for example -  ). Also try to consolidate the credit union loan into the mortgage as part of the first switch if possible, though that would give you a LTI of 5 so that may rule out some of the banks. Use the money from the cashbacks to pay a lump sum off the credit union loan (if you can't consolidate it) or the mortgage (if you can consolidate CU loan). Alternatively you could use the cashbacks to pay back the family loan, though the other options would be better.

I'd then overpay the mortgage with the monthly cashflow savings from the reduced AVC, family loan, potential consolidated CU loan and potential savings from a lower mortgage rate. I'd probably also keep saving 300 a month from this into the emergency fund until I had 3 months of monthly expenditure saved, then divert that back to repaying the family loan if you haven't paid that off with the cashbacks already. If you have, put this into the mortgage overpayment also. When all your non-mortgage debt is paid off and your mortgage is down to a more sustainable level, you can start increasing your pension contributions, but keep overpaying the mortgage also (at a reduced level).

Aside from the above, sit down with your wife and discuss your overall financial position and see if you both still think it's feasible to take the extra 4 months off unpaid. I'd argue it isn't, but I appreciate there's more to that decision that just the financial consideration. One thing to bear in mind though if she does take it is it may make switching mortgage more difficult, which would cut off your best short term route out of the high level of debt you have. Also, it should go without saying but don't take on any more debt!  Wish you the best of luck.


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## moneymakeover (9 Jul 2019)

Roll the credit union loan into mortgage
Pay back over longer term
And better interest rate
Keep paying even 4% pension contribution


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## Bronte (9 Jul 2019)

Extension cost 238k?
Husband driving a banger
What is 171. Is that 2017, ie new car, borrowed?
Expenditure on loans 4500 (plus savings? Of 1k) on income of 6500
Rising to 4800 when crèche has to be paid
Don’t understand with all the debt the wife taking unpaid leave
No savings
Husband unwilling to get higher pay to stay at home two days a week

Wonder if extension really 238k or was there consolidation of lifestyle debt.


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## Neek01 (16 Jul 2019)

While the suggestion to consolidate the credit union loan in to the mortgage makes sense, I would be surprised if you would be approved for a mortgage for that amount with the level of debt that you already have. Id skip the pension for now also and try and pay the loans off as quickly as possible.


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## Pinkpanter (27 Jul 2019)

I’m surprised the bank remortgaged to 5 times income. I feel ye will be under severe financial pressure for years to come. We struggled with a mortgage at 40% of take home pay. At over 50% of income with mortgage and credit union and family loan. This is no room for any financial or personal shocks.


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## Laughahalla (16 Aug 2019)

*Unless it is absolutely essential your family cannot afford to take four months off work. 
Your're in a very vulnerable position. 

You need to get spending under control. *Make a budget and give every euro a a job. i.e you need to know where every single euro is going.
Once the financial hemorrhage is under control then you need to look at getting a bigger shovel i.e more income either through changing job or getting a job in the evening or weekends.

If anything goes wrong and you cannot pay your family back then that risks the relationship with your family and possibly forever.
If one of you lose your job or cannot earn then everything falls apart unless the other can get a job very quickly.

You need to focus on paying down debt* first* . Trying to pay down debt and save is the wrong way to tackle things. Focus *on one thing at a time.*
Stop saving and investing until you have your non house debt under control.

Take your savings except for €1k and put towards debt.
I would also stop paying into your pension for a year.
Sell whatever you can to pay down debt , sell so much that the children think they're next. This will also free up space in your home.Everybody has old stuff in their house that they don't use anymore.
Can you sell the 171 and buy a 5k/6k car?

Stop borrowing, get rid of the credit card,  borrowing money is stressful. You don't need that additional stress that being in debt brings into your life.

I follow Dave Ramsey's baby steps - It works as long as you do this in order.


_Baby Step 1 – €*1,000 to start an Emergency Fund*_
_Baby Step 2 – *Pay off all debt using the Debt Snowball*_
_Baby Step 3 – *3 months of expenses in savings. *_
_Baby Step 4 – *Invest 15% of household income into retirement*_
_Baby Step 5 –* College funding for children if applicable*_
_Baby Step 6 – *Pay off home early*_
_Baby Step 7 – *Build wealth*_
*Steps 4,5 & 6 can be done at the same time. But 1, 2 and 3 need to be done in order.*


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## Laughahalla (16 Aug 2019)

moneymakeover said:


> Roll the credit union loan into mortgage
> Pay back over longer term
> And better interest rate
> Keep paying even 4% pension contribution



I would do the opposite of most of that advice. ( The OP needs to accept he is in a serious financial pickle which I think he does realise otherwise he wouldn't be looking for advice)

Do not roll loan into your house - You don't want to make unsecured debt into secured debt
Pay over a short a term as possible  - 
Stop paying into pension until the financial hemorrhage is under control.


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## DJC-2018 (13 Jul 2021)

Now 2 years on . . . .  I would like some advice on our current position / plan for the next few years.  We inherited a sum of money and have initially cleared the outstanding loans and plan to pay down the mortgage with the balance.  I would like opinions on the below plan and thoughts on the priorities for overpaying mortgage / saving for kids education / pension

Age: 39
Spouse’s/Partner's age: 40

Annual gross income from employment or profession: 60,000 Private Sector
Annual gross income of spouse: 60,190 Public Sector

Monthly take-home pay – 6,600

Type of employment: e.g. Me – private sector and Wife – Public Sector

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

Rough estimate of value of home: 700,000
Amount outstanding on your mortgage: 475,000
What interest rate are you paying? 2.65% KBC - paying 2,055 pm - Fixed term ends April 2024

Other borrowings – car loans/personal loans etc. None

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

Savings and investments: 180k inheritance in current account

Do you have a pension scheme? Yes 125k pension pot, employer contributes 7.5%, I contribute 6%

Do you own any investment or other property? No

Ages of children: 3 kids, 4 Year old, 2 year old and new born. Likely childcare costs 1000 to 1200 pm over the next few years

Life insurance: Through work, death in service benefit


*Plan going forward

Mortgage*

I can pay 10% of the original mortgage balance (circa 51k) immediately without incurring fees.
However I have been quoted 5,725 to break out of the existing fixed term, I believe if I moved to Avant at 1.95% I would save around 8k in interest, so on that basis it makes sense to switch now.  (Mortgage 424k (475-51) at 0.7% for just over 2.5 yrs)
I would keep the existing mortgage term when moving to Avant and overpay by 1,000 per month.  

*Savings*

I do want to start a regular savings / investment plan with a view to funding School/college for the kids, from reading this forum I know people will have the view that I should focus on clearing the mortgage and then save after that, however I do like the comfort of knowing there are savings and a plan in place.  There is a fee paying secondary school within walking distance for example, so potentially in 9 years we could have fees to contend with, there are other school options though so nothing set in stone.

*Pension*

I am aware we should be focusing on the mortgage and looking to pay it down asap.  However I’d like some input in terms of my current level of contribution / pension size, would it make sense to increase my 6% contribution or am I right to focus on the mortgage / savings. The LTV would be around 42% when moving to Avant, at what LTV would I start looking at increasing pension contributions?.  

Thanks


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## Brendan Burgess (13 Jul 2021)

You have a mortgage of €475k on an income of €120k
That is still way too high.
You need to pay the full inheritance off the mortgage. 
This will reduce your repayments and the interest  you pay, so you will be able to afford education fees when the time comes. 

I also suspect that as you like new cars and 4 month holidays, that having a fund will burn a hole in your pocket.


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## Brendan Burgess (13 Jul 2021)

DJC-2018 said:


> *Mortgage*
> 
> I can pay 10% of the original mortgage balance (circa 51k) immediately without incurring fees.
> However I have been quoted 5,725 to break out of the existing fixed term, I believe if I moved to Avant at 1.95% I would save around 8k in interest, so on that basis it makes sense to switch now. (Mortgage 424k (475-51) at 0.7% for just over 2.5 yrs)
> I would keep the existing mortgage term when moving to Avant and overpay by 1,000 per month.



You have €475k for 5 years at 2.65% 

You have €180k cash.



But pay off the €51k immediately anyway.   Can you pay another 10% on 1 January? 

The break fee is about 1.2% of the amount paid off - I don't fully understand your figures. 

Pay the €130k off your mortgage immediately as well. 
The break fee will be €130k@1.2% and so will cost you €1,500 
It will save you €130k @ 2.65% for 2 1/2 years or €8,600 

So the question then will be should you switch a €300k mortgage to Avant? 

Break cost:  €3,600 (€300k @1.2%) 
Cost of switching: €1,500
Saving €300k @ .7% (2.65% - 1.95%) or €2,100 per year.

So it will take two years to recover the costs of switching. 

Which lender are you with?  Do they have a better rate for a mortgage  of under 50% LTV?


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## goingforgold (13 Jul 2021)

Not going to add much value with this post but what I would say is that the inheritance has fundamentally changed your financial well-being... You are now in the very fortunate position of having a net worth of 420k exc. pensions at a young age. Listen to Brendan and ensure you make the most of your new found situation.


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## DJC-2018 (13 Jul 2021)

Brendan Burgess said:


> You have €475k for 5 years at 2.65%
> 
> You have €180k cash.
> 
> ...


Currently with KBC, I'm limited to 10% overpayment, so no option to overpay until fixed term is up.

Avant seem to be the best option at that LTV, I'll proceed with paying down as you describe and switch the balance of 300k to Avant.


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## RedOnion (14 Jul 2021)

DJC-2018 said:


> Currently with KBC, I'm limited to 10% overpayment, so no option to overpay until fixed term is up.


Of course you do. 

The 10% is the limit you can overpay before they calculate a break fee. If you overpay by more, the break fee is only on the portion you overpay, not the total balance.


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## Brendan Burgess (14 Jul 2021)

DJC-2018 said:


> What interest rate are you paying? 2.65% KBC -



Have you a current account with KBC? 

Is it worth breaking and refixing at a lower rate with KBC? 

1) Pay off the 10% and pay no break fee
2) Pay down €130k and pay the break fee on that. 
3) Break €300k @ 2.65% and pay €3,600 
4) Fix again with KBC current account rate at 3 years at 2.25% 
5) Saving €300k @.4% = €1,200 per year - not worth it.

OK - you must break now and switch to Avant. 

When your fixed rate is up, you will have to switch anyway, as your mortgage will then be owned by Bank of Ireland who has the highest rates for existing customers. 

So the revised calculations are 

Break cost: €3,600 (€300k @1.2%)
Cost of switching:  ignore as you will face it anyway when the fixed rate is up
Saving €300k @ .7% (2.65% - 1.95%) or €2,100 per year.

So you will have recovered your break fee in under two years. 

Go for it!

Brendan


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## Steven Barrett (14 Jul 2021)

Brendan Burgess said:


> You have a mortgage of €475k on an income of €120k
> That is still way too high.
> You need to pay the full inheritance off the mortgage.
> This will reduce your repayments and the interest  you pay, so you will be able to afford education fees when the time comes.
> ...


Is this necessary Brendan? a bit cynical? 

OP, you need to draw up a firm plan. There is no point in looking at just one thing as life doesn't work like that, you have to spin a number of plates at the same time. 

Put a chunk of that money into your mortgage to reduce the balance, but yes, keep the term on it. You can always overpay instead of having to make higher payments as you would do with a shorter term. 

Education also needs to be looked at and the earlier you start saving for it, the less it will cost you. Where are you located? Can you kids go to college and live at home or will you have to pay for accommodation as well? There is a big difference in costs. You can put aside some of the lump sum now and get it working for you immediately. 

Use some of the remainder as an emergency fund. 

Increasing pension funding can be a gradual thing too, increasing it bit by bit each year, especially when child care costs go away. 



Steven
www.bluewaterfp.ie


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## Brendan Burgess (14 Jul 2021)

Steven Barrett said:


> Education also needs to be looked at and the earlier you start saving for it, the less it will cost you.



Yes, but the best way to save for it is to pay down the mortgage and get a tax-free risk-free return. 

With two or three years to go to College, by all means put the money aside rather than pay down the mortgage. 

But as his eldest is 4 years old, he has 14 years to go before he needs the money. 


Brendan


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