# Balancing Savings vs Mortgage



## boe (11 Sep 2019)

Age: 42
Spouse’s/Partner's age: 40

Annual gross income from employment or profession: €75k (+ annual bonus of €6k - not guaranteed)
Annual gross income of spouse: €25k (part time)

Monthly take-home pay €5,400

Type of employment: e.g. Civil Servant, self-employed Private Sector

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

Rough estimate of value of home: 330k
Amount outstanding on your mortgage: 168k
What interest rate are you paying? 3.15% (SVR with AIB), 15 years remaining. Paying €1,150pm

Other borrowings – car loans/personal loans etc 2 car loans (partially borrowed for both)
Both 220 pm, 1st finishes Mar 2020, 2nd in Jun 2021. Used savings for both purchases and borrowed €8k over 3 years for balance.

Do you pay off your full credit card balance each month? Yes
If not, what is the balance on your credit card? 0

Savings and investments: Approx €120k in savings - €65k in various state savings schemes, €35k in online accounts. Rest is in CU and current accounts.

Do you have a pension scheme? Me, yes - 7% company and 5% me. Made additional lump sums on AVC's of €5k per year for last 3 years.
Spouse has always been in work schemes but not currently contributing to one.

Do you own any investment or other property? No

Ages of children: 10, 7 and 3

Life insurance: Yes

*What specific question do you have or what issues are of concern to you?*
Long term viewer and occasional poster. Have always thought I had an idea about finances but realise I am not really being smart with what we have.
From reading posts, I would think paying down a portion of the mortgage would be sensible but not sure what amount to commit(have previously made 
a €20k lump sum - reduced repayment rather than term). Was considering just switching to LTV rate with AIB.
We are reasonably comfortable but feel like a mug paying interest on borrowings with the majority of our savings doing nothing for us. Plodding away fine
I think but stuck in a rut on actually doing something decisive. I would love to clear the mortgage as quickly as possible but spouse is against it so need a compromise.


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## Blackrock1 (11 Sep 2019)

you could probably clear your mortgage in a couple of years if you wanted to, thats a great position to be in. Think about how much funds do you need in a rainy day fund to replace the higher salary for say 6 months (if you lost your job unexpectedly and needed a cushion) any of the rest id pay off the mortgage.

The rate is too high as well btw, you could be at 2.3-2.5%


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## EmmDee (11 Sep 2019)

I'm assuming the car loans are at a higher rate and are easily covered by savings - clearing them would be my first action item.

The second would probably be tackling the mortgage (changing rate and/or overpaying) - there are more informed posters than me on this topic along with the balance of paying mortgage and making pension contributions


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## Easel (11 Sep 2019)

Are the savings earmarked for anything specific? Are you in your forever home? It seems mad to be borrowing for cars when you have so much on deposit, especially when you have great job security.

No reason you should be paying such a high interest rate on your mortgage. Even if you stay with AIB you are entitled to a rate drop with your LTV.

In your position (assuming that money on deposit isn't for home improvements/upgrade)

1- pay off car loans
2- contribute maximum to pensions
3- Keep 30k rainy day fund, higher than usual as you have 3 kids
4- pay remaining cash off mortgage
5- get a better interest rate on your mortgage


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## boe (11 Sep 2019)

Thanks for the replies. Savings aren't intended for anything specific other than college in the future. No major home improvements on the horizon and no intention of moving in the medium term. 
Will target the car loans, mortgage and pensions. Would consensus be to just get on < 50% LTV with AIB or switch?


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## Blackrock1 (11 Sep 2019)

get the best rate you can, see who it would be with, my guess is ulster bank


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## stantheman (11 Sep 2019)

@boe It sounds like you already know the best next steps - I would agree with them as clearly outlined by @Easel above.  
What is your pension pot value? It may well be underfunded, so could benefit from topping up the AVCs to the maximise the tax efficiency of those contributions - you can still max out for 2018.
AIB are pretty competitive on their <50% LTV rate (2.75%) + it's a quick win as you only need a valuation (€120) as opposed to switching which requires solicitor. I would imagine AIB are likely to follow the recent rate decrease kicked off by Ulster Bank last month.


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## niceoneted (12 Sep 2019)

I'm along the lines of Boe above. but this has to be comfortable for you and your spouse. 
I would clear loans, pay 60k off mortgage and reduce term to 10 years and you should have about same repayment a month getting a better rate than you are on. it means too that mortgage is finished when child two and three may consider college. and/ or you could clear indeed before child one may consider college.


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## Easel (12 Sep 2019)

I would not look to reduce the mortgage term. If you reduce your monthly payment you will still have the option to overpay. This will give more flexibility if you run into financial difficultly in the future.


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## boe (13 Sep 2019)

Thanks again for all the replies. 
@stantheman Pension pot is currently at €140k. Haven't made an AVC in respect of 2018 as of yet but plan to do so. 

@niceoneted Yeah, that was my broad plan, try to clear before second child hits college. Good chance that if they go to college then they will still be able to live at home but planning for that to possibly change.

Quick win looks to be get the valuation done and get on to LTV < 50%.  Just need to agree on lump sum payment.


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## cremeegg (13 Sep 2019)

Pay off the car loans next week.

Why is spouse against paying down the mortgage. The usual reason is because you will never get cheaper money. Well with €120k in savings you don't seem to need money. And at 3.15% its not that cheap.


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## boe (13 Sep 2019)

cremeegg said:


> Pay off the car loans next week.
> 
> Why is spouse against paying down the mortgage. The usual reason is because you will never get cheaper money. Well with €120k in savings you don't seem to need money. And at 3.15% its not that cheap.


I guess it's just a comfort having the savings, was looking at mortgage calculator so will use that to show interest savings. Will get on to BOI re paying off car loans.


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## cremeegg (14 Sep 2019)

boe said:


> I guess it's just a comfort having the savings,



Absolutely, but the car loan will hardly make a dent in your savings. After that I would definitely keep some ready cash, but I think you will still have more than €110k, that's too much comfort.


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## Gordon Gekko (14 Sep 2019)

It is madness to have expensive debt, to be neglecting AVCs, and to have mortgage debt at >3% whilst simultaneously having massive cash or near cash savings.

- Retain €33k in cash (i.e. six months’ net income)
- Clear the personal loans
- Make the maximum AVC for 2018 (prior to 31 October 2018) and for 2019
- Start maximising your AVCs for 2019 and future years
- Switch to a mortgage rate in the 2.3% fixed to 2.75% variable range
- Use the balance of your cash to pay down some of the mortgage


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## boe (18 Oct 2019)

Thanks for all the advice. Wanted to post an update:

- Have made a lump sum AVC to max my contributions for 2018
- Have paid off car loans in full
- Have a valuation scheduled for next week - depending on value, will make a lump sum payment off mortgage and switch to LTV < 50%


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## lledlledlled (18 Oct 2019)

boe said:


> Thanks for all the advice. Wanted to post an update:
> 
> - Have made a lump sum AVC to max my contributions for 2018
> - Have paid off car loans in full
> - Have a valuation scheduled for next week - depending on value, will make a lump sum payment off mortgage and switch to LTV < 50%



I would have switched mortgage before now but well done, you've made good decisions in the last few weeks


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