# Pay down mortgage entirely, but what about my rainy day fund?



## 17-pdr (29 Nov 2022)

Mortgage is a tracker with BoI. ECB +1.4%. Current interest rate is 3.4%.
Amount remaining = €37,977.
Current monthly repayments = €300.

Savings = €50,000.
Gross salary per year = €45,000.

No other debt.

Planning to spend €12,000 next Summer when I want to change my car.

Should I clear the mortgage entirely now, and build up my savings fund again?

Thanks.


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## Laughahalla (29 Nov 2022)

Nice position to be in.
I would keep three months expenses/8k aside as a rainy day fund+ hold onto 12k for your car. I would then pay 30k off the house.
That would leave you with a mortgage of 8k which could be paid off at your leisure.  You could either knock about 10.5 years off your mortgage or bring the repayment down to about 65 euro per month with the same term

When you have cash it can be tempting and easy to justify spending it on all sorts of things that you don't really need so I would dump a large portion of it into paying down the mortgage.

If your job is "secure" or you would get a sizeable redundancy payment if you lost your job then you could probably just be done with it and pay the whole thing off now.


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## 17-pdr (29 Nov 2022)

Thanks for your reply. I'm working in the public service so the job is secure.

I've 13 years left on the mortgage so I'd prefer to reduce the monthly payments on it to as low as possible as you suggest.


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## NoRegretsCoyote (29 Nov 2022)

@17-pdr 

If you pay off full amount bank will seek to return your house deeds.

a very low mortgage payment is often good value to have your house deeds professionally stored.


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## cloughy (29 Nov 2022)

Keeping small mortgage, is a good idea if you are with the likes of AIB where you get free current account if funding mortgage  so keep 150/200 of a mortgage, pay minimum repayment and save current account fees, as interest would only be €5-10 a year, but savings of €60/80 in fees per year.
This is what we do, and also bank stores deeds for us.


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## ClubMan (29 Nov 2022)

NoRegretsCoyote said:


> @17-pdr
> 
> If you pay off full amount bank will seek to return your house deeds.
> 
> a very low mortgage payment is often good value to have your house deeds professionally stored.


Even after the necessary mortgage protection life insurance premiums are accounted for?


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## 17-pdr (29 Nov 2022)

Thanks for the further replies guys.

@NoRegretsCoyote - Thats interesting. Never thought about that. Sounds like a good idea.

@cloughy - I'm with Bank of Ireland for my accounts and mortgage. They don't offer that option as far as I know similar to what AIB do.


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## cloughy (29 Nov 2022)

You can reduce your mortgage protection to be in line with outstanding amount, or keep as additional insurance,


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## ClubMan (29 Nov 2022)

cloughy said:


> You can reduce your mortgage protection to be in line with outstanding amount, or keep as additional insurance,


But there must be some minimum premium that they charge that, on top of the cost of servicing the outstanding "rump" loan, makes it more attractive to just clear the loan and pay somebody for secure document storage of the deeds in some (many?) cases?


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## NoRegretsCoyote (29 Nov 2022)

ClubMan said:


> But there must be some minimum premium that they charge that,


Life insurance has a value independent of it's necessity for a mortgage account!

Something like €2,000 amortising over 15 years (if you can get away with it) is going to be cheaper than secure storage.


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## malcom (29 Nov 2022)

ClubMan said:


> Even after the necessary mortgage protection life insurance premiums are accounted for?


Anyone know what would happen if you stopped paying your mortgage protection insurance at that point?


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## MrEarl (30 Nov 2022)

malcom said:


> Anyone know what would happen if you stopped paying your mortgage protection insurance at that point?


It's a condition of your loan, isn't it? Therefore, stopping payments will  likely result in the cover being cancelled, and you being in breach of the loan agreement. Most lenders take a dim view of such actions tbh


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## peemac (30 Nov 2022)

I'd pay it off and put €300 a month into a rainy day fund.

Currently the 50k you have is earning next to nothing in interest, so by paying off the mortgage it is effectively earning you 3.4%

On top of that, the satisfaction of being mortgage free and owning every brink in the house brings its own reward.


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## Cervelo (30 Nov 2022)

For me, it's a pay off the mortgage now. You've more than enough savings to do both the mortgage and the car purchase next year
It seems mad to be paying 3.4% interest on your mortgage while getting little or no interest on your savings 
And that 3.4% is as of now next month it probably will be close to 4% if not higher and quite possibly even higher next year

You say you're in a secure job so while its nice to have a large savings balance or rainy day fund, it doesn't always have to be large
If you clear the mortgage now you'll be left with 12K and presumably if you save the mortgage payments now you'll have close to 16K this time next year plus what ever else you normally save, so more than enough to pay for the car you're thinking of

I'm dure most people would agree with me here when I say there is a certain feeling you get when you pay off your mortgage and it's a good feeling, a very good feeling


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## Brendan Burgess (30 Nov 2022)

17-pdr said:


> Planning to spend €12,000 next Summer when I want to change my car.





17-pdr said:


> Savings = €50,000.





17-pdr said:


> Amount remaining = €37,977.


It's very clear. Pay off your mortgage.  You still will have €12,000 so that is  a big enough rainy day fund.








NoRegretsCoyote said:


> a very low mortgage payment is often good value to have your house deeds professionally stored.



People often say this, but what does professional storage mean?   It's not as if a thief is going to break into your house rob your title deeds and then claim that they own your house.

Keep your deeds in an envelope marked "House Deeds". Scan the key ones. So you have copies of them.

It is possible that someone might rob your deeds and it's possible that your house might burn down. But both are very unlikely.  In fact, I would say it's more likely that the bank would lose your deeds than you would lose them.

If it happens, then you will face a bit of hassle and cost reconstructing them.






						Key Post - Where to store title deeds?
					

A friend who owns their house outright from 10 years ago had the deeds stored by a company in Dublin, the bank at the time suggested them,  fee was nominal then, but now with 6 days notice he has to pay 150 euro for 10 years or 95 for 5.  Is there a cheaper and just as safe alternative?   They...



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Brendan


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## 17-pdr (1 Dec 2022)

Thanks for the further replies guys. I am age 56, so I probably (hopefully!) will work for just another 10 years. I would consider myself a good saver, so all things going well I will save enough for my retirement.


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## 17-pdr (1 Dec 2022)

Once again, thanks for all the suggestions.

Ok, here is what i have done. Paid another lump sum off the mortgage.

Amount remaining is now €11,875. Repayments going forward will be €95pm.

Savings now are €25,000.

I hope to work for another 10 years (i’m 56), so I want to concentrate on building up the nest egg.

Just one further question. If my savings are now bigger than my remaining mortgage, do i have to keep paying mortgage protection insurance? I’m currently paying €32pm for this. I had a look at the t&c’s and it seems that the payments stay the same no matter what the size of the mortgage is that’s being covered.


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## skrooge (1 Dec 2022)

The requirement to have mortgage protection is independent of your level of savings. 

I would imagine the T&C's of you mortgage basically say as long as you've a mortgage you need mortgage protection.


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## ClubMan (1 Dec 2022)

17-pdr said:


> I had a look at the t&c’s and it seems that the payments stay the same no matter what the size of the mortgage is that’s being covered.


That's normally the way that mortgage protection life insurance is done. A fixed monthly premium for the lifetime of the mortgage. You could shop around for new cover for the remaining amount and number of years left and if you can get it cheaper contact your lender about buying such cover, having it assigned to them, and cancelling the original policy.

Alternatively if you have dependents you might want to look at more general life cover and if that can be assigned in part or full to the lender to kill two birds with one stone.


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## Laughahalla (2 Dec 2022)

If you cancel the premium and stop paying the bank can take out a policy and charge you for it so I would not stop paying until you spoke with them.
If you speak with them you can explain that you want to cancel your mortgage protection as you are in a position to self insure with your savings. They might be ok with this as the amount is small. 

Failing that you could take out a new policy for about 10-15 euro per month assuming you are not a smoker or have any pre existing conditions.

The benefit of keeping the mortgage protection that you currently have is that your next of kin would receive any surplus should you die.


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## Brendan Burgess (2 Dec 2022)

17-pdr said:


> I’m currently paying €32pm for this.



In case it's not clear...

The sum assured by your mortgage protection policy is completely independent from the actual balance on your mortgage.

So let's say the sum assured is €100,000 today but you clear your mortgage completely. If you die today, your estate will get €100,000.

So check what the sum assured is and decide if it's worth paying €360 a year for it.

If not, scrap the policy. I doubt that the lender will do anything about it other than to write to you saying you are a bold boy.

Brendan


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## ClubMan (2 Dec 2022)

Laughahalla said:


> If you cancel the premium and stop paying the bank can take out a policy and charge you for it so I would not stop paying until you spoke with them.


In case of any confusion, I was not suggesting that they do anything - in particular cancelling the existing cover - until they spoke to the lender first.


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## ClubMan (2 Dec 2022)

Brendan Burgess said:


> So let's say the sum assured is €100,000 but you clear your mortgage completely. If you die, your estate will get €100,000.


That's the case with level term cover.
I thought that most mortgage protection policies were decreasing term? Such a policy would pay out in or around the capital balance expected to be due at any point in the loan term based on the original repayment schedule.








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Learn about Level Term vs Decreasing Term life insurance, to help you decide which would be the policy for your situation. Learn more today.




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## Brendan Burgess (2 Dec 2022)

ClubMan said:


> That's the case with level term cover.



I have edited my post to clarify.

Brendan


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## 17-pdr (2 Dec 2022)

Brendan Burgess said:


> In case it's not clear...
> 
> The sum assured by your mortgage protection policy is completely independent from the actual balance on your mortgage.
> 
> ...


Thanks Brendan.

The current sum assured is €112,000. It's been that amount for quite a while now. I originally borrowed €162,000 back in 2008. My mortgage is with Bank of Ireland, and the protection policy is with Bank of Ireland Life. I have no next of kin.

I'll ring up the bank and discuss on Monday. I've already shopped around for cover from other companies and was quoted €15pm from one.


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## _OkGo_ (2 Dec 2022)

17-pdr said:


> I have no next of kin.


If you have no spouse or children then just get rid of it. It doesn't matter that your savings are greater than the remaining balance.

The mortgage protection policy only pays out on your death. Your estate will have cash and a property to be sold so the bank would be paid either way. You don't need the mortgage protection anymore.



17-pdr said:


> Amount remaining is now €11,875. Repayments going forward will be €95pm.
> 
> Savings now are €25,000.


Keep it simple, just clear it all now


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## Brendan Burgess (2 Dec 2022)

_OkGo_ said:


> Keep it simple, just clear it all now



+1


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## 17-pdr (2 Dec 2022)

_OkGo_ said:


> If you have no spouse or children then just get rid of it. It doesn't matter that your savings are greater than the remaining balance.
> 
> The mortgage protection policy only pays out on your death. Your estate will have cash and a property to be sold so the bank would be paid either way. You don't need the mortgage protection anymore.
> 
> ...


Ok. I'll consider it strongly.

Thank you all for the further replies.


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## Cervelo (3 Dec 2022)

Couple of things that jump out at me

Why didn't you clear your mortgage in full??
You have the means to do this so why wait, I can understand the need for a cash reserve I have one and it's very much bigger than yours but the difference between you and me is I'm not in a secure employment and am relying on savings and investments to fund my life so I like the comfort of the cash fund should anything go wrong with the other side of my finances
You on the other hand have a secure income so you don't need a huge rainy day fund per se. If you cleared your mortgage now and rediverted you mortgage and insurance payments you'd be saving nearly €4.5k a year, which will grow nicely over the next ten years you intend to work

I notice after paying the lump sum you've reduced your repayments to €95pm but over thirteen years this will cost you nearly €3k in interest at current rates, yes it's a small amount of money when divided over thirteen years but why pay it if you don't have to
Given that your talking about retiring in ten years is that €3k not better off in your nest egg than the banks pocket and if you can avail of any tax credits to further fund your pension well than it's even worth more than the €3k you'll save in interest

Regarding the mortgage protection policy I would agree with Brendan here


Brendan Burgess said:


> If not, scrap the policy. I doubt that the lender will do anything about it other than to write to you saying you are a bold boy.


I did it with mine in 2012 and for the next five years or so I used to receive a letter every year informing me that there was no protection policy attached to the mortgage but that is all that happened, I did clear the mortgage in late 2017, so I would presume the same would happen to you especially given that the mortgage is very small but if it becomes an issue you have the funds...


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## 17-pdr (6 Dec 2022)

Cervelo said:


> Couple of things that jump out at me
> 
> Why didn't you clear your mortgage in full??
> You have the means to do this so why wait, I can understand the need for a cash reserve I have one and it's very much bigger than yours but the difference between you and me is I'm not in a secure employment and am relying on savings and investments to fund my life so I like the comfort of the cash fund should anything go wrong with the other side of my finances
> ...


Update.

Thought about it over the weekend, and cleared it in total today.
Remaining savings are now €13,000.

Now officially debt free. Happy days!

Thanks for all your responses.


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## Mr Black (6 Dec 2022)

Well Done!


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## 17-pdr (7 Dec 2022)

Was chatting to the bank (Bank of Ireland) this morning re what happens next, and they said they would store the house deeds for as long as desired with no charge for doing this. Nice to know that they do that.


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## Cervelo (7 Dec 2022)

Any chance you could get that in writing from BOI because no doubt in ten or twenty years time when they can't find the deeds the story will have changed re storing the deeds FOC

I have a similar arrangement with BOI but under different circumstances, although I cleared both my mortgages there was an outstanding charge on the account of €90 which BOI insisted that I pay. I refused to pay and was informed that until I pay they will hold onto my deeds 
Probably not the best scenario to be in but as I don't ever envisage myself selling the house I'm not too concerned and will be somebody else's problem when I'm gone much like the ground rent that I refuse to pay an extortionate fee to buy out

And congratulations on owning your home out right and been debt free, it's a very liberating feeling


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