# 36 - huge mortgage



## Nicetoknow (25 Sep 2019)

Hello. Looking for opinions on whether we are off the charts at risk or generally in an ok position - because my own assessment of the situation varies from day to day!

Age: 36
Spouse’s/Partner's age: 38

Annual gross income from employment or profession: PAYE 70000 from employer plus 65000 PAYE from own company - total PAYE 135000. 

Annual gross income of spouse: PAYE 70000 plus 


Monthly take-home pay: 6000 plus lump of 32000 net at end of year (salary from own company) 


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

Saving - about 500 a month


Rough estimate of value of home - 925000
Amount outstanding on your mortgage: 650000

*What interest rate are you paying? *

2.5 fixed for 4 years with UB 

Other borrowings – car loans/personal loans etc

None

Do you pay off your full credit card balance each month?

Yes

Savings and investments:
10000 in shares
20000 in savings

Do you have a pension scheme?
Yes - DC, 20000 balance, have just upped cons to 20%, Employer cons at 8%. I also have Directors pension with balance of 60,000. I expect to contribute 48000 each year for next 5 years ( all going well ).

Partner has DC, balance of 45000, also recently upped cons to 20%. Employer cons at 8%

Do you own any investment or other property? No

Ages of children: 1 and 4

Childcare is 1500 a month

Life insurance:
We both have some cover with work
We have mortgage protection but no Life cover.
We do not have income protection or serious illness. I have company policy that will pay out 400000 if I die.

*What specific question do you have or what issues are of concern to you?*

We are working really hard, basically two jobs. I can't see us sustaining our current high income for more than 5 years. Our salaries may rise somewhat but we both want to do reduced hours to spend time with our kids.

Our house is old and realistically needs another 100000 spent on it (new roof, windows, rebuild small extension due to a structural issue that isn't going to go away).

Our mortgage is frighteningly large. The repayments are fine for us at the moment because we have the extra income from my own company and we are on a low interest rate. We are thinking that next year and yearly thereafter we will overpay the mortgage by 15000 when we get the lump sum from company but since our balance is so high, those overpayments feel like a drop in the ocean. I was thinking that I could take lump from directors pension at 50 to pay a chunk off mortgage. That is the rational for our pension over mortgage strategy. I feel we shouldn't really have more than 450000 of a mortgage (3.5 combined  salary from employment).

We do not want to sell our house although we both get that it's a money drain. We love where we live and it's our forever home.

We both had to retrain during the recession so got started in pensions very late. I worry about having nothing when we are older, which is why we are maxing our pension cons now.

Would appreciate your views. Thank you.


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## Steven Barrett (26 Sep 2019)

The best way to eat an elephant is one bite at a time. 

Same with reducing your mortgage. Unless you come into a large sum of money, any over payment will look like a drop in the ocean. But make them and keep on making them. Over time you will see the amount reduce. Like with investing, it takes time to see the benefits of compounding but it happens over time. Why not start with increasing your monthly repayments.


Steven
www.bluewaterfp.ie


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## Brendan Burgess (26 Sep 2019)

Nicetoknow said:


> Our mortgage is frighteningly large.



This is a prime example of a case where you should not be making any unmatched pension contributions.  In other words, if your employer's contribution is dependent on you making a contribution, then make that contribution. 

Your mortgage is frighteningly large.

You want too spend money on your house. 

Eliminating the immediate and short-term risk is your absolute priority. 



Nicetoknow said:


> Our house is old and realistically needs another 100000 spent on it (new roof, windows, rebuild small extension due to a structural issue that isn't going to go away).



You have to decide how urgent this is.  Do the urgent bits.  Do the bits with a financial return e.g. if the windows cut your energy bills. The extension does not sound like a priority.  

After that pay down your mortgage aggressively.  

With three sources of income, you probably do not need €30,000 in savings.  Pay it off your mortgage or use it for the essential building works. 

When you get your mortgage down to a comfortable level, resume pension contributions.

Brendan


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## Nicetoknow (26 Sep 2019)

Thanks Brendan/ Steven. 

Would around 450000 be the right balance to resume pension cons?


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## Brendan Burgess (26 Sep 2019)

I would be very conservative so to me a comfortable mortgage is twice your reliable salary. 

So €450k with an income of €200k is in the right area.  

But it depends on age and other expenditure as well. 

When you hit 50,  contributing to a pension becomes more important than when you are 40 as you have less time to contribute.


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## NoRegretsCoyote (26 Sep 2019)

Brendan Burgess said:


> When you hit 50,  contributing to a pension becomes more important than when you are 40 as you have less time to contribute.



This is a fallacy. Arguably it is more important at a younger age as you can take advantage of compound interest.

Assuming a 3% real annual return, you get a 142% total return by age 65 for everything you contribute at 35. You only get 34% by 65 if you contribute at 55. 142% is a lot more than three times 34%.

However, in your case your mortgage is extremely large and would become a burden if one of you loses a job, or wants a change in lifestyle. I would prioritise mortgage overpayments for maybe five years, then re-assess and maybe switch back into pension.


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## Gordon Gekko (26 Sep 2019)

The mortgage is not “frighteningly large”. It’s 3.17 times income in a world where Central Bank ‘macroprudential rules’ stipulate a maximum of 3.5 times with scope to go to 4.5/5.0 times. If it was me, I’d keep going as you are but start overpaying the mortgage to the tune of €500 a month. Ulster Bank will give up to €60k via a top-up and you have the rest for the renovation. Then just build your savings back up to their current levels. I would not reduce the pension funding. It’s the compounding that delivers the returns and the ‘use it or lose it’ nature of pension funding is an issue, although slightly less so given that you can backfund via your own company. What does the company do?


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## North Star (26 Sep 2019)

What jumps out for me is the risk to the earned income when you don't have a large emergency fund or pool of savings. It may be impossible to protect against redundancy but if I were you I would absolutely look at income protection cover for both of you. If it is a case of either/or then prioritise income protection over and above pensions savings for now. Re your own company I would consider building up a contingency fund in the company post paying CT.  You can invest in the company name as you would with a pension but the crucial difference is that you will have liquidity to access these funds if you need them before retirement. Under current rules you can back end company pension contributions at a later date unlike personal contributions. If I were in your shoes I would do the above first to de-risk your family balance sheet before attempting to over pay mortgages or fund pensions i.e. you currently dont have enough of a liquidity buffer in case of any risk to earned income. Just a thought.
All the best Vincent


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## NoRegretsCoyote (26 Sep 2019)

Gordon Gekko said:


> The mortgage is not “frighteningly large”. It’s 3.17 times income in a world where Central Bank ‘macroprudential rules’ stipulate a maximum of 3.5 times with scope to go to 4.5/5.0 times.



Large is an absolute as well as a relative concept. This mortgage is easily 99th percentile of all outstanding mortgages in Ireland. Servicing it relies on the OP's family income remaining at about 200k, which is 99th percentile as well. 

Granted there is very little risk of negative equity but downsizing in response to a lower income is something the OP doesn't seem to want to do. OP seems to really, really want to stay in the house. If this is his priority then he should pay down the mortgage.


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## misemoi (26 Sep 2019)

"We are working really hard, basically two jobs. I can't see us sustaining our current high income for more than 5 years. Our salaries may rise somewhat but we both want to do reduced hours to spend time with our kids."

This is what sticks out for me.  The current income is based on an unsustainable/undesired level of activity.  OP family has a mortgage of a family earning 200k a year from two salaries, not three.  Risk of burnout/ill health can be high in these circumstances.


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## Nicetoknow (26 Sep 2019)

Thanks all for comments to date. Really appreciate your input.

 The company is an online service. It is an asset and could be sold if the other shareholder agreed. I don't want to bank on a future buyout since there is no certainty as to what the value of the company would be in 5 years...it could be more, could be very little. Also the other shareholder may not want to sell when I do.

The risk of burn out is definitely something we need to consider- no point having cash in the bank if getting it makes us ill and unable to enjoy what we have in life. We could look at selling to buy a new build that is a bit cheaper and requires lower running costs and no investment in next 10 years. 

Partially it is the future cost of renovation / maintenance that scares me. 

Worth considering what down sizing would look like for us.

I am going to start "eating the elephant" in the mean time.


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## Andrew365 (26 Sep 2019)

The mortgage is large in absolute terms but in terms of OPs earning it is fine. What is intriguing is that you are working full time but have your own business that pays almost the same. The question is what is the effort required to earn that amount? For example you can't be doing a 40 hour work week and 40 hours in the business as well or at least it would not be sustainable. My question would be is there potential to grow the 65k if you spent more time on it? That may allow you to meet your goals of working less without having to give up the business, especially if it is something you are pasisonate about. 

I echo others comments just start paying off 500 a month on the mortgage,


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## North Star (26 Sep 2019)

I have to say this again, paying off mortage is the wrong priority until you have covered the following first;
1) life cover to support dependants
2) Income protection
3) build up a liquidity buffer

I honestly cant see the merit in making larger monthly contributions to the mortgage until the above have been dealt with. Its always prudent to plan for the worst and then hope for the best. 

All my opinion of course but a strongly help opinion none the less.

All the best Vincent


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## NoRegretsCoyote (26 Sep 2019)

North Star said:


> I have to say this again, paying off mortage is the wrong priority until you have covered the following first;
> 1) life cover to support dependants
> 2) Income protection


I am not convinced. OP has a very good net equity position in the house (easily €250k after fees). If the worst happened and they were down to one income they could easily move to a house just as large, just not in as desirable a location.



North Star said:


> 3) build up a liquidity buffer



Agree.


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## lledlledlled (26 Sep 2019)

Both OP and spouse are now paying 20% of two 70k salaries into pensions, in addition to two 8% employer contributions. 

Given the large mortgage debt involved, I think enough is now going towards pensions, and mortgage overpayments should be prioritised.


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## Nicetoknow (26 Sep 2019)

Just to clarify, we were intending on contributing 20% of both salaries, plus 8% employer cons PLUS 48000 a year to directors pension so approx 90000. I know it sounds huge but given we have tiny pensions we thought it might be wise to do this for a few years while we can benefit from relief at higher tax bracket (i understand this may be fazed out in the near future ) and then switch to mortgage overpayments.


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## Nicetoknow (26 Sep 2019)

North Star said:


> I have to say this again, paying off mortage is the wrong priority until you have covered the following first;
> 1) life cover to support dependants
> 2) Income protection
> 3) build up a liquidity buffer
> ...



I will definitely sort this out. Thanks for the advice.


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## Brendan Burgess (26 Sep 2019)

NoRegretsCoyote said:


> This is a fallacy. Arguably it is more important at a younger age as you can take advantage of coAmpound interest.



This is the line used by the pensions industry.

Paying off your mortgage gets you a guaranteed tax-free return equal to the mortgage rate.   If you make a whole pile of assumptions you may be able to show that, _at age 65_, you would be financially better off maxing your pension contributions instead.  These assumptions include

High pre-tax returns on your pension fund
Low mortgage rates to continue indefinitely
The tax regime on pensions to remain the same or improve
About 150,000 Irish people went through the misery of mortgage arrears.  I would guess that a lot of them had made voluntary pension contributions.

The OP faces two clear and present risks which could cause him huge distress in the medium term

A significant drop in income - he is using the word "burn-out"
A significant rise in interest rates
It is these risks which he needs to deal with immediately.

He also needs €100k for home repairs.

He has a very high mortgage.
He has a 70% LTV

His absolute first priority is to get that mortgage down.

I would think that a 50% LTV would be a good target as that will usually mean that he will get a lower mortgage rate on the entire mortgage.

But for the moment, go for a 60% LTV and then review matters.  You will be in a more comfortable position then and might decided to split your surplus income between your pension and mortgage overpayments. But worry about that when you get there. 



North Star said:


> 1) life cover to support dependants
> 2) Income protection
> 3) build up a liquidity buffer



1) and 2) are very bad value. You shouldn't be paying high premiums to protect against extremely unlikely risks while you are facing the real risks arising from a very high mortgage.

I just don't agree with the liquidity buffer while you have three incomes which are reasonably safe in the short term. If they become uncertain by all means, build up a buffer then.

Of course, you will build one up anyway on the way to saving for your home improvements.

Brendan


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## lledlledlled (26 Sep 2019)

Nicetoknow said:


> Just to clarify, we were intending on contributing 20% of both salaries, plus 8% employer cons PLUS 48000 a year to directors pension so approx 90000. I know it sounds huge but given we have tiny pensions we thought it might be wise to do this for a few years while we can benefit from relief at higher tax bracket (i understand this may be fazed out in the near future ) and then switch to mortgage overpayments.



Apologies, I had mis-read your post. 
In your high mortgage, high burnout probability situation, I would simply match the 8% employer contribution, and really focus on mortgage overpayments. 
I definitely wouldn't put more than 10% into the pension at this stage.


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## Brendan Burgess (27 Sep 2019)

Gordon Gekko said:


> The mortgage is not “frighteningly large”. It’s 3.17 times income in a world where Central Bank ‘macroprudential rules’ stipulate a maximum of 3.5 times with scope to go to 4.5/5.0 times.



The Central Bank 3.5 is a maximum and not a target.  The are macroprudential rules designed first and foremost for making sure that the banks remain solvent.  

By any standards 3.17 times an income for a couple suffering from burnout is huge.  Actually, it is frightening. 

You should plan your life to get out of the burnout lifestyle asap. 

Then work out what 3 times that income would be.  And that should be your immediate target as regards LTI. 

Brendan


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## Codogly (27 Sep 2019)

I have been making point number 3 of Brendan’s assumptions for quit sometime now ... taxation of future pensions , Mark my words future governments will move the goal post of taxation of pension income , the pension timebomb issue is going nowhere it’s inevitable that those who provide substantial occupational pensions for themselves will have to be taxed ( either directly or indirectly ) to fund others shortfalls.  So pay ofc the mortgage first.


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## NoRegretsCoyote (27 Sep 2019)

Brendan Burgess said:


> Paying off your mortgage gets you a guaranteed tax-free return equal to the mortgage rate.   If you make a whole pile of assumptions you may be able to show that, _at age 65_, you would be financially better off maxing your pension contributions instead.


True, but with a pension fund you have a liquid asset at the end, with a house you don't. You are 65 and want to purchase an annuity. Would you rather have €100k worth of an extension or €100k more in your pension fund? Of course the latter.

Second, the 'dividend' from owning your own house is getting to live in it. Like a pension fund, this is tax free, but it isn't re-invested, so you don't get the advantage of compound interest.



Brendan Burgess said:


> These assumptions include
> 
> High pre-tax returns on your pension fund



Over a thirty-year horizon returns are historically good. I can't predict the future of course but this goes for everything.



Brendan Burgess said:


> Low mortgage rates to continue indefinitely


They don't have to. But mortgage rates are low and falling at the moment. You would of course re-assess if this changes.




Brendan Burgess said:


> The tax regime on pensions to remain the same or improve



This could change, but so could tax on housing. Stamp duty or LPT could be higher in future than now.





Brendan Burgess said:


> The OP faces two clear and present risks which could cause him huge distress in the medium term
> 
> A significant drop in income - he is using the word "burn-out"
> A significant rise in interest rates
> ...



For the OP, I totally agree that mortgage paydown should be priority over pension, for five years or so at least.


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## SPC100 (27 Sep 2019)

I'd at minimum try to contribute enough to pension to get employers maximum matched contribution - this has a very high immediate return and potential to access in 14 years.

Given you say you don't think income is likely to continue at that level and ye want to reduce work hours, targeting mortgage with any other excess cash seems prudent. 

If contributing enough to maximise employers pension contribution, how much additional per year could you pay off mortgage/save for renovation work.


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## Brendan Burgess (27 Sep 2019)

NoRegretsCoyote said:


> For the OP, I totally agree that mortgage paydown should be priority over pension, for five years or so at least.



OK, so we are in agreement - that is all that matters. 

Brendan


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## North Star (27 Sep 2019)

Sorry Brendan I dont agree that life cover is bad value. An indicative quote  for dual life cover  ( pays out on both lives) for a 20 year term where the amount of cover decreases each year is approx €83 per month for non smokers. This is the type of cover that suits those who want to look after dependants until they are independent ( though in our house  we might need cover till they are 30... ) and the OP is saving €500pm.
Income protection is expensive but at least you get tax relief at the top rate of tax on the premiums. Serious illness I agree is much less beneficial
I approach the case not on the probability of the negative event happening, but more so on how serious would the implications be if the negative event happened.
If the OP is stressed and under pressure re a large mortagage currently, then how stressed would they be if they lost €135k of income?

Once  they build up assets/pay down debt  and are in a more comfortable position then by all means cancel the protection policies.

Thanks Vincent


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## NoRegretsCoyote (27 Sep 2019)

North Star said:


> Sorry Brendan I dont agree that life cover is bad value. An indicative quote  for dual life cover  ( pays out on both lives) for a 20 year term where the amount of cover decreases each year is approx €83 per month for non smokers.



OP already has mortgage protection cover. If he passes away his wife is down to one income, but she would have a very nice house mortgage free. I am not sure why people would want to insure for something more than this outcome.

Income protection is much more important. Over the next 20 years a 36-year old is much, much more likely to develop a work-limiting disability than to fall over dead.


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## Brendan Burgess (27 Sep 2019)

Hi Vincent

Clearly, we have to agree to disagree on this one. 

They have life cover with their mortgage protection policy. So in the very unlikely event that one of them dies, they will no longer have a mortgage to pay. 

I would love to know what the claims ratio is on income protection?  I would imagine it's very low.

Brendan


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## North Star (27 Sep 2019)

Thats a good question Brendan,  I will try to get info from the companies that offer incoem protection.
Vincent


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## Andrew365 (27 Sep 2019)

How did we get to a high probability of burnout?


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## Brendan Burgess (27 Sep 2019)

Nicetoknow said:


> We are working really hard, basically two jobs. I can't see us sustaining our current high income for more than 5 years. Our salaries may rise somewhat but we both want to do reduced hours to spend time with our kids.



Sounds like burnout


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## Brendan Burgess (27 Sep 2019)

Nicetoknow said:


> The risk of burn out is definitely something we need to consider- no point having cash in the bank if getting it makes us ill and unable to enjoy what we have in life.


Sounds like burnout


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## Andrew365 (27 Sep 2019)

Brendan Burgess said:


> Sounds like burnout



I think the OP needs to quantify, there a 3rd income but how much time does it involve and theres is a partner. If it is more each of their fulltime jobs are stressful then there are many people in the same situation. I can see myself burning out in the future a well. What I found interesting is the OP expressed as the only option to sustain current levels would result in burnout. Industries are going through change, wellbeing is now what employees want, the days of 9-6 in an office are fast disappearing. 

The ultimate goal here for the OP is to keep their earning as high as possible whilst also getting more free time to spend with their kids. It is fair to say they can't afford to lose one of the incomes due to current financial commitments and goals. The financial advice offered is sound but in terms of wellbeing the OP should start considering options to reduce the stress and avoid burnout. A few suggestion could be flexible working (work from home one day), reduce hours / compressed week, formally reduce to a 4 day week and reduce salary. Then lastly what I have found is I have had to compress my workdays into 4 essentially due to a part time course and what I have found is that I had a lot of dead time in my day that I was wasting and being a bit more efficient has allowed me to do so.


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## Nicetoknow (27 Sep 2019)

Andrew365 said:


> How did we get to a high probability of burnout?


Well I work 40 hours a week and then another 20 hours a week on my own business ( basically in the evenings) have two small kids so it is hard going and I don't want it to be like this forever. I definitely am not focusing on my health and well-being. I'm a 'she's by the way ( not the 'he')


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## Bronte (27 Sep 2019)

Nicetoknow said:


> The risk of burn out is definitely something we need to consider- no point having cash in the bank if getting it makes us ill and unable to enjoy what we have in life. We could look at selling to buy a new build that is a bit cheaper and requires lower running costs and no investment in next 10 years.
> 
> Partially it is the future cost of renovation / maintenance that scares me.
> 
> Worth considering what down sizing would look like for us.



I'm going to focus on this.  It's worth 925K with 650K mortgage. If you put in 100K renovations how much will it increase in value, or not much. 

- What do you both love about the house.   
- You've 275K of Equity, so I don't see any issue here.  Property would have to drop 30 % and you'd be at break even. I am absolutely not predicting house prices here. I'm doing a what if.  Of course paying down more of the mortgage is more of a buffer.  So then you have to look at how precarious are your jobs.  And if they are, then paying down more mortgage is one way to go. As is selling. 
- There is no breakdown of how you spend your money. If you want proper advise than you ought to give as much information as you can.  
- If your youngest is your last child, than child care costs will go down pretty soon. (though you have to think about later - college etc). 
- Too much focus on this thread on pensions I think.  
- Specific details on how much the house costs to maintain would be helpful.  
- What is wrong with downsizing? Or moving. In order to alleviate the stress you clearly are under.  Not sure if that's due to you feeling you've over stretched, the stress of a new expanded family, the size of the repair bills, or running two jobs.  Possible a combination of all of them.


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## Andrew365 (27 Sep 2019)

Nicetoknow said:


> Well I work 40 hours a week and then another 20 hours a week on my own business ( basically in the evenings) have two small kids so it is hard going and I don't want it to be like this forever. I definitely am not focusing on my health and well-being. I'm a 'she's by the way ( not the 'he')



See my post above, you don't need to consider it an all or burnout situation. It is very easy to just get caught up and everything spirals, it is clear you are putting your own well being second by worrying about money first. Generally you could be in a much much worse financial place and once you have taken onboard the advice here and have a 'plan' that stress should reduce. 

My advice is to focus on wellbeing which is essentially your work life balance, you need to have a life plan which in my view is separate to a financial plan.


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## goingforgold (27 Sep 2019)

Your net worth is 305k (275k house +30k savings). You have two very good incomes and are maxing out pension contributions. You're actually in a very good place financially and that hasn't really been spelled out yet. 

So therefore get a grip on your life overall...downsize to a more comfortable mortgage level and enjoy life with your young family (maybe go on a 3 day working week also). With over 300k equity you should be able to find a nice home with a reasonably small mortgage. 

You need to think about bigger picture...spending your life, while children are young, to pay off a big mortgage seems like a waste and something you may regret further down the line. It's all about the balance but living your life exclusively to make maximum money is definitely not advisable...life can be very short!


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## Nicetoknow (29 Sep 2019)

Hi. Thanks to everyone for sharing your advice/thoughts. They have triggered me to reflect deeply on my priorities. I think ultimately my question as to whether we are in a risky situation has been answered and the answer is yes. 

Risks pointed out to me;
1. Risk of going into arrears if we substantially reduce our income before reducing our mortgage repayments
2. Risk of ill  health in burn out scenario and knock on financial impact
3. Impact of putting money above time with family
4. Risk of having to pay out substantial tax on occupational pension due to future tax regime/ effect 'pension timebomb'

Possible ways to address these risk were suggested;

1. Downsize ( and reduce work hours. )
2. Agressively overpay mortgage/ reduce pension contributions
3. Overpay mortgage and retain pension contributions
4. Additional life assurance
5. Income protection
6. Serious Illness protection
7. Build up cash reserve in company 

My thoughts on the different solutions; 

1. Reducing work hours to 3 days a week is not an option with my employer (indeed very few, if any employers offer this in my field) I can take blocks of parental leave which I intend to do. Our current income allows both my husband and I to take unpaid parental leave in the immediate term.  I intend to exhaust this before considering moving from my current employer. 

Downsizing is a huge project. It's not something I want to take on now. I will keep it in mind as an option if we start to feel financial pressure and do want to reduce hours to a level that our income doesn't support.  If we downsized I know we would really be hoping to upsize ( get back to the location we currently live in)again in the future if all went well with our company - so for now I'm going to hold on to the house. 

2. / 3. After receiving advice on here, I have already increased the monthly  DD by 500 a month and diverted a lump sum .Paying down 650000 quickly seems unachievable but 150000 in overpayments in the next 5 years is not unrealistic if we put our minds to it. We intend to reduce back our pension cons to just match our employers and then increase mortgage repayments by the difference. 

4. We have very good cover with work plus mortgage protection plus my own company policy so I'm not going to increase life cover.

5./6. I intend to educate myself more on this front. Thanks for the advice.

7. I think this could be a better option than funelling money into the directors pension yearly as I was intending to do. I need to better understand the rules around backdating contributions. 

Finally in response to the burn out/ health/ family life topic. On reflection, despite working hard we are not stressed and are generally happy and healthy and I am getting a lot from both my paye job plus my own company. It was more that I don't want to have to work this hard forever  ( im sure most people feel the same! ) and wanted to discuss what would be the best course of action financially to allow us to reduce work hours in the future if we wanted to. I agree that reducing the mortgage would give us more options in the future so that is what we will prioritise.


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## Bronte (30 Sep 2019)

Sounds like someone has been a very good listener taking all advise on board. 

One thing, why do you want to take parental leave.  Because right now you're a high earner and that might not always be the case. Who knows what's around the corner.


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## Bronte (30 Sep 2019)

North Star said:


> Thats a good question Brendan,  I will try to get info from the companies that offer incoem protection.
> Vincent


My understanding of these type of policy is that they are very difficult to get paid out on.  Is that incorrect.  Plus they are costly?


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## Brendan Burgess (30 Sep 2019)

Nicetoknow said:


> Downsizing is a huge project. It's not something I want to take on now. I will keep it in mind as an option if we start to feel financial pressure and do want to reduce hours to a level that our income doesn't support. If we downsized I know we would really be hoping to upsize ( get back to the location we currently live in)again in the future if all went well with our company - so for now I'm going to hold on to the house.



Put downsizing out of your mind completely.  

It is unnecessary. 

While your annual repayments are high, your mortgage interest is about €15,000 a year, which you can easily afford. 

The costs of selling and buying are high.  So the financial benefit is much reduced. 

And if you were going to trade up again, it would be ridiculously inefficient. 

You face financial risks.  But they can all be managed through prioritising your mortgage over your pension. 

Brendan


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## Brendan Burgess (30 Sep 2019)

Nicetoknow said:


> 7. Build up cash reserve in company





Nicetoknow said:


> 7. I think this could be a better option than funelling money into the directors pension yearly as I was intending to do. I need to better understand the rules around backdating contributions.



This is the wrong idea.  You should pay the profits each year as income and use the net receipts to pay down your mortgage. 

Building up cash in a company is bad. You pay Corporation Tax on the profits retained each year. Then you pay income tax (or CGT) when you get them into your hands eventually. 

I think the point made was that with a company, you are not subject to the use it or lose it pension rules facing employees and the self-employed.

In other words, if you focus on getting your mortgage down to a safe level over the next 5 years, you will have lost some of the opportunity to contribute to a pension from your salaries. However, at that stage, you can stuff the pension from the company's profits.

Brendan


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## DeeKie (30 Sep 2019)

It can be hard, if you are a high earner and high achiever to step away from that


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## Nicetoknow (30 Sep 2019)

@Brendan Burgess Thanks for clarifying on this point


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## Blackrock1 (30 Sep 2019)

DeeKie said:


> It can be hard, if you are a high earner and high achiever to step away from that



yes, especially when you are relatively young, this talk of downsizing isnt really sensible, i assume you are in the house you want to be in, and you can afford it.

if i was you id rather the mortgage was a bit lower, but that should be achievable in the medium term.


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## North Star (1 Oct 2019)

Brendan Burgess said:


> This is the wrong idea. You should pay the profits each year as income and use the net receipts to pay down your mortgage.



As the OP has the benefit of a PAYE job and a Ltd company, there are options to build up reserves in the company and look at options such as Entrepreneurial relief, Retirement relief , termination payments pension funding, and liquidation at CGT rates etc to get funds out of the company in a much more tax efficient manner. Build up the reserves in the company and invest in the company name if you so wish ( i.e. treat it as a pension to generate some returns ) and at some point down the road you may well be able to generate a large lump sum to materially pay down mortgage debt  rather than in increments when you have already paid an effective tax rate of 50%.
As the reserves in the company are liquid you have the flexibility to change your strategy if required and pay yourself a salary in any year you so wish.
The tax efficiency will reduce the time it takes to become mortgage free instead of paying down debt out of after tax funds.

Just a different approach to meet the OP's objectives

Vincent


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## Nicetoknow (8 Oct 2019)

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