# should I pay off mortgage?



## dimma02 (2 Feb 2010)

Hi,
I am in employment in the private sector, I have a mortgage of approx 120,000euro but have savings in bank of 200,000euro. I have no other debts at present but may buy a new car later this year!!!
question is should I pay off mortgage as still 21 years left on it or invest money....Know I am in ok position but money is burning a hole in bank so what should I do? thanks for your advice


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## galleyslave (2 Feb 2010)

*Re: should I pay off mortgage???*

you'll get no return from money in the bank and inflation will eat your savings so there's a definite case for doing 'something' with it. You can invest it in the hope that the returns beat the cost of servicing the mortgage, or you can clear the mortgage, freeing up cash to invest, save or spend! 

My choice would be to clear the mortgage - one less thing to worry about. You've accumulated a nice nest egg - don't let it go to waste rotting in a bank a/c


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## dubrov (2 Feb 2010)

*Re: should I pay off mortgage???*

I guess it all depends on what mortgage rate you are on. If you are on a low tracker, it almost certainly makes no sense to pay down the mortgage as you can earn more leaving it on deposit with the bank

If I were you, I'd use deposit rates as a barometer.If depost rates drop below your mortgage rate, it may make sense to start paying down your mortgage.

What about putting €100,000 in some high interest account and €100,000 in some soer of low cost index tracker fund. That way if mortgage rates rise over deposit rates you still will have the option to pay it down early.and you still gain some exposure to the stock market


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## shorty1 (2 Feb 2010)

*Re: should I pay off mortgage???*

A question to ask yourself is - if you had no mortgage and a paid for house would you take out a mortgage on it to put the money in the bank?

If I was you - no way! Pay off the mortgage and invest your mortgage payment every month and save up cash to buy a new car...


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## chlipps (2 Feb 2010)

*Re: should I pay off mortgage???*

I would clear the mortgage... whilst all these deposit and bank guarantees exist, I think there is still risk with banks. Have you the 200K in one bank..in one account? (note limits to protection schemes). Would be nightmare if an issue with your bank occured.. kicking yourself that you hadnt cleared the mortgage.


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## WaterSprite (2 Feb 2010)

*Re: should I pay off mortgage???*

Wow, I can't believe that 3 out of the 4 replies say to pay off your mortgage.  

As dubrov says, if you can earn a greater rate of interest on savings (taking into account DIRT on the savings and TRS on the mortgage, if you get it), then, to me, it's a simple question.  Some people believe philosophically in paying down their mortgage, in which case you can put some of the money against it, but from a purely financial point of view, that only makes sense if the gain paying off the mortgage outweighs the gain you could make from a high-interest deposit account (to take the lowest-risk example of what you could do with your cash).


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## chlipps (2 Feb 2010)

Watersprite...I suppose it all depends on the risk and gamble people are willing to take. If the OP said that they had 120K mortgage and 120K saving, then I would say reduce the mortgage but keep a minimum of 50K to hand as rainy day fund... with it in a high interest account. But in this case as OP has more than a rainy day fund available after clearing debts then why take the gamble.. Based on your response I assume you suggest keeping it in savings?.. so now 4-2 in favour of clearing mortgage? Will be interesting to see other views on this


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## PaddyBloggit (2 Feb 2010)

I'd pay it off ... and still have money in the bank.


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## WaterSprite (2 Feb 2010)

chlipps said:


> Watersprite...I suppose it all depends on the risk and gamble people are willing to take. If the OP said that they had 120K mortgage and 120K saving, then I would say reduce the mortgage but keep a minimum of 50K to hand as rainy day fund... with it in a high interest account. But in this case as OP has more than a rainy day fund available after clearing debts then why take the gamble.. Based on your response I assume you suggest keeping it in savings?.. so now 4-2 in favour of clearing mortgage? Will be interesting to see other views on this



A fair point - OP is fortunate enough to have pots of cash so can pay off the mortgage and still have a nice rainy day fund.  That said, I'd still do the math on the returns of paying off the mortgage vs a high interest deposit account.  If OP can earn more in a deposit account than s/he pays on the mortgage, then the only reason to pay down the mortgage rather than keep the money on deposit would be a philosophical one.

I don't see keeping the cash on deposit as a gamble.  I would see investing in the stock market, index funds or ETFs as a gamble, but not a deposit account.


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## dubrov (3 Feb 2010)

THe only risk I see in not paying off the mortgage is that the OP can't control their spending and blows all of their savings.

Judging by the position the OP is in, I would guess that he doesn't throw money away so not paying of his mortgage wins every time (providing he is on a low tracker). 

If the spread between deposit rates and mortgage rates reverts, then he can always pay it off later.

If the OP does pay it off early, not only do they save at a lower rate but there is also a lot less cash available if required. For example, if say the OP needed 200k in a year to start a business, they would have to go back to the bank and reborrow the cas at a much higher rate. An 80k rainy day fund is good but a 200k rainy day fund is much better.


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## paddyodoors (3 Feb 2010)

I am in the compare rates and keep on deposit camp.

Paddy


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## galleyslave (3 Feb 2010)

when keeping on deposit ensure you factor in DIRT and Inflation. 

EG, if  you get a 5% return, thats 4% after dirt. Now if inflation is 1% in real terms you've gotten a 3% return. Is that better than the hit you take on the mortgage or not?


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## Complainer (3 Feb 2010)

What is your overall position - age? family? job security? pension? 

You can't make a big decision like this in isolation.


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## dimma02 (3 Feb 2010)

Hi,
Thanks so far for the replies...
to answer some questions>
What is your overall position 

age? under 40
family? single
job security? Private sector...who knows but ok at present!!!
pension? Yes
Mortgage is a tracker 1% above ECB rate.

Instrest rates for despoits accounts seem bad and will not put in 'internet banks' like investec,,prefer the walk in kind.....!!! thats just me!!! I know I am in a good position at present but could I be better with no mortgage??

so should I pay it all off or at least half it off and wipe out alot of the instrest,,cannot see how i could get same instrest in a year minus DIRT in a deposit account as I pay per year on my wee mortgage...

Thanks for your help.


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## Complainer (3 Feb 2010)

If you don't have any other imminent major plans for the money over the next few years (e.g. start a new business, upgrade/move house), I'd be inclined to clear the debt. This will give you huge freedom - you just need to work for food. Fancy going part-time, or taking a career break, or going back to college etc?


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## dubrov (3 Feb 2010)

galleyslave said:


> when keeping on deposit ensure you factor in DIRT and Inflation.
> 
> E.g., if you get a 5% return, thats 4% after dirt. Now if inflation is 1% in real terms you've gotten a 3% return. Is that better than the hit you take on the mortgage or not?


 
Including DIRT is correct but on the other side you can claim TRS Tax relief on your mortgage interest. Also, Inflation is irrelevant in the comparison as it applies to both sides.


ECB+1% suggests you need a deposit rate of >2% if you are eligible for TRS on the full interest amount or 2.66% if not.

Higher rates than that should be avaialble from "walk in" banks.


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## japester (4 Feb 2010)

I am in a similar position to OP and would not dream of paying off the mortgage early since crunching the numbers tells me the rate I get from An Post over 5.5 years (21% net) will allow me to achieve a sizeable profit compared with paying my mortgage off (APR 2.85%, 120K remaining, 13 years left). The TRS isn't worth much to me at this stage but it all adds up.


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## Firefly (4 Feb 2010)

As you are in the private sector I'd hold on to the money, unless your job is very secure. Your tracker is great and you'll get more on deposit. If you were to lose you job, you'll be able to cover the repayments. If you want to trade up, you'll have a nice deposit to do so. Cash is king in this market!


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## SparkRite (4 Feb 2010)

This was discussed on the radio the other day, "Newstalk", I think.

Anyway the gist was that if you are on a low interest tracker mortgage then it is a "no brainer" to even think about paying off your mortgage, as a higher return can be achieved by investing or even depositing your capital.

If I was in the OP's position, would definitly not pay it off.


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## dimma02 (4 Feb 2010)

I get no Tax relief anymore on my mortgage,,If you take into account DIRT and tax also if you have to file a return on instrest then surely it makes more sense to pay of mortgage and save payments into a deposit account..still have a good lump sum left..
so reckon paying of mortage 20 years early was a good thing!!!
More confused now!!


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## dubrov (5 Feb 2010)

No file return is required as DIRT is deducted at source by Irish/English banks. i.e. the interest your receive will already be net of DIRT tax.

If you look on the deposits best buys thread, it looks like the best rate for on demand deposits at the moment is 3.35% from Permenant TSB. Factoring in DIRT and no TRS, I make that a saving of (3.35%*0.75 - 2%) = 0.51% on €120k so about €615 a year.

This margin may increase or decrease over time so it might be worth checking every 6 motnhs or so. Once it drops below 0, it probably makes sense to paydown the mortgage.

I guess you need to decide if the savings are worth the hassle.


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## endag. (7 Apr 2010)

not sure if this is the correct place to post, but my question follows; If i managed to sell the house I just moved out of (perhaps wishful thinking)I would like to invest the profit (definitely wishful thinking) and the original mortgage amount rather than paying off the mortgage as I am on a tracker rate. is this legal? or do I have to pay off the mortgage as soon as I sell the house? thanks for your help.


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## WaterSprite (8 Apr 2010)

You have to pay off the mortgage as soon as you sell the house because you will be transferring the deed of the house (which is the basis of the mortgage) to the new owner.


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## endag. (8 Apr 2010)

cheers! thought it was too good to be true


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## Frank (12 Apr 2010)

I would love to be in this position.

The mortgage is an awful noose around the neck.

I suppose you could pay off part of the mortgage 60 to 100 grand then wipe out the rest over a few short years.

How about going to Vegas and putting the lot on black


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## plendoza (15 Apr 2010)

Congratulations to the OP for accumulating and holding on to his savings during the Celtic Tiger years. Depends on your earnings of course, but a lot of credit due here. 

Maybe you could give Brian Lenihan a break while he is getting treatment.


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## dimma02 (18 Apr 2010)

plendoza said:


> Congratulations to the OP for accumulating and holding on to his savings during the Celtic Tiger years. Depends on your earnings of course, but a lot of credit due here.
> 
> Maybe you could give Brian Lenihan a break while he is getting treatment.


 Thanks for that,,did'nt pay off mortgage as got better instrest in savings at present so will monitor,,,sometimes I do feel like I should blow off a bit of it and have a good time but then the sensible side takes over!!!!!!


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