# Savings; keep them or use for mortage reduction



## mummol (2 Sep 2008)

We are currently building.  We will end up with a mortage of E280k which we are aiming to pay off in 15 years time.  There are no other loans.  

We have circa E30k in savings.  This is a combination of future college funds and wiggle money if something goes wrong with jobs.

Half of me feels we should use some of this equity to reduce our mortage.  DH isn't keen as he feels wiggle room is more important in this economy.  

What are peoples thoughts on this?


----------



## ClubMan (2 Sep 2008)

For what it's worth:

Using Karl Jeacle's mortgage calculator:

€280K @ 5% over 15 years costs a total of c. €119K interest (plus the original €280K capital) excluding mortgage interest relief

€250K @ 5% over 15 years costs c. €106K

A difference of c. €13K. Your mortgage protection life assurance premiums would also be lower in the second case.

Would you expect to earn that amount on €30K over 15 years?


----------



## Pedro1 (2 Sep 2008)

A 5% interest deposit account would pay 4% after DIRT @ 20%. Over 15 years I believe the interest earned on the 30k would be about 22k after DIRT. Correct me if I'm wrong here ...

Apart from that I believe that it is better to have 30k cash in the bank with a 280k mortgage, rather than a 250k mortgage with no spare cash. 

I've looked at this myself as I'm in a similar position, but from what I've worked out with interest rates on deposit accounts similar to mortgage rates there is no large benefit in moving savings just to pay off the mortgage. 

It's nice to see the mortgage come down, but the downside is that you lose flexability if you lose your job for a few months or you need money for an unexpected event. With 30k in the bank you could live and pay your mortgage for a number of months until you find a new job, without the cash buffer you have bills and no cash to pay them in the interim .. very stressful I'd imagine.

Cash is King ...


----------



## MandaC (3 Sep 2008)

Am in a similar position to you.  I have €160K mortgage with €35K savings and had considered putting the savings off the mortgage.  


I feel better knowing I have some back up should anything go wrong, ie job loss, etc.


----------



## ClubMan (3 Sep 2008)

Also bear in mind that the lower the mortgage and the lower the _LTV (Loan to Value) _ratio then you may qualify for a lower tracker margin thus saving even more money on the mortgage.


----------



## mummol (3 Sep 2008)

Thanks for your replies.  have forwarded that link to him to see if that appeals.  

The total loan is less then 50% of house value (well aware in a falling market house value is irrelevant; especially since our County Council prevent us selling for 10 years).  But its a help on the tracker mortage and its mental to think we owe less then the people who bought our last house.

His job is pretty recession proof but mine is possibly the exact opposite.  We've stress tested ourselves and know we could live on one salary - it just wouldn't be fun.


----------



## ClubMan (3 Sep 2008)

mummol said:


> The total loan is less then 50% of house value (well aware in a falling market house value is irrelevant;


It's not totally irrelevant - for example it influences the _LTV _ratio which can dictate what tracker rate is available to you.





> We've stress tested ourselves and know we could live on one salary - it just wouldn't be fun.


Have you worked out how you might be fixed and what adjustments might need to be made if this did happen just in case?


----------



## mummol (3 Sep 2008)

I know its not irrelevant in terms of mortage stuff but trying not to link the value of the house into how wealthy or not we are.  Not sure if that logic makes any sense but have seen alot of friends gear up for different things based on house values and now really feeling the pinch!  

We've had a long hard look at things.  One salary alot of the silly stuff would go in terms of lifestyle socialising, hols.  We're not madly extravagent but there are treats in there too.  But some bills ie childcare, fuel etc would drop too.  We could stretch the mortage out to 20 years too if needed to be; but the plan is to pay it off with dhs gteed annual bonus top ups in time for oldest entering 3rd level.  DH is very sensible with money.  (Obviously if he can manage to save while currently paying rent and mortage without dipping into house build fund).  Me I take care of weekly expenditure.  Food, nappies, clothes & childcare.  But Having grown up in the 80s and seen my parents really struggle the thought of real financial hardship scares the bejasus out of me!  Hence the opening post.


----------



## mell61 (4 Sep 2008)

Mummol,
The thing that jumped out at me was 'we're building', if its like most building project I've seen, you may find that you need to dip into this money for extra costs that are either overruns or additions you didn't budget for.  
Personally I'd keep it separate for now, in the longer term you have the options of making a lump sum payment off your mortgage if you still want to.


----------



## mummol (4 Sep 2008)

Mel!

The E280k includes contingency spending and enough to landscape and finish outside.  We had E160 of our own money to purchase the site and pump into this so the house hasn't been as cheap as we thought it would be.  But nearly done now and expenses have been very detailed.  But if needs be we have E300k mortage facility available.


----------



## phileasfogg (5 Sep 2008)

Does your buget include fitting out the inside? kithchen, floorings, bathrooms and furniture, these can cost more than predicted.  It might be nice to have access to cash until you are sure what you'll be spending on the inside.


----------



## mummol (8 Sep 2008)

E280 mortage includes all of the above as well as external landscaping, driveways, walls.  We're nearly at the end of the process (plastering at the mo) and all the big decisions are made.  Total spend is E440 and if we go over that we really do need our heads examining!

Phileas too right that can really add to cost.  I'm well used to when I describe what I want - the words 0h thats a bit dearer!!  So is dh!  Only buying new furniture for our bedroom.  All else we have will do for this new abode.  I feel a visit to Ikea coming on for cream couch I need for sun room.


----------

