# Mortgage repayments are crippling



## mmimelda (5 Nov 2019)

Age: 52
Spouse’s/Partner's age: 54

Annual gross income from employment or profession: 65,000 (4 day week)
Annual gross income of spouse: 81,000

Monthly take-home pay approx. 7000 ( AVC’s and Income continuance have been deducted at source)

Type of employment: e.g. Civil Servant

In general are you:
(a) spending more than you earn; Yes
(b) saving: AVC’s

Rough estimate of value of home 300,000
Amount outstanding on your mortgage: 180,000 (2,300 per month with 6 and 1/2 years remaining)
*What interest rate are you paying? 4.5% ( currently looking at switching)*

Other borrowings – None

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


Savings and investments: 80, 000 state savings for children’s education

Do you have a pension scheme? Yes; my husband did not join pension scheme until he was 40 and I have very broken service due to career breaks and job sharing for child rearing. He has AVC’s up to value of about 70,000

Do you own any investment or other property? Yes rental property valued at 140,000 with renal income of 550 and just mortgage free this month.

Ages of children: 16, 15, 12, 10

Life insurance: No but both have salary protection at a cost of approx 70 each per month


*What specific question do you have or what issues are of concern to you?*
Mortgage repayments are over 2, 300 per month and find we are always having to be really careful with money. We both drive approx. 45 km to work. We would like to retain investment property in order to prop up pensions upon retirement. We wonder if we should pay off as much of mortgage as possible using children’s education fund and building this back up again thereby reducing the amount of mortgage interest we pay. We are also in consultation with another bank re switching.


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## Brendan Burgess (5 Nov 2019)

mmimelda said:


> Savings and investments: 80, 000 state savings for children’s education



You are borrowing at 4.5% interest to invest in a bond paying you 0.5% or maybe 2% depending on when you bought them.

That is crazy.   You have lost a lot of money doing this over the years.

Your investment property
Rent €6,000 
After tax: €3,000  assuming no expenses

If you paid the €140,000 off your mortgage , you would save 4.5% a year or €6,300

So
Sell the investment property and pay down the mortgage
Use €40,000 of your savings to clear the mortgage

Now you will have €40,000 cash and you will have increased cash flow of €2,000   (€2,300 - €300 net rent) per month.

That should be plenty to fund the education of your children.

When you have got your head around this and sold the property and cleared your mortgage, then you can think about how much you should contribute to your pension.

Brendan


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## Brendan Burgess (5 Nov 2019)

Will your children live with you when they go to College? 

If not, might they live in the investment property? That is the only reason that you might keep it. Even  then, it would probably be better to sell it.

Brendan


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## NoRegretsCoyote (5 Nov 2019)

You will save several hundred a month by switching as you will get something below 3.0% now.

It might be worth lengthening the mortgage term as well to push the term as long out to 65 as possible. You will have a lot of expenses in the next decade with the kids.


Btw the rent seems very low for a property of that value. Are you in a position to increase it?


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## dereko1969 (6 Nov 2019)

Is there an option to return to a 5 day week?


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## mmimelda (6 Nov 2019)

Thank you very much for all of your helpful replies. They are all viable options and we need to take action. The thoughts of lengthening the mortgage sends shivers up my spine though. I have thought about cashing in practically all of the savings to pay off as much as possible off mortgage and then rebuilding the savings with the spare cash thereby reducing the amount of interest paid.
The rent is low and similar properties are getting between 200 and 300 more. Our tenants have been with us for a good while and cause us no problems but it may be the time to address this.
5 day week is also an option.
Thanks again for taking the time to reply


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## Brendan Burgess (6 Nov 2019)

Your priority is to sell the property.  That is clear. 

If you don't do that, then you should be able to get a better rate from your current lender.  And better again with a switch to a different lender. 



mmimelda said:


> The thoughts of lengthening the mortgage sends shivers up my spine though.



It shouldn't.  Most of your monthly repayment is capital.  Delaying capital at a time of your life when you have a few years of very heavy educational expenditure is the right strategy.

Brendan


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## NoRegretsCoyote (6 Nov 2019)

mmimelda said:


> The thoughts of lengthening the mortgage sends shivers up my spine though.



I'm not sure if it's as big a problem as you think. As a civil servant you will have a pension lump sum within the next decade which you use to clear the capital.

You are about to have a stretch of years with up to three children in college at the same time. This is highly expensive. You will need a lot of cash flow. It doesn't make sense to be paying down cheap finance now and then be going to the credit union in ten years' time to be paying 8% or whatever.


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## sputnik1 (6 Nov 2019)

Discuss selling the properties with your other half. If it were me I would sell and be done with the mortgage. 
What ever you decide selling the property will not be done overnight. 
As a priority you can and should switch the mortgage to a better rate, this can be done right now. 

First off ring the bank and tell them you are thinking of switching and see what they offer you.


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## Sarenco (6 Nov 2019)

This is really a text book example of inappropriate "mental accounting". 

It's really important to look at your overall financial picture instead of just focusing on the component parts.

You currently have borrowings of €180k @4.5%.

At the same time, you have an asset (the rental property) worth €140k that's only paying you around 2% a year, after tax.  That makes no sense - sell the rental and pay down your mortgage.

You also have savings of €80k earning a very low rate of interest.  Again, that makes no sense while carrying expensive mortgage debt.

You could be living mortgage free, with around €40k in liquid savings.  You would then have more than enough cash flow to maximise tax-relieved pension contributions and to fund the eduction of you children.


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## Bronte (6 Nov 2019)

mmimelda said:


> The thoughts of lengthening the mortgage sends shivers up my spine though.



It's exactly what I did two months ago as I have high educational costs going forward.  And like you most of my repayment is capital.  And you're both civil servants so it makes no sense that this scares you !  Not only that you're both early fifties. 

My advise is to move mortgage to get a better interest rate and extend.  You have extra income now as well from the rental.  

Your rental income is very low compared to the property value.  You have to do something about this.  

I would not sell the rental property.  But if you were to sell it I'd use it to buy another rental that gives a better return.

What is happening the 4700 you have to spend a month? (7000 - 2300).


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## Easel (6 Nov 2019)

Bronte said:


> What is happening the 4700 you have to spend a month? (7000 - 2300).



This is what I was thinking too.

Why not switch mortgage provider and extend the term out as far as allowed whilst reducing the interest rate. There is no reason you can't overpay your mortgage should you find yourself in a position to do so. What extending the term does is it gives you flexibility to reduce your outgoings initially whilst retaining the option to overpay, which in turn will reduce the term again. This assumes you do not sell the investment property which you should as outlined by Brendan above.

Do you know roughly how much it will cost per child per year to attend college?

Is the below an accurate timeline for each to be in college. Assuming all do a 4 year course with no further studies?



YearChild 1Child 2Child 3Child 42021x2022xx2023xx2024xxx2025xx2026xx2027xx2028x2029x


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## mmimelda (6 Nov 2019)

Thank you all very much for your really helpful replies. I appreciate you taking the time to help me out.
I have kept a diary of expenditure for the past month and am working now on the annual spend.
We need to take a proper look at our pensions too see exactly what the state of play is.
Assuming the 4 year college term ,as suggested, per child and with an average spend of 12-15,000 per year we are looking at 4x48=192, 000. The timeline is fairly accurate but would go from 2022 - 2031. There are 3 years between child 2 and 3.
I know I have put all of this on the long finger but financial management is not something I enjoy.
I have an apt with another bank on friday as my bank has refused to move on rates. Fixed rates are far more attractive at the moment.
Thank you.


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## Brendan Burgess (6 Nov 2019)

mmimelda said:


> I have an apt with another bank on friday as my bank has refused to move on rates. Fixed rates are far more attractive at the moment.



Which lender are you with?


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## mmimelda (6 Nov 2019)

Danske Bank.


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## Brendan Burgess (6 Nov 2019)

OK.

Is it an offset mortgage by any chance? 





__





						Danske Bank offset mortgage - offered 30% discount to clear early
					

Recently I received an offer from Danske bank offering approx 30 % writeoff if I move away from them as they want to shut non corp banking. Should I accept as approx 60 k left on mortgage?



					www.askaboutmoney.com


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## mmimelda (7 Nov 2019)

Unfortunately not Brendan, but thank you!


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