# using savings to paydown mortgage



## Leaky1 (1 Aug 2011)

I realise the topic of paying lumpsums off a mortgage has come up quite a lot recently, and I think I have read nearly all of them and learned a lot.

I posted previously about being in a fairly sizeable amount of negative equity (I do want to sell in the near future so it is an issue for me, however I don't think it will be achievable for quite a few years to come). Since my last post my estimate of how large the shortfall is has increased quite a lot, between the few apartment sales in the area, and also now that NAMA is proposing to sell apartments in our postcode and offer a 5-year guarantee against a drop in value.

So, I have been saving for a few years and have €22k set aside - in my ideal world this would have been my house deposit. As it is extremely unlikely I will be able to carry the negative amount to a new property, or make any deal with the bank, I feel the best option is to pay most of this amount off the outstanding mortgage (€177k).

My questions for you are:
1- how much of this €22k would it be recommended to set against the capital? i.e. how much ideally should a person keep as a 'rainyday fund'

2- if it does become possible for me to go for a mortgage in the next approx 2 years and a bank asks to see my savings history, will they accept that my savings are low because I paid lumps off the mortgage? Or would they be likely to penalise me and treat me like I was a big-spender... as if I had spent it all on shoes & handbags!

3- is there any point in holding out hope that the banks will allow a transfer of negative equity in the future, and therefore hold onto my savings for now?

My savings don't earn a lot of interest and I currently pay nearly 5% mortgage interest. Using them to pay down the mortgage seems like the sensible option but then again I was also brought up on the idea that "rent is dead money".

Any help would be appreciated.


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## julius128 (1 Aug 2011)

you should have at least 6 months of salary in your savings for rainy days.
if you have a tracker mortgage, then i hold to my savings again for next while.
There will be some sort of solution to negative equity in next couple of years in some sort of carry on debt or burden sharing by bank. Also if you wish to sell your house try to find a buyer and go to your bank with offer price and tell you pay 20k on top of selling price and come up with some some way of deal.


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## PaddyW (2 Aug 2011)

julius128 said:


> you should have at least 6 months of salary in your savings for rainy days.
> *if you have a tracker mortgage, then i hold to my savings again for next while.*
> There will be some sort of solution to negative equity in next couple of years in some sort of carry on debt or burden sharing by bank. Also if you wish to sell your house try to find a buyer and go to your bank with offer price and tell you pay 20k on top of selling price and come up with some some way of deal.


 
OP is paying nearly 5% interest, so doubtful they have one.


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## Leaky1 (2 Aug 2011)

I am not on a tracker, as Paddyw pointed out,just a standard variable. I feel this makes me bottom of the banks list of people to strike a deal with - i'm a good bet (for now) to repay in full longterm at an attractive rate for the bank.

Regarding the suggestion to keep 6 months salary as a rainyday fund - do you mean gross or net?


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## julius128 (2 Aug 2011)

Net pay i meant. If this is all your savings i would not recommand to pay it all, keep 6 months net pay in savings with easy access and high interest rate if possible.


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## Oscaresque (8 Aug 2011)

Leaky1, I am in a similar position to you (we keep crossing paths on these type of threads). I would be reluctant to put my savings against my mortgage right now. 

I hope in a few years to go to the bank with
W) my mortgage X) the offer on my house Y) the offer I have made on another house and Z) my savings. 

My gut tells me that the bigger Z is the better as opposed to the smaller W is. Not sure why though, and clearly my financial gut is pants otherwise I wouldn't have bought this house!!!

I would be interested in hearing what others think.


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## julius128 (9 Aug 2011)

Oscaresque said:


> My gut tells me that the bigger Z is the better as opposed to the smaller W is.



Agree, There is definitely going to be some solutions in near future for Negative Equity, so better to hold your money into savings than pay off mortgage at least for the moment.


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## Bronte (9 Aug 2011)

There will be no solution for negative equity for those who can afford to repay their mortgage.


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## Leaky1 (9 Aug 2011)

Bronte,
the only 'solution' I would be looking for regarding negative equity would be to transfer it to another property - but we have been through this debate before. I am mostly concerned that if I pay down the mortgage with my savings that the bank will look on this almost as frivilous spending as opposed to just trying to be smart(er) with my money. Considering the rate of interest I am on it seems like it makes a lot of sense to set the savings against the mortgage - I guess i am just trying to do some crystal-ball gazing to figure out if this decision will come back to bite me on the bottom in a few years!


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## Leaky1 (9 Aug 2011)

Oscaresque said:


> .
> I hope in a few years to go to the bank with
> W) my mortgage X) the offer on my house Y) the offer I have made on another house and Z) my savings.
> 
> My gut tells me that the bigger Z is the better as opposed to the smaller W is. Not sure why though, and clearly my financial gut is pants otherwise I wouldn't have bought this house!!!


 
I would like to think that the net difference between savings and negative equity is the one that matters - if you have €30k savings and €50k neg equity then your debt is still €20k. But as you said your financial gut and mine (!) is pants as we both find ourselves in similar situations.

Psychologically I think it would give me more pleasure to see my outstanding mortgage figure reducing than to see my savings a/c increasing - most days it feels like the savings are only falling into an increasing blackhole.


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## serotoninsid (9 Aug 2011)

Leaky1 said:


> I am mostly concerned that if I pay down the mortgage with my savings that the bank will look on this almost as frivilous spending as opposed to just trying to be smart(er) with my money.


I'm baffled as to how you would think this could be classed by anyone - but particularly your bank - as 'frivolous spending'?  Surely it could only be classed as 'prudent'?
You mention that your mortgage rate is just short of 5%.  I may well be missing a trick but there isn't any savings product out there that can come close to that (and that's before even considering 27% DIRT).  Therefore, your wasting money by not paying down part of the mortgage.
If your negative equity level is realistic, then it's not all that bad (by comparison with the multitude of examples AAM throws up week in, week out).  If it's your home and you can afford the repayments, over a longer term, the negative equity (in your case - not others!) will straighten out ...albeit that it's just a paper exercise if it's your home. 
Also, savings have the potential of being a liability given the ongoing crisis.  If (and of course it remains an 'if') we were to end up in a watered down euro or punt nua - then your savings would be devalued and your mortgage would remain in euro.

The only reason I can see for holding out is your thinking there might be some sort of deal done on negative equity.  I can only see that happen in the most extreme of circumstances - and even then, it will have repercussions for those that it's offered to.


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## julius128 (9 Aug 2011)

if any chance of converting to punt both savings and loans will be converted, it is pure nonsense to have only savings in punt and loans in euro within same institute. specifically if that is an Irish bank


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## Leaky1 (9 Aug 2011)

serotoninsid said:


> I'm baffled as to how you would think this could be classed by anyone - but particularly your bank - as 'frivolous spending'? Surely it could only be classed as 'prudent'?


 
Yes it seems like a strange thing to wonder but I would be concerned that if I pay lumpsums off now that in 2/3 years time a bank would look at my savings history (when submitting a mortgage application) and just see a low deposit. Instead of seeing, as you say, regular savings that were used prudently to pay a mortgage faster. Considering how often the banks are moving the goalposts regarding approving applications it is hard to say what opinion they would have of me using my savings in this way - would they accept an explanation of why I havent saved more? 

I am not holding out for any forgiveness re negative equity, that isn't the reason behind my delay in this decision. But it would be a kick in the teeth to get find that I screwed up again - I missed out on getting a tracker, I bought an apartment (unsuitable for longterm plans) at near the top of the market, and now that I feel a need to sell I probably have about 160% LTV.  I would be kicking myself if it turned out that I am just adding to my run of bad luck/bad timing.


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## serotoninsid (9 Aug 2011)

julius128 said:


> if any chance of converting to punt both savings and loans will be converted, it is pure nonsense to have only savings in punt and loans in euro within same institute. specifically if that is an Irish bank


How confident are you of this?  I'm only taking on board the knowledge that others on AAM have imparted on the subject (as initially I was of the opinion that it could only be as you suggested).  However, if what others have suggested is right - then your mortgage stays in euro (as the banks borrowed in euro) but you - as the ordinary joe - have your savings converted to punt nua - and that can only be devalued ...and by inference, your savings get devalued into the bargain.



			
				Leaky1 said:
			
		

> Yes it seems like a strange thing to wonder but I would be concerned that if I pay lumpsums off now that in 2/3 years time a bank would look at my savings history (when submitting a mortgage application) and just see a low deposit. Instead of seeing, as you say, regular savings that were used prudently to pay a mortgage faster.


Well - only a layman's interpretation on my part, but I would think that if you save regularly - and syphon off X amount into an 'on-demand account' - then as funds build up - you transfer repeated lump sums over to the mortgage account - then that can only be construed as savings.  Your bank statements will demonstrate that will they not?


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