# Advice on mortgage repayment strategy/money makeover



## TRipley (6 Aug 2010)

Age: 36
Spouse’s/Partner's age: 39

Annual gross income from employment or profession: 75k
Annual gross income of spouse:60k

Type of employment: e.g. Private and Public 

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

Rough estimate of value of home: 400-450k
Amount outstanding on your mortgage: 360k, 22 yrs left, ca. e1700/mnth
*What interest rate are you paying? ECB+0.85%*

Other borrowings – car loans/personal loans etc: None

Do you pay off your full credit card balance each month? Yes
If not, what is the balance on your credit card? 

Savings and investments:40k shares, 15k cash

Do you have a pension scheme? Yes

Do you own any investment or other property? Yes
Value: ca. 200k
Mortgage1: 104k at ECB+0.85% Int only
Mortgage2: 52k variable (3.6%) Int only

Ages of children: 6 mnths

Life insurance: Yes


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

We bought our house with a 25yr mortgage of 478k in March '07. We also used a 52k equity release from our former house (which we couldn't sell) to fund the cost of the new house (600k). The balance we paid with cash. 

We have been renting the old house since with no issues. Rent is e800/month. 

In Mar '08, we switched the mortgages on the rented house to interest only for a 3 year period which is up next April. Currently it costs ca. e300 per month to service the int only mortgages.

We have also being overpaying on our PPR to bring the mortgage from 478k to where it is now at 360k. We keep 15k cash as a rainy day reserve.

My question is:

our strategy to date has been to put excess cash into our PPR mortgage to reduce it. We had planned to continue on the same path until the mortgage on the PPR was about 2xgross income in about 2 years time (280k) and then maybe relax the overpayments. We had been doing this by overpaying the mortgage by about e1300 per month and by making a minimum 10k per annum as an extra lump sum payment.

However our little fella is starting into childcare in Oct which will cost e900/month and the int only period on the rented house will be up next April so our costs will be increasing over the short term.

My question is what is the best strategy from this point?

1. continue to overpay on the PPR mortgage to get towards 280k (albeit at a lesser rate because we now have to fund childcare from Oct).

2. don't overpay the PPR mortgage anymore because it's a good tracker rate and we are only dimimishing our TRS. This could let us focus on paying down for example the 52k mortgage which is at a higher rate.

My personal attitude is as follows, I don't really think there is much money to be made routing the excess cash to a deposit a/c as after dirt there is not much difference in interest. I also don't make any AVCs although my spouse does. I have an emotive desire to reduce our debt particulary on the PPR. The rented house is in a very good area, is currently profitable and I would be reluctant to try and sell it in the current climate.

Is there another option I am not considering? We are taking holidays every year and are not over-pressurizing ourselves with the overpayments however it is a lot of money and I want to make sure our strategy is OK. We have no need to upgrade our PPR in the medium term.

Any advice on our strategy from here would be great thanks,


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## goingforgold (6 Aug 2010)

I think your strategy is pretty much spot on. However as soon as you move off interest only on the second mortgage of investment property you would be correct to start overpaying on this and not PPR as the interest rate is higher. 

You don't receive tax relief for the interest on this mortgage (52K) on your investment property as it was taken out as an equity release for PPR. Therefore no problem reducing this part of mortgage. Don't reduce other mortgage (104K) as you can right off interest on this mortgage for tax purposes so not wise to be reducing it when you can be reducing other mortgages.

You appear to be in good shape. Best of luck!


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## goingforgold (6 Aug 2010)

One word of caution. You are quite heavily exposed to property and although you are nowhere near negative equity and have substantial savings/shares, it may be wise to reduce your exposure if the opportunity presented itself. 

You have large mortgages which can be easily serviced at this stage but one of you may want to work partime at some stage or take a career break so it would be nice to have those opportunites also.


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