# What to do with savings



## Jamesc007 (18 Oct 2018)

Hi,
I am considering whether to pay off my mortgage in part or in full - not sure which and hoping for some suggestions.
I currently owe 92k on a variable rate of 3.7%. I have 14 yrs left but over pay by ~700 each month.
I have 111k in various deposit accounts ranging from 0.1%-1%.
I have no other debt.
My pension is maxed out at 25% p/m.
My wife has no debt and has savings of ~ 20k.
We have two kids ages 3 & 6.

I am reluctant to pay off all of the mortgage all at once and would prefer to make a redemption of 20-30K now and pay off the balance over 4-5yrs. I am not overly financially savvy and the more forums I read the more paralysed I feel. I would also like to start long term savings/ investments for children's future but the more I read about investments in Ireland the more I steer away from it.

I need to start putting my money to use as its earning next to nothing but am consumed with doubt and lack of confidence - a bit of "paralysis by analysis". I realise my questions are not new on this forum but would very much welcome any thoughts/ suggestions.

Thanks James.


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## Protocol (18 Oct 2018)

You can "earn" a 3.7% return by repaying that mortgage.

Repay it.

Then think about redirecting the previous mortgage payment to long-term savings.

You are doing very well to have 25% pension conts and a house and 20k savings each.


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## BilliamD75 (18 Oct 2018)

Clear the mortgage and get rid of it, that's been savvy it gives you the freedom to make financial decisions with the extra money with no over hang, that would be the best decision for the childrens financial security, just an opinion best of luck


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## Opus2018 (18 Oct 2018)

Hi James,

Agree with the previous posters.  You earn a 3.7% return on repaying the mortgage as Protocol has said.  To get that sort of return net, you'd have to be getting over 7% gross on say a savings account for example.  In addition to this, you are now freeing up cash flow of around 660 on the mortgage payment every month PLUS the 700 overpayment.  Given you've maxed out the pension and still have a decent bit of cash left over, I'd pay it off.  You might want to keep some of the 92,000 back for some other expense, but in the absence of this being an issue, just get rid of it.

Hope this helps,

Opus 2018.


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## Gordon Gekko (18 Oct 2018)

It’s even more pronounced than that; repaying debt at 3.7% is like earning an investment return of circa 6% gross. Why? Tax. Where else can you get a guaranteed return of circa 6%?


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## Opus2018 (18 Oct 2018)

Hi Gordon,

It's a bit higher isn't it when you account for the USC deduction? I had forgotten that DIRT is coming down in successive budgets.

Best,

Opus 2018.


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## gnf_ireland (19 Oct 2018)

Jamesc007 said:


> I currently owe 92k on a variable rate of 3.7%. I have 14 yrs left but over pay by ~700 each month.
> I have 111k in various deposit accounts ranging from 0.1%-1%.


What are your annual expenses like after mortgage? You should keep 6 months or so on deposit in a rainy day fund. Of course you should ask the questions around how stable is your job/industry? What happened in the last downtime (salary wise/jobs wise) etc. How transferable are your skills etc

Then pay the remainder off the mortgage immediately - the reason as others mentioned is you get a guarantee return of 6-7%
Then I would personally go on a nice holiday to celebrate being mortgage free with the family !

After that, put 700 euro a month in to a savings/investment account for long term expenses (including the children's education). Do you have any plans to send the children to private schools etc, or are you just thinking about 3rd level?

We done something similar two years ago (reduced it to next to nothing - kept it alive for a drawback feature I have on it), and it allowed my wife to reduce her working week from 4 days to 2.5 days - allowing her spend more time with the kids when they started school. She gets to bring them to certain activities and do homework with them 2 days a week, as well as host play dates on Friday afternoons. None of that would be possible while carrying a mortgage commitment (granted mine was heavier than yours)


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## Jamesc007 (19 Oct 2018)

Hi,
Thanks for advice guys. I have read many of your posts on AAM and know you give sound advice. I kinda guessed that would be the advice anyway.

gnf_ireland
Expenses are relatively low to be honest - I reckon we could get by on 20k-22k per year at the moment. I would have about 7-8 months salary left on deposit. Job is OK, it kept going during the last recession and seems good for at least another 2-3yrs. Not too sure about skills as I'm a bit pigeon holed but could lie and make it look good . Just third level for kids really.

I can see clearing the mortgage is the best move. I'm just not judging it dispassionately. I only see 92k and not the 92k + the interest which for me is ~an extra 26k according to DrCalculator.

Thanks, James.


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## elcato (19 Oct 2018)

I'd go half-way and pay off 50k off the mortgage. Then I would see if I can save that 20k you mention. If you do then pay that off next year. If you needed an overdraft of 50k how much would you pay in interest ? A lot more than 3.7%. Paying off now may leave you vulnerable in a few years. Just my tuppence ...


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## gnf_ireland (19 Oct 2018)

Jamesc007 said:


> I only see 92k and not the 92k + the interest which for me is ~an extra 26k according to DrCalculator.


Correct - and obviously pointing out it is also 26k after tax as well - so you probably have to earn 50k to pay it !



Jamesc007 said:


> Expenses are relatively low to be honest - I reckon we could get by on 20k-22k per year at the moment.


If you can get by on 22k a year, having 111k on deposit while paying 3.7% on the mortgage is definitely not good financial sense. This roughly 5 years expenses sitting on deposit

Before I make a final recommendation, I should ask the state of your pension fund and how you are fixed, as you can still make a pension payment for 2017 if you are not maxing it out. That may also make sense given other considerations (i.e. mortgage under control)



Jamesc007 said:


> Not too sure about skills as I'm a bit pigeon holed but could lie and make it look good


Might be worth looking at how that can be addressed in the medium term and if you need to keep a reserve in place to allow reskilling (i.e. number of courses etc)



elcato said:


> If you needed an overdraft of 50k how much would you pay in interest ? A lot more than 3.7%. Paying off now may leave you vulnerable in a few years.


This is why I specifically asked about the cost of living an the security of the job. However, if there are general other concerns such as car needing replacement etc, then this should be factored into it. But yes, if you take a conservative view, then keep it on deposit and pay 3.7% on the basis you may need the funds in the future for some unplanned event.

One final element on this, if you believe for example that we are due a crash sometime soon and properly may drop considerably and this would create an investment opportunity for you, then there is also a case to hold liquid cash. In this case, cash would be king as banks would not lend in such scenarios. However, that kind of advice would be difficult to give without fully understanding your financial situation, your risk profile and your expectations on financial returns.


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## Jamesc007 (19 Oct 2018)

elcato said:


> I'd go half-way and pay off 50k off the mortgage. Then I would see if I can save that 20k you mention. If you do then pay that off next year. If you needed an overdraft of 50k how much would you pay in interest ? A lot more than 3.7%. Paying off now may leave you vulnerable in a few years. Just my tuppence ...



This is something I have looked at. If I paid off 60k now coupled with increasing monthly repayments by 500 I would only pay ~1600 in interest. I could live with this as it would also leave me with more of a buffer to future downturns as gnf_ireland has suggested. But also, as you alluded to, I am planning some house upgrades in the near future and do not want to have to dip down near my "rainy day fund".



gnf_ireland said:


> Correct - and obviously pointing out it is also 26k after tax as well - so you probably have to earn 50k to pay it !
> 
> 
> If you can get by on 22k a year, having 111k on deposit while paying 3.7% on the mortgage is definitely not good financial sense. This roughly 5 years expenses sitting on deposit
> ...



I have been maxing out the pension since 2016. Basically I worry a bit too much but mainly its due to a lack of knowledge. The more forums/ articles I read the more overwhelmed I feel and hence the lack of action and so much on deposit. I have reached a point where I need to take some action but am reluctant to commit to repaying the whole lot at once and would prefer the strategy above.
According to a lot sites (for what their worth) my risk profile is bang in the middle . I have looked into purchasing ETFs but when reading about the tax in this country I backed away. I also looked at purchasing funds through Standard Life and Friends First. The market seems to be at a peak now and coupled with the looming Brexit debacle I would be a wee bit reluctant to commit too much until these pan out a bit more + the fees seem a bit high as stated in other threads? And as said by all I would need to be making > 7% a year to be worth it when stacked against repaying the mortgage.

Thanks, James.


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## gnf_ireland (22 Oct 2018)

Jamesc007 said:


> I have looked into purchasing ETFs but when reading about the tax in this country I backed away. I also looked at purchasing funds through Standard Life and Friends First.


Exit tax in this country is 41%, and there is no offset for losses made again profits gained. It is an horrendous tax treatment for ETF's in my personal view, as I personally feel low cost ETF's are a much better investment for retail investors than individual shares - especially passive ones which track indices.
I really feel that for people like you (and I), the concept of an ISA is badly missing from this country, whereby a certain amount can be invested each year (after tax) and grow tax free - to encourage people to have a cushion to fall back on in times of economic uncertainty. Even if it was just 250-300 euro a month [3000-3600 a year] it would be something to work with, rather than always look at ~40% tax on any investment made.
For this exact reason, I took the decision 2 years ago to liquidate all my ETF's and effectively paid off my mortgage. I was simply tired of taking all the risk on them and they paying the government 40% for the privilege !



Jamesc007 said:


> And as said by all I would need to be making > 7% a year to be worth it when stacked against repaying the mortgage.


Agreed - and that is a guaranteed 7%



Jamesc007 said:


> The market seems to be at a peak now and coupled with the looming Brexit debacle I would be a wee bit reluctant to commit too much until these pan out a bit more + the fees seem a bit high as stated in other threads?


Final comment is timing of the market is a very difficult thing to do, so be careful on any attempts to do this. 
I have the same considerations at the moment - my pension fund is at the stage where it is now valuable. I am not sure now much growth is left in the market, and considering do I derisk some of it, and then pick a point when I would re-enter. I know most on here will tell me I am crazy for even considering it, but I imagine a reasonable amount of people think the same way !


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## Jamesc007 (26 Nov 2018)

Sorry I've been away for a while.
I've decided to pay 70k off the capital leaving me with 21k to repay. The interest will be 1.3k which I can live with even though it is a loss. I am more comfortable with this approach. I will decide next year whether to pay off in full or leave it the remainder of the term based on how my savings accrue. Thanks for your advice I appreciate it!


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