# 'Financial Resolutions' for the New Year



## gnf_ireland (31 Dec 2016)

Similar to New Years Resolutions, I am wondering do many people make 'financial' resolutions for the year ahead, and if so what type of things do they consider?

Over the last 2 years, I have evaluated and switched both my mortgage and my pension to get substantially better deals, as part of my 'New Years Resolutions'. I will continue to keep an eye on the mortgage situation, and switch again if it is financially worth by while to do so.

This year my 'financial resolution' is to engage an independent (fee paying) financial planner/adviser to evaluate by financial position and incorporate any suggestions/proposals they make into my financial plan for the year. Being 20-25 years out from retirement, I think it is a good time to do this.

This will include determining a replacement 'investment' for my children's education fund - currently monthly contributions with Rabo-direct but this is coming to an end from April. 

I also plan to review all relevant 'insurances' as a self-employed person should, including death in service, income protection, critical illness etc, and re-quote for existing life cover and mortgage protection cover just in case it is available cheaper elsewhere.

Anyone else do similar things, and if so what do you consider?


----------



## Bronte (2 Jan 2017)

Gnf why don't you post your details on here so we can have a look and maybe spot something you are missing.


----------



## cremeegg (2 Jan 2017)

Bronte said:


> Gnf why don't you post your details on here so we can have a look and maybe spot something you are missing.



And then compare the advice you get free here with the advice that your broker gives you. At the least you can keep the broker on her toes !


----------



## Brendan Burgess (3 Jan 2017)

gnf_ireland said:


> This will include determining a replacement 'investment' for my children's education fund - currently monthly contributions with Rabo-direct but this is coming to an end from April.



Well let's start with this one.  This is one of the biggest mistakes people make "compartmentalizing" their money.

You have a mortgage with KBC which is on 3%.  So you can get a guaranteed, risk free, tax free, return on your money of 3% by paying down your mortgage. 

So cash in your education fund and pay down your mortgage. 

As you are, in ten years' you will have a mortgage of say €200k and an education fund of, say, €50k. 

Assuming the same returns, if you pay down your mortgage, you will have a mortgage of €150k which is the exact same net result. 

But it's very likely that the net return on your fund will be less than the interest you pay on your mortgage, so you will probably end up with a mortgage of, say, €145k. 

Brendan


----------



## Brendan Burgess (3 Jan 2017)

cremeegg said:


> And then compare the advice you get free here with the advice that your broker gives you. At the least you can keep the broker on her toes !



I love this idea. 

Many people on askaboutmoney give questionable advice. But it's usually quickly challenged. Alternatives are offered. Conventional ideas are challenged. 

Many professional advisors give questionable advice and there is no scope for challenging them. 

Brendan


----------



## gnf_ireland (3 Jan 2017)

Brendan Burgess said:


> You have a mortgage with KBC which is on 3%. So you can get a guaranteed, risk free, tax free, return on your money of 3% by paying down your mortgage.
> 
> So cash in your education fund and pay down your mortgage.
> 
> ...



@Brendan Burgess  Absolutely agree with this, to a degree. I believe there is merit in 'compartmentalizing' money with a specific goal. In my particular case, it is highly likely that my children will be attending a fee based secondary school, which means access to the funds would be needed in 8 years time.
There is not much benefit in having a lower mortgage, if the funds are not available when needed.

It is a similar discussion to pension contributions - there needs to be a balance between short term, medium term and longer term financial commitments. When looking at a 20 year financial projection, there may be demands in the short/medium term that does not necessarily mean overpaying the mortgage is the best option for everyone.

It is worth noting that when people go onto the investment forum and talk about investing money, they are often asked the financial objective and associated time frame. In my case, the 'compartmentalized' funds for the kids education tie into this discussion - rightly or wrongly.



For the record, I 100% subscribe to the theory that the best university savings plan is to be mortgage free by the time the kids start university but I do wonder how many people genuinely achieve this goal.


----------



## gnf_ireland (3 Jan 2017)

cremeegg said:


> And then compare the advice you get free here with the advice that your broker gives you. At the least you can keep the broker on her toes !





Brendan Burgess said:


> Many people on askaboutmoney give questionable advice. But it's usually quickly challenged. Alternatives are offered. Conventional ideas are challenged.
> 
> Many professional advisors give questionable advice and there is no scope for challenging them



Completely understand the merits of this approach. That said, I am not 100% sure I want to 'declare' my financial status on the web, but I will see how I can summarise it and what the broker says to get others people's view on it. Lots of people are 'cautious' in this area, and I would fall into that category to a degree.


----------



## Brendan Burgess (3 Jan 2017)

gnf_ireland said:


> In my particular case, it is highly likely that my children will be attending a fee based secondary school, which means access to the funds would be needed in 8 years time.
> There is not much benefit in having a lower mortgage, if the funds are not available when needed.



Hi gnf

In general, I think that saving in poor performing product for 8 years is too long. If your kids were due to start school next year, or maybe in 3 years, I might go along with that.  Pay down your mortgage.  Put your excess savings for the next 5 years against your mortgage. With three years to go, accumulate your savings into a separate account. When your kids are in secondary school, your mortgage repayments will be much lower so you will have more free cash to pay the fees for the private school.

That is the general advice. But you have referred previously to the KBC redraw mortgage. So can you not overpay your mortgage and then withdraw the money when you need it?
http://www.askaboutmoney.com/threads/how-much-is-kbcs-overpayment-offset-worth.195929/
Brendan


----------



## Gordon Gekko (3 Jan 2017)

My thought process is as follows:

- I have an overarching aim to be debt-free and to have a meaningful cash reserve at age 50 (15 years from now).

- My resolutions for 2017 have one eye on those longer term goals. 2017 is all about deleveraging and building up cash.


----------



## gnf_ireland (3 Jan 2017)

Brendan Burgess said:


> That is the general advice. But you have referred previously to the KBC redraw mortgage. So can you not overpay your mortgage and then withdraw the money when you need it?



Yes, but that facility has been withdrawn. I have agreement from KBC that a reasonable level of the funds paid to date are available for redraw, but future over payments are not. This means any extra funds I pay into it would not be available.

My case is a little trickier, so I will start a separate thread on that.




Brendan Burgess said:


> In general, I think that saving in poor performing product for 8 years is too long. If your kids were due to start school next year, or maybe in 3 years, I might go along with that.


I am not suggesting saving the education fund in a deposit account making minimal interest. Currently this is invested in equity funds with Rabodirect, which to be fair has made a reasonable return over the last 4 years since they were commenced. That is before the taxman gets his hands on them of course


----------



## gnf_ireland (3 Jan 2017)

Gordon Gekko said:


> I have an overarching aim to be debt-free and to have a meaningful cash reserve at age 50 (15 years from now).





Gordon Gekko said:


> My resolutions for 2017 have one eye on those longer term goals. 2017 is all about deleveraging and building up cash.



This is similar to what I have proposed above, which is balancing the reduction of the mortgage with parallel investments, albeit for a specific purpose. Are you talking about building up 3-6 months reserves, before deleveraging or something totally different?


----------



## Brendan Burgess (3 Jan 2017)

gnf_ireland said:


> Currently this is invested in equity funds with Rabodirect, which to be fair has made a reasonable return over the last 4 years since they were commenced. That is before the taxman gets his hands on them of course



It will be difficult to get a return of 3% after tax over the next 8 years.  And to get anywhere close to it, you will be taking a significant risk.

Let me put it another way, would you take out a mortgage at 3% interest to invest in a heavily taxed and heavily charged fund? 

I suspect not, but that is what you are doing.

Brendan


----------



## Brendan Burgess (3 Jan 2017)

gnf_ireland said:


> I have agreement from KBC that a reasonable level of the funds paid to date are available for redraw, but future over payments are not. This means any extra funds I pay into it would not be available.



OK. Let's say you have overpaid by €50k.  Can you leave that overpaid and overpay more, but withdraw that €50k in 8 years? 
If so, it's clear that you should pay down your mortgage. 

Brendan


----------



## Brendan Burgess (3 Jan 2017)

Gordon Gekko said:


> - My resolutions for 2017 have one eye on those longer term goals. 2017 is all about deleveraging and building up cash.



Well your name is appropriate. As your eyes are in different directions.   Building up cash and deleveraging are opposing ideas. Use the cash to deleverage, subject to an emergency fund, if your income or expenditure is volatile and unpredictable.

Brendan


----------



## gnf_ireland (3 Jan 2017)

Brendan Burgess said:


> It will be difficult to get a return of 3% after tax over the next 8 years. And to get anywhere close to it, you will be taking a significant risk.
> 
> Let me put it another way, would you take out a mortgage at 3% interest to invest in a heavily taxed and heavily charged fund?
> 
> I suspect not, but that is what you are doing.



@Brendan Burgess  Agree with you on the above, but things are never as black and white as that. 

So in general I have followed this advice and liquidated a reasonable level of my investments to over-pay the mortgage. Most of these are available for redraw, as per the discussion above.

However, unlike a lot of people my short term goal is not to become mortgage free. I want to reduce the mortgage to a 'manageable' level - say 40k and then default back to regular payments. We are currently aggressively overpaying our mortgage at the moment by just over 100%. We project that we will reach the 40k mark in around 4 years time, and then have a further 12 years odd on regular repayments (around 425 euro a month).

The objective is to start rebuilding cash reserves/investments at this stage again, and only clear the mortgage once we decide the redraw is a facility we no longer require, or would not be worth it from the bank point of view. At that stage we would simply clear down the mortgage from the cash reserves - somewhere between 2025-2028.

Taking a 5 year view, the goal is to be at that manageable mortgage level and be back on the road to rebuilding cash reserves. Diverting the education fund money into the mortgage would move this 'trigger point' by just over a year. However, this would be offset by losing the 'averaging' nature of paying into an investment fund over a longer period of time reducing the impact of price fluctuations. 

So instead of paying in a smaller amount between 2013 and 2021 and increasing it from 2021-x, I would pay nothing from 2013-2020, and paying an increased amount from 2020-x. (Maybe incorrectly), I thought it would be better to invest smaller amounts over a longer period for this reason.

Does this make what I am doing any clearer ? While I 'nominally' call this an education fund, it really is just the start of rebuilding of the cash reserves post mortgage a few years early.


----------



## gnf_ireland (3 Jan 2017)

gnf_ireland said:


> Agree with you on the above, but things are never as black and white as that.



Hence one of the reasons we are making a resolution to engage a fee based financial planner/adviser this year


----------



## Gordon Gekko (3 Jan 2017)

Brendan Burgess said:


> Well your name is appropriate. As your eyes are in different directions.   Building up cash and deleveraging are opposing ideas. Use the cash to deleverage, subject to an emergency fund, if your income or expenditure is volatile and unpredictable.
> 
> Brendan



Hi Brendan,

I'm taking surplus cash and splitting it as follows:

- Some towards the mortgage as part of my plan to half the term of my mortgage.
- Some towards building an emergency liquidity fund of €60k.
- Some towards a second cash fund which will be used for opportunistic investments which could include additional repayments off the mortgage.

I do believe in deleveraging but I also remember wealthy clients being unable to access funding during the credit crisis. Having €100k and owing €300k can be better than having no cash and owing €200k.

All the best.

G


----------



## gnf_ireland (3 Jan 2017)

Gordon Gekko said:


> Having €100k and owing €300k can be better than having no cash and owing €200k.



Interesting viewpoint and definitely one which most on here would disagree with ! 

Is having access to the funds worth an opportunity cost of say 3500 a year (100k @ 3.5% on the mortgage for example)


----------



## Brendan Burgess (4 Jan 2017)

Gordon Gekko said:


> - Some towards building an emergency liquidity fund of €60k.



That is some emergency. 

If you have a non-tracker mortgage, you are getting a definite tax free, risk free, return of 3%.  

That is so much better than paying €1,800 a year insurance in case of some emergency, which is unlikely to happen. 

If you are building up such a fund, you presumably have a good income. You can meet most emergencies. 

The only reason you would need such a large fund would be if there was a significant risk to your income. 

Brendan


----------



## Bronte (4 Jan 2017)

gnf_ireland said:


> Completely understand the merits of this approach. That said, I am not 100% sure I want to 'declare' my financial status on the web, but I will see how I can summarise it and what the broker says to get others people's view on it. Lots of people are 'cautious' in this area, and I would fall into that category to a degree.



If I were to disclose on here I'd use a different username. Just for that specific purpose. Then I wouldn't feel like it was 'me' posting, keeps the personal out if it.


----------



## Bronte (4 Jan 2017)

gnf_ireland said:


> Interesting viewpoint and definitely one which most on here would disagree with !
> 
> Is having access to the funds worth an opportunity cost of say 3500 a year (100k @ 3.5% on the mortgage for example)


I wouldn't disagree with him on that point.


----------



## Gordon Gekko (4 Jan 2017)

Brendan Burgess said:


> That is some emergency.
> 
> If you have a non-tracker mortgage, you are getting a definite tax free, risk free, return of 3%.
> 
> ...



The only basis for the €60k is that it represents the conventional wisdom of having enough to cover 6 months' outgoings.

I absolutely agree that repaying a mortgage at 3.1% offers an incredibly attractive rate of return. However, I'm also of the view that banks offer us all umbrellas when the sun is shining. If there is ever another shock, cash will become king.

An investment manager who I've a lot of time for maintains that the opportunity cost of holding back cash can only be measured when you've deployed it. I would prefer to owe €700k at 3.1% and have €100k in cash earning nothing rather than owing €600k and having no cash. Cash gives optionality.


----------



## Sarenco (4 Jan 2017)

Hi Gordon

FWIW, I think the equivalent of a risk-free, after-tax, net return of 3.1% is pretty exceptional when you consider that a 90-day German government bond (a common proxy for a risk-free return in this part of the world) is currently yielding -0.828%. 

I personally wouldn't be keeping any "dry powder" if that guaranteed rate of return was available to me.

I am a great proponent of building a liquid cash reserve equivalent to around 6-months' expenditure before paying down mortgage debt (or investing elsewhere).  Apologies in advance if this sounds in any way judgmental but €10k a month seems a rather high level of expenditure for most households and I wonder are you including investments (pension contributions, etc.) in that figure?


----------



## gnf_ireland (4 Jan 2017)

Just a quick update on my earlier comment to @Brendan Burgess  and one which reflects what @Sarenco is saying above.

I had a side bar conversation with a few people on this, and we all came to the same conclusion. It makes no sense to invest/save at current rates when paying in excess of 3% on our mortgages. So we will liquidate some more savings/investments held and pay off against the mortgage in the short term. 

We will not pay off the mortgage (although we are in a position to do so) as it means losing our redraw option on some of the funds, but would effectively bring it to a ~5% LTV and go back to standard monthly repayments at that stage.

Thanks to all for the advice above, and probably saves me going near a financial advisor until later in the year


----------



## Gordon Gekko (4 Jan 2017)

Hi Sarenco,

Yes, that figure isn't just mojitos and Marlboros; it includes all commitments, including savings and investments which could clearly be adjusted in the event of a speedbump.

I fully accept the logic of using cash to repay mortgage debt given the current dynamic and I plan to do so once I have enough "dry powder".

I just like the idea of having a meaningful amount of cash. The inability to access funding during the credit crisis sticks in my mind. As does a former client's ability to save his child's life by funding cutting edge treatment in the US  with excess cash.

Happy New Year to you.


----------



## Sarenco (4 Jan 2017)

Many happy returns for 2017 Gordon.


----------



## gnf_ireland (5 Jan 2017)

Gordon Gekko said:


> I just like the idea of having a meaningful amount of cash. The inability to access funding during the credit crisis sticks in my mind.



I do believe this is central to most people's view. If they have savings, they like to see the cash in a bank account, even if it is making no interest. For a lot of people, putting it against the mortgage is a hard decision to make. They like the idea of the security blanket.

I had the same conversation with my wife last night on this exact same topic. She likes to see that cushion, irrespective of the 'cost'.

@Gordon Gekko  Out of curiosity, what do you think is a "meaningful amount of cash" for this purpose? Either in numbers or percentage of annual income?


----------



## Gordon Gekko (5 Jan 2017)

Hi gnf_ireland

Conventional wisdom suggests circa six months' worth of outgoings.

Personally, I'm aiming to have €100k in cash which I freely admit is overly conservative. However, it's not as bad if you have plenty invested in real assets.


----------



## gnf_ireland (5 Jan 2017)

Gordon Gekko said:


> Conventional wisdom suggests circa six months' worth of outgoings.


This is more the scenario around emergency cash in cash you cannot work or lose jobs etc. I assume the 6 month should tie into both the nature of the industry you work in (some are better at securing roles quicker than others) and the deferral period on any income protection insurance you may have !

I was more interested in the pot that could be used to leverage an investment opportunity should it arise.

Lets say, someone has a 50% LTV mortgage paying 3%. They have 3-6 months emergency fund in accessible cash reserves.
General consensus here is any additional savings would need to make ~6% plus to justify them, and this is impossible to get risk free.
You seem to have a slightly different view, that even with the 3% mortgage and the emergency fund, it makes sense to hold 'additional' cash. So instead of a 600k mortgage, you hold 700k mortgage and 100k cash.
I am just curious to explore the alternative view, and whether it is simply a comfort factor of having the cash there for exceptional circumstances or is it part of a greater financial strategy !


----------



## Gordon Gekko (5 Jan 2017)

It is both a comfort factor (in case of, say, another credit crisis or a need for expensive medical treatment) and a financial strategy. Terrible investment opportunities surround us all, but occasionally one comes across a great one. Having cash to invest in (for example) the right EIIS opportunity can be advantageous. As someone once told me, the opportunity cost or return on cash can only be measured when you've deployed it.


----------



## Gordon Gekko (5 Jan 2017)

This can also be thought of in another way...diversification.

Someone with €100k in cash and €300k of equity in their home has a more preferable asset allocation to someone with no cash and €200k of equity in their home.

We should all be striving to have a diversified asset base; by asset class and by geography. The optimal mix is arguably family home, globally diversified portfolio (first through pension) and cash.


----------



## gnf_ireland (5 Jan 2017)

@Gordon Gekko  fair enough. Makes sense, especially if you are close enough to the 'action' to see the great opportunities if they arise. Food for thought if nothing else!


----------



## elcato (5 Jan 2017)

Brendan Burgess said:


> You have a mortgage with KBC which is on 3%. So you can get a guaranteed, risk free, tax free, return on your money of 3% by paying down your mortgage.
> 
> So cash in your education fund and pay down your mortgage.





Brendan Burgess said:


> It will be difficult to get a return of 3% after tax over the next 8 years. And to get anywhere close to it, you will be taking a significant risk.


Conversely you are getting a loan facility without having to apply and risk possible refusal at ONLY 3.1%. I'm leaning with the others on this. Remember the days of 15% mortgages ? Someday they will return.


----------



## gnf_ireland (5 Jan 2017)

elcato said:


> Conversely you are getting a loan facility without having to apply and risk possible refusal at ONLY 3.1%.



@elcato  The other factor here, which Brendan referred to above, is I already have the ability to redraw a reasonable amount of money from the KBC mortgage as it stands. His point (supported by others) is I don't need to carry reserves that don't make me ~7%, as it is not financially beneficial to do so.

The redraw option allows me to pull down a defined amount of over payments at any time.


----------



## elcato (5 Jan 2017)

gnf_ireland said:


> The redraw option allows me to pull down a defined amount of over payments at any time.


In your case yes as you have clarified but some may not have the the luxury of this. I presume they have clarified in writing your ability to do this of course


----------



## gnf_ireland (5 Jan 2017)

elcato said:


> In your case yes as you have clarified but some may not have the the luxury of this.


Yes of course. I appreciate it is a rare enough facility at this stage



elcato said:


> I presume they have clarified in writing your ability to do this of course


Indeed. I had to go through their internal complaints process to get full confirmation as to what was possible to redraw and what was not possible to redraw. But its all available in writing now, and is explicitly clear in the final resolution letter to the complaint !


----------



## Fella (5 Jan 2017)

Reading this makes me feel unlucky to be wealthy when interest rates are so low , be great to have been around when interest rates where 15%.


----------



## Sarenco (5 Jan 2017)

Fella said:


> Reading this makes me feel unlucky to be wealthy when interest rates are so low , be great to have been around when interest rates where 15%.



Don't forget that inflation was also exceptionally high at the time - the CPI hit 23% in 1981! 

Very difficult to maintain the real value of wealth in those circumstances.


----------



## gnf_ireland (5 Jan 2017)

Sarenco said:


> Very difficult to maintain the real value of wealth in those circumstances



This is a very interesting view. CPI from November 2016 shows -0.1%, so in effect we had negative inflation for the year to November 2016. In that scenario cash alone will maintain purchasing power.

But what happens if inflation starts to rise. I assume that interest rates also tends to rise in these circumstances, but maybe not aligned. Inflation in Ireland may outweigh it in the EU so interest rates are lower than inflation.

How does one maintain the real value of wealth in these cases? How was it done in the 1980's by those considered 'middle class/working professionals' back then?


----------



## Sarenco (5 Jan 2017)

gnf_ireland said:


> This is a very interesting view. CPI from November 2016 shows -0.1%, so in effect we had negative inflation for the year to November 2016. In that scenario cash alone will maintain purchasing power.



Absolutely. 

The positive real (after-inflation) return on cash deposits at the moment is pretty much bang in line with with the long-run average.  It's a pervasive myth that cash deposits lose purchasing power over the long term. 



gnf_ireland said:


> How does one maintain the real value of wealth in these cases? How was it done in the 1980's by those considered 'middle class/working professionals' back then?



With great difficulty! 

The "stagflation" (high inflation/low growth) period of the late '70s was extremely challenging for savers/investors but a great time to be a borrower (inflation eats away at the real value of debt).  Also, bear in mind that the taxman doesn't make allowances for inflation.


----------



## Steven Barrett (6 Jan 2017)

Fella said:


> Reading this makes me feel unlucky to be wealthy when interest rates are so low , be great to have been around when interest rates where 15%.



Interest rates are usually lower than inflation, so you will usually be losing the real value of your money by having it on deposit. 


Steven 
www.bluewaterfp.ie


----------



## Steven Barrett (6 Jan 2017)

Sarenco said:


> Absolutely.
> 
> The positive real (after-inflation) return on cash deposits at the moment is pretty much bang in line with with the long-run average.  *It's a pervasive myth that cash deposits lose purchasing power over the long term. *
> 
> ...




Ha! Ha! Just read your post after my comment 

I have found over the last few decades that interest rates were usually lower than inflation. I've absolutely no scientific data to back it up mind, just an observation. 


Steven
www.bluewaterfp.ie


----------



## Gordon Gekko (6 Jan 2017)

It is central bank and government policy to keep interest rates behind inflation in order to deal with the stock of debt in the world.


----------



## elcato (6 Jan 2017)

gnf_ireland said:


> How does one maintain the real value of wealth in these cases? How was it done in the 1980's by those considered 'middle class/working professionals' back then?


Price of a pint is usually a good indicator. *Back then the price of a pint went from about 50p in 1979 to 80p by 1981 and was over a pound by 1982.

*Disclaimer: I was drunk most of the 80s.


----------



## Sarenco (6 Jan 2017)

SBarrett said:


> I have found over the last few decades that interest rates were usually lower than inflation. I've absolutely no scientific data to back it up mind, just an observation.



According to the latest Barclays Gilt Equity Study (linked below), cash produced an annualised real return in the UK of 0.8% over the last 116 years.

In this context, "cash" refers to short-term Government obligations and a retail investor can normally get a materially better rate then that by simply depositing their cash in the most competitive (Government guaranteed) savings product.

There have certainly been periods of time (sometimes lengthy periods of time) where cash deposits produced a negative real return (such the stagflationary 1970s) but over the long-term the real return on cash has been positive.

http://hungrydummy.com/media/pdf/EquityGiltStudy2016.pdf


----------



## LeannD (6 Jan 2017)

gnf_ireland said:


> Yes, but that facility has been withdrawn. I have agreement from KBC that a reasonable level of the funds paid to date are available for redraw, but future over payments are not. This means any extra funds I pay into it would not be available.



I've contacted KBC this week in relation to overpayments and received a form (Flexible repayments instruction) to fill. The form gives you 3 options and the first (Option A) mentions that "funds will be available for redraw at a later date subject to KBC Homeloans Terms and Conditions.")
I was going to search this forum for what redrawing this money means for the mortgage (do I use to repay the outstanding balance at the end?) but now I'm confused! Does this facility (redrawing) no longer exists and I got incorrect form/information from KBC?


----------



## gnf_ireland (6 Jan 2017)

LeannD said:


> The form gives you 3 options and the first (Option A) mentions that "funds will be available for redraw at a later date subject to KBC Homeloans Terms and Conditions.")



When was your mortgage with KBC set up? Does your Homeloan T&C's refer to the facility to redraw any over payments made?

During my lengthy discussions with KBC on this (Note: this case was in their internal complaints process for around 6 months before resolution), the facility to redraw overpayments was removed from all mortgages issued after September 2013. It was included in the T&C's up to that (I understand) and was removed then.

The Flexible Repayment Instruction is generic and covers mortgages issued when the facility existing and after it was removed. 

In general (ie to my knowledge) no other bank in Ireland allows you to redraw overpayments. Overpayments means exactly that and once paid they come off the principle of the mortgage. Therefore you pay less interest and you can either reduce your repayment amount OR your term.



LeannD said:


> I was going to search this forum for what redrawing this money means for the mortgage (do I use to repay the outstanding balance at the end?) but now I'm confused!


If it still exists, what it would mean is the term of the loan would stay as before the redraw and the capital would increase. This would mean the repayments each month would rise as a result of the redraw


----------



## gnf_ireland (6 Jan 2017)

LeannD said:


> Does this facility (redrawing) no longer exists and I got incorrect form/information from KBC?



As above, it depends on when you drew down the mortgage as to whether it exists or not.

You can always 'play dumb' and fill in the form, see what is returned in the confirmation letter to you (this is where I got confirmation I could redraw the funds. KBC stated this was a mistake!). After a few months you could always request a small redraw (whether you need it or not) and if they don't let you, then you will know the score very quickly. You can always dispute it in the complaints process or whatever at that stage.

If you are planning to overpay, you should do so on the assumption you CANNOT redraw and if you end up with that facility it is an added bonus !


----------



## gnf_ireland (6 Jan 2017)

@Gordon Gekko @SBarrett @Sarenco @Brendan Burgess 
Tagging you gentlemen as you are the ones who have responded the most to it... 
Going back to the original theme of the thread, the general consensus is that you should keep 3 months odd of living expenses in an emergency fund. Ignoring the redraw discussion directly above, I assume this emergency fund would effectively be a demand deposit account, rather that any other type?  Would you agree with this statement? While you may get a nominal interest from it, it is effectively 0%


----------



## LeannD (6 Jan 2017)

Thanks @gnf_ireland 
I'll double check my T&C's but I'm already guessing you are right in saying this is probably a generic form.
My mortgage was set up Dec 2015, very recently then...

I also want to make a lump sum payment into the mortgage account, but whether this will go towards reducing the term or the scheduled monthly repayments is still unclear to me...


----------



## gnf_ireland (6 Jan 2017)

LeannD said:


> My mortgage was set up Dec 2015, very recently then...


Mine was May 2015 so probably the same T&C's. KBC claimed I was not entitled to the redraw option but they have agreed to allow me redraw a level of the over payments in the past. Any over payments since they informed me of the error are not allowed to be redrawn.



LeannD said:


> I also want to make a lump sum payment into the mortgage account, but whether this will go towards reducing the term or the scheduled monthly repayments is still unclear to me...


I think it does relate to the size of the lump sum payment. However, my experience with KBC on this is the term stays the same and you get a letter stating your new repayment amount post the lump sum being made. I make lump sum payments via internet banking directly into their 'holding account'. I can transfer 5k per transaction and up to 15k per day using this option.
The smallest lump sum payment I think I have made in the past is 1k.

My advice is always keep the term the same. I am overpaying via a flexible payment instruction at the moment and my mortgage amount reduces by about around 50 cents each month.


----------



## Gordon Gekko (6 Jan 2017)

gnf_ireland said:


> @Gordon Gekko @SBarrett @Sarenco @Brendan Burgess
> Tagging you gentlemen as you are the ones who have responded the most to it...
> Going back to the original theme of the thread, the general consensus is that you should keep 3 months odd of living expenses in an emergency fund. Ignoring the redraw discussion directly above, I assume this emergency fund would effectively be a demand deposit account, rather that any other type?  Would you agree with this statement? While you may get a nominal interest from it, it is effectively 0%



Yes, demand account in my view.


----------



## Steven Barrett (7 Jan 2017)

gnf_ireland said:


> @Gordon Gekko @SBarrett @Sarenco @Brendan Burgess
> Tagging you gentlemen as you are the ones who have responded the most to it...
> Going back to the original theme of the thread, the general consensus is that you should keep 3 months odd of living expenses in an emergency fund. Ignoring the redraw discussion directly above, I assume this emergency fund would effectively be a demand deposit account, rather that any other type?  Would you agree with this statement? While you may get a nominal interest from it, it is effectively 0%



You have to look at your own circumstances when assessing how much you need in an emergency fund. If the purpose of the fund is to provide income if you are out of work, then how likely are you to be out of work for? Are you in an employable position? IT Consultants can get a job in a day at the moment, so they don't need large amounts of cash for those purposes. Others may take months to get a new hire. 

Then you have other things that may be needed in an emergency. How old is your car? The older, the more chance of something going wrong and you're getting a large bill from your mechanic. There's lot of things. 

But yes, leave it in cash that you can access quickly. 


Steven 
www.bluewaterfp.ie


----------



## gnf_ireland (7 Jan 2017)

SBarrett said:


> IT Consultants can get a job in a day at the moment, so they don't need large amounts of cash for those purposes. Others may take months to get a new hire.



Absolutely agree. That said if I broke my leg in the morning, I could still work but would cost me a lot more !! Understand completely re everything else. My wife is conservative enough to make sure the emergency fund is sufficient


----------



## gnf_ireland (12 Feb 2018)

Hi all
Just to give a general update on this a year on !

So in the end we decided not to go for a financial planner in 2017, and instead considered all the advice we were given here.

My wife got the opportunity to go from 4 days a week to 2.5 days a week just as my eldest started primary school. We decided that would be a great idea from a work/life balance point of view and would easy the transition into school for both of the girls. This obviously saw a drop in income, but also a drop in childcare costs (although we kept the childminder for 3 afternoons a week for continuity reasons). 

The big change we done was to liquidate a number of deposits/investments - kept a rainy day fund of 6 months and paid a good chunk off the mortgage bringing it down to the negligible level. We would have paid it off only for the redraw option on it. We have since fixed it for 10 years with KBC at 2.95%, as it allows us a line of credit with them for 10 years at that rate. The mortgage repayments are now pretty small all things considered.

We decided to upgrade the two cars, and also done some work around the house that we wanted to do, so don't expect any more major capital expenditure for a few years.

We also decided to max my wife's pension at 25% + company contribution, and I upped my contribution to just over 22.5% overall. This will hopefully pay dividends in the future. We backdated this for 2016 also.

As an IT consultant I also changed the way I was being paid from an umbrella company structure to a limited company, allowing me  to take a base salary from the company, and deal with any extra funds differently. I also set up death in service and income protection cover.

Our savings are obviously much smaller as a result (some would call it decimated), but our disposable income remains consistent. Our cash reserves are no where near what they used to be, but are adequate for our needs.



gnf_ireland said:


> That said if I broke my leg in the morning, I could still work but would cost me a lot more !!



I should not have mentioned this line, as I did manage to fracture something in my foot at the start of this year. Outside the medical bill and extra taxi's going to work for  the first two weeks, thankfully it was not majorly impacting on us financially at least. Not being able to drive was very impacting, even if I don't do a huge amount of it.


It will be interesting to see what the next few years being, but without doubt 2017 was a milestone one financially for us... Thanks to all for the advice on here


----------

