# Clear tracker mortgage?



## Lobster (26 May 2017)

*Age:*
43
*Spouse’s/Partner's age:*
42

*Annual gross income from employment or profession:*
110000
*Annual gross income spouse:*
35000

*Type of employment:*
Both private sector employees.

*Expenditure pattern:*
Save and live a little

*Rough estimate of value of home:
400000*


*Mortgage on home:*

270000
.95 tracker €950 month

*Other borrowings – car loans/personal loans etc*
None

*Do you pay off your full credit card balance each month*
No cc

*Savings and investments:*
€400k split across various deposit accounts

€25k shares split between 5 x stocks

Saving €3k per month


*Do you have a pension scheme?*
Yes, Paying €20k per annum, fund value approx €180k


*Do you own any investment or other property?*
2 houses value €425k & €240k 
Generating €2200 rent/month, no mortgage on either.

*Ages of children:*
3,7,10

*Life insurance:*
Yes. (Separate to mortgage policy)
Income protection policy
Health insurance for family



*What specific question do you have or what issues are of concern to you?*
Have overpaid/cleared mortgages on both investment properties and have recently received inheritance in addition to savings. Are now in very good position but we dont know whether to pay down tracker mortgage (via lump sum or instead of our monthly savings) as getting poor returns on deposit but are still reluctant to clear tracker (bank not doing any deals either). Intend to move in 4-5 years also so not willing to lock savings away for long term. Any advice?


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## Brendan Burgess (27 May 2017)

If you are with BoSI or Danske, you should never pay off your tracker, as they may well offer you a deal at some stage to clear the mortgage. 

If you are with any of the other lenders, you probably should not pay off your mortgage, as they will allow you to carry your tracker to another family home when you move, usually at an additional margin of 1%. 

You have over €1m in property assets and €425k in cash/shares.

You should invest the entire €425k in the stock market.  While it could well drop in value,  you can comfortably handle any fall. 

When you are about 6 months or a year away from moving home, then you should move back into cash in case a sharp fall affects your ability to buy a house. 

*Review your investment properties 
*
The rent seems very low. €26k per year on an investment of €665k.  That €26k is before costs I assume, so your yield before tax is well below 3%. 

I think you should sell one, if not both of these properties at some stage before you buy your new home. You could well be in a position to buy your new home with cash which would make the trade-up painless. You could then sell your existing home at your leisure or keep it as an investment if you prefer.

*Now back to whether you should pay off your tracker or not.*
If it's BoSI or Danske, then it's clear that you should not. 

If it's one of the other lenders, I am not so sure.  It's wrong for most people, but if you sell your investment properties, you may well have enough cash to buy your new home without needing to port the mortgage. 

However, if you decide to keep your investment properties, then you should keep your tracker mortgage. 

Brendan


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## Sarenco (27 May 2017)

Will you need to take out a mortgage at all when you move in 4-5 years?  

If you think you will need a mortgage, and your bank has a tracker mover product, then it's probably worth keeping your savings on deposit for the time being rather than paying down your mortgage ahead of schedule.  

Having said that I suspect that in 4-5 years time low LTV mortgages will probably not be radically different to ECB +2% anyway.

I wouldn't dream of investing in shares over an investment horizon as short as 4 years as suggested. 

I do agree with Brendan that the yield on your rental properties seems low - are both properties let?


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## Brendan Burgess (27 May 2017)

Sarenco said:


> Having said that I suspect that in 4-5 years time low LTV mortgages will probably not be radically different to ECB +2% anyway.



That is a very good point. So the tracker is not that valuable and it argues for clearing it as long as it's not with Danske or BoSI.

Brendan


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## Sarenco (27 May 2017)

Brendan Burgess said:


> So the tracker is not that valuable and it argues for clearing it as long as it's not with Danske or BoSI.


It does but I suspect Lobster is still getting MIR so the "cost" of not clearing the mortgage, and retaining the sum on deposit, is probably modest.

Obviously if Lobster has any thoughts of retaining the property as a rental, that would argue against paying down the mortgage.


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## Lobster (27 May 2017)

Thanks for the replies, should have clarified the investment property situation. One is let and the other is occupied by a relative FOC. Plan would be to move into the one that is rented but will need some work approx €250k, really don't want to have any mortgage associated with it when we move in. Tracker is with Ulster Bank who don't seem to entertain any deals. We're conscious that interest rates will be going up soon but that will also help our deposits. Also it would be our intention to keep property that has tracker as investment when we move out.


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## Sarenco (27 May 2017)

Thanks for the clarification.

In those circumstances, I wouldn't be in any rush to pay down the mortgage ahead of schedule.  When you rent out your current PPR, the bulk of the interest payments will be deductible for income tax purposes so your effective rate will be very low.

So what to do with the €400k?

If I was in your shoes, I would keep the ~€250k that you project spending in the near future on deposit and I would use ~€150k to buy 5-year State Savings Certs.  I would invest your pension fund 100% in a world equity index tracker and I would max out your relievable contributions.

Hope that helps.


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## Lobster (27 May 2017)

Thanks Sarenco, any advice on what to do with our monthly savings (approx 3k per month), would like to built up our existing share portfolio.


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## Sarenco (27 May 2017)

If you want to invest some of your after-tax savings in equities, you could do worse than investing in a broadly diversified investment trust - something like Foreign & Colonial Investment Trust.

It probably would make more sense to invest a lump sum and then build up your cash savings in regular saver accounts - check out the "Best Buys" section for the best rates.


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## Brendan Burgess (28 May 2017)

Sarenco said:


> I wouldn't dream of investing in shares over an investment horizon as short as 4 years as suggested.





Lobster said:


> Intend to move in 4-5 years also so not willing to lock savings away for long term



In the old days when investment managers took a huge lump out of the initial investment and probably charged an exit fee as well, one had to invest for around 10 years to recover the charges.  Even if you bought shares directly, you were paying 1.5% commission on buying and selling and 1% stamp duty, so you needed time to recover the 4% transaction charges.

There is also the idea that the longer you invest, the more likely you are to get a positive return, so you need to invest for a long time.

These days the costs are much lower so this is no longer a reason why you should not invest for 4 years.

So what about the argument that you might lose money over 4 years?  Over 4 years, there are a few possible outcomes ranging from a serious fall in the value of your investments to a serious rise in the value of your investments.  However, the chances of a rise are higher than the chances of a fall. The net result is that the return from investing in the stock market should, on average, be higher than putting your money on deposit.

You have €425k to invest. 
In 4 years, you will need €250k to spend on your property.
In that 4 years, you will save about another €150k.
So even if the stock market is 50% lower just when you need to spend the money, you will still have that money.
The more likely outcome is that the €575k you invest will have risen rather than fallen.

For that reason, you should invest in the stock market.

You absolutely should not buy  State Savings Certs. You need maximum flexibility and you don't want to have to get a lower return by cashing out early.   While the risk of State Savings Certs is low, it's not zero.  The country has €200 billion of debt and €300 billion of unfunded pension liabilities.  The day of reckoning will come, although probably not within the next 5 years.

But long term, a diversified portfolio of shares is probably safer than a deposit account or state savings certs.  You should expect a higher return as well.

This debate is carried on here: 
* I wouldn't dream of investing in equities over a period of just 4 years*

Brendan


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## Sarenco (28 May 2017)

Turning to Lobster's personal position, my suggested approach would result in his investable assets (excluding his PPR) having the following rough allocation in 5 years time (assuming consistent values) - €640k in real estate; €330k in equities and €150k in fixed income, with €250k of debt.

That is a fairly assertive exposure to growth assets for somebody in their late 40s.


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## Lobster (28 May 2017)

Thanks lads. Sorry Sarenco can you clarify where you are getting the €330k equities figure from?


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## Sarenco (28 May 2017)

The current value of your pension fund, plus five years of new contributions, plus €25k in directly held shares. 

Very "back of an envelope" calculation (and values will obviously fluctuate) but it's just intended to suggest the rough "shape" of your future allocation.


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## Lobster (28 May 2017)

Thanks Sarenco


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## Codogly (29 May 2017)

I'm amazed to see a suggestion that BOSI / Danske might well offer a deal in the future ... I though it was largely considered unlikely that any of the bank would be offering deals on performing tracker...has something changed.


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## Brendan Burgess (29 May 2017)

Well Tanager bought the BoSI mortgages and has been offering mortgages in arrears up to 40% discounts for paying them off early.

http://www.independent.ie/business/...-to-slash-your-mortgage-by-40pc-35419888.html

Brendan


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## Codogly (29 May 2017)

Thanks Brendan ...didn't realize that was happening ... but I would suggest that non-performing mortgages are a different case for lenders ( bigger risk and possible problem ) ... unless the interbank rates rise faster than the ECB RATES then no reason for bank to take a hit on performing trackers.


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