# 28 year old with mortgage and lump sum



## Christy2020 (2 Jan 2020)

Hi all . I’m 28 years old .In my 2nd year of my first property mortgage .starting pension next pay check €250 monthly (+company contributes). I am Looking to invest lump sum of money aswell as adding 750 to 1000 monthly all going well . any ideas folks on where and how to invest long term medium risk ? I was thinking of  dealing with Zurich !!
Thanks in advance


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## RedOnion (2 Jan 2020)

Pay it off your mortgage. Why would you do anything else?


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## Boyd (2 Jan 2020)

Christy2020 said:


> was thinking of dealing with Zurich !!


Forget dealing with Zurich! As above overpay your mortgage to get tax free guaranteed return of 3 percent (if your on 3 percent mortgage rate). Getting that by investing with net pay requires almost 7 percent return. I know you might think investing is exciting but IMO it's not the way to go here. What is your mortgage balance, what is the rate, with what back and what is the product? Also hired much is the lump sum? With this info it's possible to demonstrate the tangible benefit of paying it off your mortgage (it will be tens of thousands of euro in interest saved I imagine).


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## Live Well (3 Jan 2020)

Should he not pay more into his pension rather than paying off the Mortgage early or at least do a combination of both?


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## Boyd (3 Jan 2020)

That's a matter of opinion that's been discussed at length on here. Main point is that post tax investing is not a good idea at OPs stage.


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## Live Well (3 Jan 2020)

username123 said:


> That's a matter of opinion that's been discussed at length on here. Main point is that post tax investing is not a good idea at OPs stage.



Ahh okay, thank you, that is good to know.


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## Horatio (4 Jan 2020)

RedOnion said:


> Pay it off your mortgage. Why would you do anything else?



because he can almost certainly make more putting it to work than he would save in mortgage interest.


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## NoRegretsCoyote (5 Jan 2020)

Horatio said:


> because he can almost certainly make more putting it to work than he would save in mortgage interest.


That depends on time horizon, risk appetite, etc.

There isn't enough info here to be conclusive.


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## Brendan Burgess (5 Jan 2020)

We don't have much information.

But he is 28.
He took out a mortgage a year ago. 

Based on that he probably has a high mortgage in relation to his income and in relation to the value of his house. 
Based on that, he will probably want to trade up in about 5 to 10 years. 

So the clear thing for him to do is to pay down his mortgage. This has huge advantages. 

If he reduces his LTV, he should be able to avail of the lowest mortgage rates. (The market is funny at the moment and this might not apply, but over time, this rule should come back into play.)
It's risk-free. 
If he is paying 3% mortgage interest, it is the equivalent of getting a tax-free, risk-free return of 3% on his investment. 
The alternative is a fund of some sort. 

He will face the risk of a fall in value
It will be subject to tax - so he would need a return after charges of 5% to 6% to yield a net return of 3%.  This is possible but unlikely. 
A pension is a possibility, but at 28,  paying down the mortgage should be his highest priority - not locking away money until retirement.

Brendan


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## NoRegretsCoyote (5 Jan 2020)

Yes but you only get the benefit of paying off your mortgage early once, while pension fund returns are re-invested.


Anyway, OP has an investment horizon of 50 years. Even a mere 3% annual return for a pension fund means a more-than-fourfold increase.


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## Brendan Burgess (5 Jan 2020)

The benefit of paying off a mortgage is permanent. 

Let's say you have a mortgage of €300k and you pay off €€1,600 a month over 20 years. 

Now think of it as two mortgages one is a €100k mortgage at 3% with no repayments and the other is a €200k mortgage where you pay €1,600 a month. 

You should be able to see that the €100k mortgage rises to €180k over 20 years. 
But if he pays it off now, he saves himself €180k over 20 years.

The same logic applies to the pension fund.  

Leaving aside the tax issues, paying off a loan at 3% gets the exact same return as investing in an investment at 3%. 

Brendan


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## NoRegretsCoyote (5 Jan 2020)

Yes but when you own the house outright the return is the enjoyment from living in it. You can't re-invest this.

With a pension fund returns are actually re-invested.


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## Brendan Burgess (6 Jan 2020)

You own the house in both scenarios - that is not a factor in the decision. 

Who do you think is better off 

Christy with a mortgage of €200k @3% per annum. 

Or Coyote with a mortgage of €300k @3% and investments of €100k @1.5% after tax? 

Brendan


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## NoRegretsCoyote (6 Jan 2020)

@Brendan Burgess 

It depends on your time horizon. Over a 25-year mortgage term Coyote pays €40k more interest. But €100k over 50 years at 1.5% more than doubles!

I am not claiming that 3% equals 1.5%. What I am saying is that the OP has a very long time horizon, and putting some of his wealth into equities early makes sense. It also establishes good habits, as once the mortgage is paid off human nature is what it is, and he is unlikely to suddenly invest in other products.

Compound interest is a very powerful force.


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## Brendan Burgess (6 Jan 2020)

NoRegretsCoyote said:


> Compound interest is a very powerful force.



It is, but it works on investments and on  mortgages.

His mortgage is compounding at 3% a year. By paying it off he gets the benefit of that powerful force.

Let me try again.

Assume that your mortgage is paid off in full.

AIB comes along and offers to lend you €100,000  at 3% over 20 years.   They will roll up the interest so you do not have to make any repayments until the end of the 20 years.  Would you avail of this?

Brendan


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## Gordon Gekko (6 Jan 2020)

Say I’m paying 3% on a 30 year mortgage and I get a €100k bonus. Throwing the €100k against the mortgage is the equivalent of getting a guaranteed pre-tax return of around 5% a year, perhaps even 6% if there’s a management fee involved.

So guaranteed 5/6% vs the hope of earning a return from an investment.

The ‘use it or lose it’ nature of AVCs can colour the analysis somewhat, but on a standalone basis it’s difficult to argue against mortgage overpayment.


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