36 - huge mortgage

I have been making point number 3 of Brendan’s assumptions for quit sometime now ... taxation of future pensions , Mark my words future governments will move the goal post of taxation of pension income , the pension timebomb issue is going nowhere it’s inevitable that those who provide substantial occupational pensions for themselves will have to be taxed ( either directly or indirectly ) to fund others shortfalls. So pay ofc the mortgage first.
 
True, but with a pension fund you have a liquid asset at the end, with a house you don't. You are 65 and want to purchase an annuity. Would you rather have €100k worth of an extension or €100k more in your pension fund? Of course the latter.

Second, the 'dividend' from owning your own house is getting to live in it. Like a pension fund, this is tax free, but it isn't re-invested, so you don't get the advantage of compound interest.

Brendan Burgess said:
These assumptions include
  • High pre-tax returns on your pension fund
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Over a thirty-year horizon returns are historically good. I can't predict the future of course but this goes for everything.

Brendan Burgess said:
  • Low mortgage rates to continue indefinitely
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They don't have to. But mortgage rates are low and falling at the moment. You would of course re-assess if this changes.


Brendan Burgess said:
  • The tax regime on pensions to remain the same or improve
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This could change, but so could tax on housing. Stamp duty or LPT could be higher in future than now.




For the OP, I totally agree that mortgage paydown should be priority over pension, for five years or so at least.
 
I'd at minimum try to contribute enough to pension to get employers maximum matched contribution - this has a very high immediate return and potential to access in 14 years.

Given you say you don't think income is likely to continue at that level and ye want to reduce work hours, targeting mortgage with any other excess cash seems prudent.

If contributing enough to maximise employers pension contribution, how much additional per year could you pay off mortgage/save for renovation work.
 
Sorry Brendan I dont agree that life cover is bad value. An indicative quote for dual life cover ( pays out on both lives) for a 20 year term where the amount of cover decreases each year is approx €83 per month for non smokers. This is the type of cover that suits those who want to look after dependants until they are independent ( though in our house we might need cover till they are 30... ) and the OP is saving €500pm.
Income protection is expensive but at least you get tax relief at the top rate of tax on the premiums. Serious illness I agree is much less beneficial
I approach the case not on the probability of the negative event happening, but more so on how serious would the implications be if the negative event happened.
If the OP is stressed and under pressure re a large mortagage currently, then how stressed would they be if they lost €135k of income?

Once they build up assets/pay down debt and are in a more comfortable position then by all means cancel the protection policies.

Thanks Vincent
 
North Star said:
Sorry Brendan I dont agree that life cover is bad value. An indicative quote for dual life cover ( pays out on both lives) for a 20 year term where the amount of cover decreases each year is approx €83 per month for non smokers.
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OP already has mortgage protection cover. If he passes away his wife is down to one income, but she would have a very nice house mortgage free. I am not sure why people would want to insure for something more than this outcome.

Income protection is much more important. Over the next 20 years a 36-year old is much, much more likely to develop a work-limiting disability than to fall over dead.
 
Hi Vincent

Clearly, we have to agree to disagree on this one.

They have life cover with their mortgage protection policy. So in the very unlikely event that one of them dies, they will no longer have a mortgage to pay.

I would love to know what the claims ratio is on income protection? I would imagine it's very low.

Brendan
 
Thats a good question Brendan, I will try to get info from the companies that offer incoem protection.
Vincent
 
Brendan Burgess said:
Sounds like burnout
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I think the OP needs to quantify, there a 3rd income but how much time does it involve and theres is a partner. If it is more each of their fulltime jobs are stressful then there are many people in the same situation. I can see myself burning out in the future a well. What I found interesting is the OP expressed as the only option to sustain current levels would result in burnout. Industries are going through change, wellbeing is now what employees want, the days of 9-6 in an office are fast disappearing.

The ultimate goal here for the OP is to keep their earning as high as possible whilst also getting more free time to spend with their kids. It is fair to say they can't afford to lose one of the incomes due to current financial commitments and goals. The financial advice offered is sound but in terms of wellbeing the OP should start considering options to reduce the stress and avoid burnout. A few suggestion could be flexible working (work from home one day), reduce hours / compressed week, formally reduce to a 4 day week and reduce salary. Then lastly what I have found is I have had to compress my workdays into 4 essentially due to a part time course and what I have found is that I had a lot of dead time in my day that I was wasting and being a bit more efficient has allowed me to do so.
 

I'm going to focus on this. It's worth 925K with 650K mortgage. If you put in 100K renovations how much will it increase in value, or not much.

- What do you both love about the house.
- You've 275K of Equity, so I don't see any issue here. Property would have to drop 30 % and you'd be at break even. I am absolutely not predicting house prices here. I'm doing a what if. Of course paying down more of the mortgage is more of a buffer. So then you have to look at how precarious are your jobs. And if they are, then paying down more mortgage is one way to go. As is selling.
- There is no breakdown of how you spend your money. If you want proper advise than you ought to give as much information as you can.
- If your youngest is your last child, than child care costs will go down pretty soon. (though you have to think about later - college etc).
- Too much focus on this thread on pensions I think.
- Specific details on how much the house costs to maintain would be helpful.
- What is wrong with downsizing? Or moving. In order to alleviate the stress you clearly are under. Not sure if that's due to you feeling you've over stretched, the stress of a new expanded family, the size of the repair bills, or running two jobs. Possible a combination of all of them.
 

See my post above, you don't need to consider it an all or burnout situation. It is very easy to just get caught up and everything spirals, it is clear you are putting your own well being second by worrying about money first. Generally you could be in a much much worse financial place and once you have taken onboard the advice here and have a 'plan' that stress should reduce.

My advice is to focus on wellbeing which is essentially your work life balance, you need to have a life plan which in my view is separate to a financial plan.
 
Your net worth is 305k (275k house +30k savings). You have two very good incomes and are maxing out pension contributions. You're actually in a very good place financially and that hasn't really been spelled out yet.

So therefore get a grip on your life overall...downsize to a more comfortable mortgage level and enjoy life with your young family (maybe go on a 3 day working week also). With over 300k equity you should be able to find a nice home with a reasonably small mortgage.

You need to think about bigger picture...spending your life, while children are young, to pay off a big mortgage seems like a waste and something you may regret further down the line. It's all about the balance but living your life exclusively to make maximum money is definitely not advisable...life can be very short!
 
Hi. Thanks to everyone for sharing your advice/thoughts. They have triggered me to reflect deeply on my priorities. I think ultimately my question as to whether we are in a risky situation has been answered and the answer is yes.

Risks pointed out to me;
1. Risk of going into arrears if we substantially reduce our income before reducing our mortgage repayments
2. Risk of ill health in burn out scenario and knock on financial impact
3. Impact of putting money above time with family
4. Risk of having to pay out substantial tax on occupational pension due to future tax regime/ effect 'pension timebomb'

Possible ways to address these risk were suggested;

1. Downsize ( and reduce work hours. )
2. Agressively overpay mortgage/ reduce pension contributions
3. Overpay mortgage and retain pension contributions
4. Additional life assurance
5. Income protection
6. Serious Illness protection
7. Build up cash reserve in company

My thoughts on the different solutions;

1. Reducing work hours to 3 days a week is not an option with my employer (indeed very few, if any employers offer this in my field) I can take blocks of parental leave which I intend to do. Our current income allows both my husband and I to take unpaid parental leave in the immediate term. I intend to exhaust this before considering moving from my current employer.

Downsizing is a huge project. It's not something I want to take on now. I will keep it in mind as an option if we start to feel financial pressure and do want to reduce hours to a level that our income doesn't support. If we downsized I know we would really be hoping to upsize ( get back to the location we currently live in)again in the future if all went well with our company - so for now I'm going to hold on to the house.

2. / 3. After receiving advice on here, I have already increased the monthly DD by 500 a month and diverted a lump sum .Paying down 650000 quickly seems unachievable but 150000 in overpayments in the next 5 years is not unrealistic if we put our minds to it. We intend to reduce back our pension cons to just match our employers and then increase mortgage repayments by the difference.

4. We have very good cover with work plus mortgage protection plus my own company policy so I'm not going to increase life cover.

5./6. I intend to educate myself more on this front. Thanks for the advice.

7. I think this could be a better option than funelling money into the directors pension yearly as I was intending to do. I need to better understand the rules around backdating contributions.

Finally in response to the burn out/ health/ family life topic. On reflection, despite working hard we are not stressed and are generally happy and healthy and I am getting a lot from both my paye job plus my own company. It was more that I don't want to have to work this hard forever ( im sure most people feel the same! ) and wanted to discuss what would be the best course of action financially to allow us to reduce work hours in the future if we wanted to. I agree that reducing the mortgage would give us more options in the future so that is what we will prioritise.
 
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Sounds like someone has been a very good listener taking all advise on board.

One thing, why do you want to take parental leave. Because right now you're a high earner and that might not always be the case. Who knows what's around the corner.
 
North Star said:
Thats a good question Brendan, I will try to get info from the companies that offer incoem protection.
Vincent
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My understanding of these type of policy is that they are very difficult to get paid out on. Is that incorrect. Plus they are costly?
 

Put downsizing out of your mind completely.

It is unnecessary.

While your annual repayments are high, your mortgage interest is about €15,000 a year, which you can easily afford.

The costs of selling and buying are high. So the financial benefit is much reduced.

And if you were going to trade up again, it would be ridiculously inefficient.

You face financial risks. But they can all be managed through prioritising your mortgage over your pension.

Brendan
 
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