36 - huge mortgage

The whole situation to me is very stressful and simply not a nice way to be living.
To me your income should cover your large mortgage and afford a decent lifestyle.
If you struggle to pay the mortgage with your lifestyle it is simply not worth all the stress.
Life is way too short to be living with pressure like that. On your incomes you should really be living well.
Your house is your dream forever home but at what cost.
Two choices you sell the house or change your lifestyle in a serious way.
You deserve to live better and not have a constant pressure around finances.
Its simply not worth it.

The income is big but the current/planned expenditure is also very high and doesn't leave a huge margin. I would have considered the same as the above poster, when you look the amount spent on the mortgage and the pressure it create for a house that is described as livable. Children are not going to be cheaper in the coming years.

Brendan Burgess said:

But the monthly payment will probably increase when the fix is up.

And their income might take a dip.

It argues for prioritising the mortgage over the pension.

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Arnie Hammer said:

Yes but by what? Another 2pp on the mortgage is €800 a month in 4.5 years time which on a gross €200k should be more than manageable.

I would worry much more about the income than the cost of finance at that point.

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I believe the OP will need to pay off an additional ~125k of the mortgage in the next 5 years to keep their monthly mortgage payment the same. With no overpayment the monthly rate could increase by 700 pcm based on a 5% mortgage rate. Throwing in 100k renovations, changes the dynamics again.

Calcs
Current Mortgage: 2,280 per month, 540k @ 25 years, fixed at 1.95%
Future: 2,920 per month, 450k @ 20 years, fixed at 5%
Future (overpay), 2,200 per month, 325k @20 years, fixed at 5%

I agree @Brendan Burgess but based on the Ops expenses I don't see where they get the additional 125k from without lifestyle changes. in this scenario are they just best to create a large cash reserve to see them through increased costs and then downsize or sell up once the kids are through school?

Hi Head

I was really looking at whether to contribute to the mortgage or to the pension. It seems clear to me that the mortgage is the priority.

Lifestyle is a much trickier issue. You are right to raise it, but they have a good income and maybe it's justified or necessary.

Brendan

Nicetoknow said:

Age: 39
Spouse’s/Partner's age: 41

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Nicetoknow said:

Annual gross income from employment or profession: self-employed 125,000 PAYE + variable bonus of between 8K-15K + pension cons of 25K a year
Annual gross income of spouse: 50K (3.5 day week) + pension cons of 5K a year + 2K bonus

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Nicetoknow said:

Family home worth €1m with a €540k mortgage,

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Nicetoknow said:

Defined Contribution pension fund: €300k across 4 different funds

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They have an income of €220k
They have €500k equity in their home.
They have €300k pension
They own 40% of a profitable business.

And they are 40 years old.

That is a lot better than most people.

I don't recommend extravagance, but they are doing fairly well and don't need to cut back drastically or trade down.

It's just risk management. Get the mortgage down to a more comfortable level by not borrowing money to contribute to a pension.

Brendan

Just with relation to school fees of 7k - at that point there would be little or no childminder fees, which is 1.25k a month at the moment. So that would cover fees and a few associated costs. I presume the family live in Dublin so reduced college expenses as a result
Huge opportunity costs with holidays now as so expensive to travel. Maybe skip/downsize holidays for a year or two and get reserve up to 15k to replace car in time. Kids that young are easily entertained with a lot less.

Say I’m 35.

I can put €23,000 into my pension, or take €13,800 in net salary.

Let’s say I invest the €23,000 in global equities. Over 30 years, and based on long-term return assumptions of around 7% pa on average (caveat emptor, etc), that €23,000 could conceivably be worth €184,000 after 30 years.

A mortgage of 3x is not “big” or “risky”.

AVCs should be prioritised over mortgage overpayments in most cases.

Hi Gordon

It could. And in 30 years time, you could say "I told you so" and you would have called it right most of the time.

And their income might drop and they go into arrears with all the misery that involves.

However, if they overpay their mortgage down to a reasonable level now, they will have lower payments in a few years at which stage they can max their pension contributions anyway.

So the right thing to do is to minimise the short-term and medium-term risk.

Brendan

Hi Brendan,

But they can’t. AVCs are “use it or lose it”. If I don’t contribute €23,000 for this year, I can’t ‘backfund’. It’s not possible to catch-up.

Plus the mortgage payments only reduce if the person refinances.

My mortgage is about around €2,500 a month and my AVC is around €2,500 a month. I don’t think it would be right for me to neglect the AVCs and double the mortgage payment.

Thanks everyone for your advice. I got locked out of my account so apologies for not responding sooner! By way of update, we have paid down a further 25k off the mortgage (by forgoing pension cons and using bonus) and will continue to chip away off it as much as we can over the next 4 years. Thanks all.