45, where do I go from here

[Earl1766]

Personal details:

Your age: 45
Your spouse's age: NA
Partner's age if not married:NA
Number and age of children: NA

Income and expenditure

Annual gross income from employment or profession: 98k
Monthly take-home pay:3k
Type of employment - e.g. Employee or self-employed. Employee in private company

In general are you:
(a) spending more than you earn, or
(b) saving?
Saving around 30k a year excluding pension

Summary of Assets and Liabilities

Family home value: 335k
Mortgage on family home: 245k
Net equity:90k
Cash:10k
Defined Contribution pension fund:380k
Company shares : 40k
Investment account : 150k
Buy to Let Property values: 880k total
Buy to let Mortgages:290k total

Total net assets:1.26m

Family home mortgage information

Lender BOI
Interest rate 4.1%
Type of interest rate: tracker, variable, fixed. Fixed
If fixed, what is the term remaining of the fixed rate? 3 years
If tracker, what is the margin e.g. ECB + 1%
Remaining term: (Original term is not relevant): 25 years
Monthly repayment:1250

Other borrowings – car loans/personal loans etc No

Do you pay off your full credit card balance each month? Yes
If not, what is the balance on your credit card?

Pension information
Value of pension fund:380k
Currently maxing out at 25%. Company is putting in another 10%

Buy to let properties

Property 1
House Value:280k
Mortgage outstanding: 30k
Rental income per year:20.4k
Rough annual expenses other than mortgage interest :2k
Lender AIB
Interest rate 4% Variable
If fixed, what is the term remaining of the fixed rate?

Property 2
House Value:280k
Mortgage outstanding: 110k
Rental income per year:12k
Rough annual expenses other than mortgage interest :2k
Lender AIB
Interest rate 4.5% Variable
If fixed, what is the term remaining of the fixed rate? 9 years

Property 3
House Value:320k
Mortgage outstanding: 150k
Rental income per year:19.2k
Rough annual expenses other than mortgage interest :4k
Lender AIB
Interest rate 5.5% Variable
If fixed, what is the term remaining of the fixed rate?

Other savings and investments:
10k cash in current account
40k in locked company shares
150k across two investment accounts

Other information which might be relevant

Buy to lets are in locations where I should never have any issues renting them out. For property 3 it is currently variable but I am waiting on next ECB rates announcement before locking in for another 2 years. Investment account is small portfolio of private company shares, no ETFs. Also maxing out on employer share purchase plan.

What specific question do you have or what issues are of concern to you?

I really want to be in the position of at least having the option to retire in the next few years. There are likely ways to play my hand that could either knock off or add a few years to this goal.
Should I focus on paying down the mortgages or should I direct future savings towards investment accounts? Should I remortgage one of the rental properties to pay down the family home when fixed term ends in 3 years? Do rent a room scheme?

 

[llgon]

I'm assuming from your post that you are not considering selling any of your rental properties in order to reduce debt.

Rent a room scheme makes sense financially but you can afford not to, if you want to have your home to yourself. If an earlier retirement is more important rent a room will obviously help and if it works out can provide income in retirement as well.

Remortgaging an investment property will not help - interest will not be an allowable expense for tax purposes. Focus on paying down the mortgages, starting with the family home and continue to max out the pension.

 

[ClubMan]

You are far too concentrated in Irish residential property in my opinion. You should consider diversifying.

 

[ArthurMcB]

With a gross of 98k, why is your monthly net only 3k. Maybe i missed it in your OP.

 

[Steven Barrett]

I really want to be in the position of at least having the option to retire in the next few years. There are likely ways to play my hand that could either knock off or add a few years to this goal.

Why do you want to retire in your 40s? What will you do with your time? Hang around with people in their 60s/70s?

If you want to retire early, you need to get rid of the debt on your home. That should be your number 1 priority and then go from there.

 

[Brendan Burgess]

Should I remortgage one of the rental properties to pay down the family home when fixed term ends in 3 years?

This makes no sense.

The rate of interest on the rental would be higher.

You get tax relief on interest paid when the mortgage is to buy or improve an investment property. So you would get no tax relief on money borrowed to replace your home mortgage. It does not matter that the loan is secured on your investment property.

 

[Brendan Burgess]

Family home mortgage information

Lender BOI
Interest rate 4.1%

This is a very high rate of interest.

150k across two investment accounts

You should not borrow money at 4.1% to invest in something on which you will be paying tax on any profits.

The fact that you have three years left is not relevant. You should enquire from BoI what the penalty for early repayment is. It could be high.
But even so, it will probably be worth paying the €150k against your home loan.

Does Bank of Ireland allow you to repay a certain percentage of your loan without penalty every year? If so, you should do that.

 

[Brendan Burgess]

I really want to be in the position of at least having the option to retire in the next few years.

So back to this general question.
You are very well off.
Your objective now is to protect your wealth rather than to maximise your wealth by taking risks.

Borrowing at 4% to invest is likely to reduce your wealth. You would need about 7% after charges and before taxes to justify that. Tp achieve that, you would have to be in a high risk investment which could lose you a lot of money. So the first step to maximise your wealth is to get rid of the expensive mortgage.

You have €1.26m in net assets.
But €1.215m of this is in property including your home.

This is way too concentrated. If property prices fall 20%, you would be down 20% of your wealth. If they fall 50%, you would lose 50% of your wealth. Of course, if property prices double, your wealth would double.

But there is not much benefit to you from a practical point of view if you wealth doubles. But there could be a big change if your wealth halves.

So get rid of at least one of your investment properties, and clear all your loans.

If property prices continue to rise, then you might regret this. But it's the right thing to do.

 

[Earl1766]

Remortgaging an investment property will not help - interest will not be an allowable expense for tax purposes. Focus on paying down the mortgages, starting with the family home and continue to max out the pension.

Wasn’t aware that mortgage relief only applied to new house purchases or house upgrades. Thanks to you and Brendan for the info.

You are far too concentrated in Irish residential property in my opinion. You should consider diversifying.

My pension is in a passive share fund, so if you include that in shares then my home equity to share ratio is 6:5. If you were to include outstanding mortgages then it does jump to 2:1 property to shares, but dont see this as too exposed given relative safety of property versus stocks. What ratio would be best?

With a gross of 98k, why is your monthly net only 3k. Maybe i missed it in your OP.

25% going straight into pension and I am also maxing out on the company share purchase plan.

Why do you want to retire in your 40s? What will you do with your time? Hang around with people in their 60s/70s?

I enjoy my work but it is very stressful and I cant see myself being able to keep doing it in my fifties. If I had a nice nest egg then I would have the option of either leaving for travel or hobbies, or moving to less stressful job on lower pay.

You should not borrow money at 4.1% to invest in something on which you will be paying tax on any profits.

The fact that you have three years left is not relevant. You should enquire from BoI what the penalty for early repayment is. It could be high.
But even so, it will probably be worth paying the €150k against your home loan.

Does Bank of Ireland allow you to repay a certain percentage of your loan without penalty every year? If so, you should do that.

Penalty for early repayment is very high so I am probably going to wait out the three years. That is probably going to my next major decision point.

 

[Brendan Burgess]

Penalty for early repayment is very high so I am probably going to wait out the three years.

How much is the penalty per €100k?
Does BoI allow penalty-free repayments of 10%?

OK, I see from Red Onion's Key Post

Bank of Ireland: The greater of €65 or 10% of the normal repayment each month. However, this is done by increasing the monthly repayment, and can’t be paid in as a lump sum. There are examples on AAM of posters who have set up a monthly overpayment while on variable, and then being able to continue this once they have fixed, and got confirmation from BOI on same.

• Note that this overpayment limit ("10% of the the normal repayment each month") is much lower than "10% of the outstanding balance per year", which some other lenders offer
• I.e., Bank of Ireland offers less overpayment flexibility than the lenders that allow overpayments of "10% of the outstanding balance per year"

So it's only €780 a year. Hardly worth bothering about.