Advice needed: pay off mortgage completely or not?

D

doodles

Registered User
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Hi,

I've been looking at this very informative site and think some of you will be able to advise on what you think we should do.

Age: 37
Spouse’s/Partner's age: 38

Annual gross income from employment or profession: Just made redundant - was 60K+ (meaning a good bonus on a good year)
Annual gross income of spouse: appx 50K (depending on overtime, then more)

Type of employment: private sector, PAYE employees


Rough estimate of value of home: appx 450K - hard to know with property prices these days
Amount outstanding on your mortgage: 73K
What interest rate are you paying? tracker - discounted based on ltv - after today's ecb cut - it should be 2.75%

Other borrowings – car loans/personal loans etc - NO

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

Savings and investments:
20K in savings (liquid)
15K in stock

Do you have a pension scheme? Yes, we both do - not exactly sure of what amount is in there as of now

Do you own any investment or other property?
Yes, buy to let property - purchased in 02 for 153K worth, we think, about 280-300K today. Mtg outstanding is 118K.

Ages of children: 3 and 5

Life insurance: tied to mtg protection on both properties.


Questions:
1) Having been made redundant, I am expecting that my redundancy/lump sum will equal (or just about equal) the mtg outstanding on our home. Should we just pay this off completely? Partner is in building industry and job isn't 100% given economy and lack of future business. I am planning to take time off but would return to work force depending on partners situation. Any advice? Given the low interest rate we will be having from today's cut the savings on the interest isn't as great as it was when our rate was 4.75%+. Researched online and have found many advise to pay off and others say to invest in pensions, which we're dubious about given the lack of return of late.
2) Any ideas on where we should go for life insurance - and what amount would be considered 'good coverage'?

Thank you.
 
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In many circumstances I'd say pay off the mortgage - in yours, I wouldn't. You have uncertainty about your partner's job, the (painfully) wrong sort of certainty about yours. You haven't said much about the investment property, but what happens if your tenant gets behind, or leaves and you have a couple of month's vacancy? And that's the month your partner is also made redundant?

It's reasonable, I think, to reduce the mortgage balance - and maybe leave it over the same term so your monthly outgoing are substantially reduced - but in your situation I'd want the comfort of several month's worth of living expenses available. Plus, deposit rates are still much higher than mortgage rates (though likely to come down quite fast); it could be worth putting some of your redundancy package in 3, 6 or even 12 month deposit. If you crunch the numbers, you may find that putting the money on deposit could yield a better financial return than simply paying off the mortgage, as well as giving you much better breathing space if things get more difficult.

Best of luck, whatever you decide.
 
Purely my Joe Soap opinion, but if I was in your situation, I'd take my time off, then wait until I had found another job, and then put a big lump of any remaining redundancy money towards the mortgage. I'd probably keep a bit of the remaining money back in a notice deposit account for emergencies.

As for life insurance, it really depends on your own circumstances how much cover you want. If one of you died, would the other want to stop working completely, etc, etc. Obviously the very minimum amount would be the outstanding mortgage. I'd throw in a bit more to cover funeral arrangements and things like that as well.

I've found 123.ie good for various insurance quotes, but I'd talk to absolutely every broker/company I could get hold of and see what they suggest.
 
All - thanks for your the replies and advice.
Brendan - I saw that post last night - thanks!
 
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