Advice requested - Overpay Mortgage or up my AVC?

AmpJohnny

Registered User
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1
Hi All,

Appreciate any feedback, as per the above i am trying to decide if (further) overpaying my mortgage or upping AVC contributions should be my priority. Details as follow.

Age: 38
Spouse’s/Partner's age: 38

Annual gross income from employment or profession: approx 130k (Approx as its sales based)
Annual gross income of spouse: €0 (Stay at home Mom)

Monthly take-home pay - approx 6k on average

Type of employment: e.g. Civil Servant, self-employed - PAYE, Private Sector

In general are you:
(a) spending more than you earn, or
(b) saving? Saving at the moment after realizing how little we had put away

Rough estimate of value of home - Approx 400k
Amount outstanding on your mortgage: - 180k over 30 years (payments are 850pm but we make a payment of 1150pm as we were able to hold original payment after fixing at lower rate)
What interest rate are you paying? - 3% fixed, term up in March

Other borrowings – car loans/personal loans etc - nothing right now

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

Savings and investments:
2k emergency fund
20k rainy day money - add approx €500pm
Approx 80k in Stock i cannot access for another 4 years - 60k directly earmarked for Mortgage, 20k for improvement to house

Do you have a pension scheme?
Just started one this year, currently paying 6% + Employer match of 6% and an AVC of 10% on top to try and make up for lost time

Do you own any investment or other property? No

Ages of children: 3 kids all under 5 currently no College savings for them but planning on starting same at rate of 100pm soon

Life insurance: None right now, work provide Income protection and limited Death in Service benefit
 
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iMO It’s worth considering saving for college fees through pension as you should be able to access tax free cash at age 50

Seeing as your the only income generator I’d consider PHI or some type of income replacement cover.

I’m not sure about AVC versus paying down mortgage though, seems to be different views on it here, hopefully someone else on here will address
 
Do you have a pension scheme?
Just started one this year, currently paying 6% + Employer match of 6% and an AVC of 10% on top to try and make up for lost time
Hi, what's the base salary that pension is based on? I'm assuming it's a percentage of guaranteed salary rather than total including bonus / commission?
 
This is an absolutely clear case of maxing your pension contributions now.

Forget about the mortgage. Forget about college funds. Absolute priority is to max your pension

1) You have a very comfortable mortgage
€180k mortgage with a salary of €130k is a loan to income of 1.4
€180k mortgage on a €400k house is less than 50% LTV.

Your net borrowing is even more comfortable as you will be able to set the stock of €80k against it in 4 years

2) You have just started your pension so you are way behind. Catch up as quickly as possible.

3) You have a variable income. In future years if your income falls, you won't be able to contribute as much



The only potential exception to this is if you plan to trade up within the next 5 years. But even then, with €220k of equity and a good income, I am sure that maxing your pension is the right idea.

After maxing your pension contributions, you should pay down your mortgage

You should not be contributing to a children's education fund. You can get a guaranteed return of 3% tax-free by paying down your mortgage. That is what you should do.

Do you really need rainy day money. It is costing you 3% of €20,000 or €600 a year. If your employment outlook changes or if you anticipate some expenditure like a new car, then by all means start saving for it.

If your earnings might fall if your sales fall, then it might be worth building up a rainy day fund.

It’s worth considering saving for college fees through pension

Max your pension now. Don't worry about how you will fund the kids' education fees. If you have a healthy pension fund and you have cleared your mortgage early, you can then plan on how to fund the education fees.

Brendan
 
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