Advice sought on using savings for mortgage lump sum/investment/rainy day fund

Newbie88

New Member
Messages
3
Age: 31
Spouse’s/Partner's age: 32
Annual gross income from employment or profession: €80,000
Annual gross income of spouse: €100,000
Monthly take-home pay: €7,700 approximately
Type of employment: Permanent, in large plc 4+ years and spouse in management in another large company for +10 years
In general are you:
(a) spending more than you earn, or
(b) saving?
Saving:- Monthly costs (including mortgage and portion of annual costs) €2,800 approx. Saving at least half our take home pay.
Rough estimate of value of home: €400,000
Amount outstanding on your mortgage: €210,000 (30 year mortgage drawn 2015)
What interest rate are you paying? 3% (on 5 year fixed to July 2023)
Do you pay off your full credit card balance each month? Yes, rarely used.
If not, what is the balance on your credit card? n/a
Savings and investments: Approximately €110,000 in cash
Do you have a pension scheme? Yes both through work DC schemes (employer and employee contributions 5% + AVC approx. €1-2k of bonus each year)
Do you own any investment or other property? No.
Other borrowings – car loans/personal loans etc: Nil.
Children: None
Life insurance: Mortgage protection, income protection cover.

We are looking for advice on how much of a lump sum to put towards our mortgage and what to do with our savings. In the last two years we got married and renovated our house so until kids come along our savings are building up (only big spends are holidays!) and we’re not earning much return on deposit at the moment. We are trying to decide how much of a lump sum to throw at the mortgage (we’re also pricing around for better rates and might switch providers) and how much to put into a relatively safe investment. With potential maternity leave coming up (80% pay) in the next couple of years we would really appreciate any advice on how much to keep for a rainy day fund and what type of investment we should start with. Really appreciate any advice or tips!!!! Thanks in advance!!!!
 

Brendan Burgess

Founder
Messages
39,671
With one earning €80k and the other earning €100k why do you need a rainy day fund at all?

Pay the lump sum off your mortgage. It guarantees you a tax-free return of 3% a year.

You will halve your mortgage repayments. So when you do need maternity leave, your outgoings will be lower.

When you do get pregnant, you can start building up your savings again.

Brendan
 

RedOnion

Frequent Poster
Messages
4,069
What I'd do:
Pay a massive lump sum off the mortgage. You're not expecting a baby just yet. You'll be in a position where you've 100k mortgage, and 100k salary when 1 of you goes on maternity leave. If you decide to, you could have a single income household, or at least have the flexibility to do reduced hours / longer periods of parental leave etc. 100k salary is plenty when you've a small mortgage - I've done it.

I would however also start increasing pension contributions.
You don't need to be looking at investing outside of pension.

I'd aim to pay down mortgage quicker (tax free / risk free return). You'll comfortably have it completely cleared before any potential children start college, and easily before then if you put your mind to it. So you'll have plenty of cashflow when you need it.
 

Alkers86

Registered User
Messages
109
Congratulations, you're in an excellent position at a young age.

You don't mention whether your home is a forever home or will you be looking to move in the coming years?

Other than that, increase your pension contributions to the maximum allowable, this is 20% of salary for each of you, in addition to any employer contributions. Do this ASAP, as stocks are very cheap currently.

How secure are your jobs in the current climate? Do you both work in the same industry?

It looks like €3,000 per month is what you spend, somewhere around €18,000 - €20,000 is what I'd keep as a buffer and repay the rest off the mortgage.
 

charlie_45

New Member
Messages
4
I would definitely keep shopping around on your mortgage rate, your LTV is <60% so you should be able to get about 2.3%. Contact your current provider first and negotiate rate on fixed term. If you stay on fixed term there are likely restrictions on overpayments, usually 10% a year. I'd definitely aim to knock 50-80k off your mortgage. Negotiate this with your bank on any rate changes.

I'd also encourage increasing your pension contributions, especially this year.

For rainy day fun, I'm like you and like to know I have a cushion. It might not always make the most financial sense, but keeping about 30k means you'll know you can always weather a bad year (job loss, unpaid leave after baby, illness, caring for parent etc), and have funds for holidays (whenever we can go on them again) or trading up car etc.

I don't have much experience in investments, (I've only a small amount in a managed fund so can't advise), but this is likely a good year to make investments for the medium term.
 

Newbie88

New Member
Messages
3
Thanks so much everyone for your advice. Obviously so much has happened since I posted above and that rainy day fund brings a lot of comfort. Our jobs (different industries) are both secure but given downturn with covid 19 bonuses for this year are unlikely and it will be wait and see later in the year on any potential salary cuts in these uncertain times. Our house is our forever home and we have already renovated. A new electric car next year maybe is our only planned big expense. We will check out paying a lump sum in the next few weeks and will price around to switch onto a better rate too.
 

sadie

Frequent Poster
Messages
618
If you have a fixed mortgage you will have to pay a fee to get out of it in order to repay a lump sum.
The repayment amount each month won't reduce, just the term will get shorter.
Have proper chat with your lender about what options are there. At the minute all the staff are very busy sorting out the repayment holidays.
We were going to pay some of ours off (ours is quite 'small') but bank said they have so many supports in place to help people it's better to keep cash savings in uncertain times.
I wouldn't rush to get rid of any of your savings at all. Once it's in the mortgage it's gone.
If you are starting a family do nothing until you have the (first!) baby and then see. Children, loss of job or a house price decline are the unknown variables in your situation. When you have a baby one of you might want to stay home altogether or you will be paying childcare of 1k a month.
That money is a great cushion to provide for things you never even thought you might need to spend it on, like god forbid, IVF or some other private treatment, who knows?
 

RedOnion

Frequent Poster
Messages
4,069
If you have a fixed mortgage you will have to pay a fee to get out of it in order to repay a lump sum.
Not complete - you only pay a break fee on the portion you want to repay. This is always less than the interest you would save.

The repayment amount each month won't reduce, just the term will get shorter.
Which lender? By default, unless you request otherwise, it's the repayment amount that reduces. Changing term requires a change in your contract, so you have to ask for it.
 

sadie

Frequent Poster
Messages
618
Which lender? By default, unless you request otherwise, it's the repayment amount that reduces. Changing term requires a change in your contract, so you have to ask for it.
I stand corrected. I'm sure the person I spoke to said our repayment wouldn't change. Maybe they said 'wouldn't change significantly' or somesuch.
The Karl Jeacle calculator is good for playing about with figures https://www.drcalculator.com/mortgage/
 

Newbie88

New Member
Messages
3
We got a quote on the break cost and its very little really. We repaid a lump sum two years back and it reduced our repayments. Paying another lump sum would further reduce repayments which would free up money for childcare in the future if needed. House price decline wouldn't affect us, we have our forever home. We have savings of 110 and advice on rainy day funds seems to say around 6 months income is loads so we are thinking of a lump sum of around 50 would still leave us with plenty in reserves and significantly save on mortgage interest.
 

RedOnion

Frequent Poster
Messages
4,069
We have savings of 110 and advice on rainy day funds seems to say around 6 months income is loads
In my opinion, in normal times, with you both being high earners 6 months is far more than adequate. Even if one of you lost a job, you'd still be comfortable.

Once you've children, you'd look at planning for the 'worst case' which might look like one of you becoming sick, unable to work, and the other having to give up work to look after them and the children. That's when you need to start looking at appropriate insurance.

Paying off a lump sum looks very sensible in your situation.
 
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