Any guidance appreciated

Age: 32
Spouse’s/Partner's age: 31

Annual gross income from employment or profession: 42000
Annual gross income of spouse: 62000

Monthly take-home pay: 5600 approx

Type of employment: both private sector

In general are you:
(b) saving? Saving 3k a month

Rough estimate of value of home. n/a rent at 1300 a month
Amount outstanding on your mortgage: n/a
What interest rate are you paying? n/a

Other borrowings – car loans/personal loans etc. n/a

Do you pay off your full credit card balance each month? n/a - dont have one
If not, what is the balance on your credit card? n/a

Savings and investments:

Do you have a pension scheme? yes both in defined contribution with good employer contributions. Paying 50e Avc and 200 Avc respectively

Do you own any investment or other property? No

Ages of children: N/A - but may be some in the future

Life insurance: n/a


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

We are just really starting out and hoping to purchase a house soon - currently renting at 1300 a month. We have a deposit of 70k after a few years of hard savings. We have an emergency fund of 6k and other misc savings for holidays etc. Both contributing to pension and have health insurance. We also have death in service through our pension plans. I feel like we are in ok shape financially but I'm wondering if we are missing anything that someone more experienced may see. I would really appreciate any feedback or guidance particularly around the area of saving for any possible children we may have...as aside from creche fees I dont have a huge wealth of knowledge of the expenses we may incur here. Ive looked into changing health insurance plans that have some cover incase we need to go down an IVF route in a few years as children arent a plan in the next 2 years or so. Would appreciate any advice or any feedback on any glaring mistakes we may be making here!

Our main goals are:
Pay off house within 10-15 years. We will be borrowing circa 450k (this is an exemption) sometime soon and will likely have an interest rate of around 3 percent. We will be likely fixing this for 5 years but we have never had a mortgage and not sure if this is the best choice.

Following house payoff our financial goals are to max pension contributions and build savings.

After that one or both of us may move to part time work.

I don't have advice to impart but questions.

Your combined salary is very good but has a bank actually agreed to lend you 450K? I myself have ambitions to trade up, but as it is not this year or the next I am not following lending rules closely.

Also how realistic is paying 450k off in 10 - 15 years? Mortgage interest aside, doing it in 15 years means handing over 30k income net each year.

Hi there, yes we got approval from the bank just under a month ago so hopefully you can do the same. It's probably not the most realistic but we were thinking better to aim for that and see how things pan out

A few points.

1) You should not be aiming to pay off your mortgage in 15 years. That makes no sense? Why would you try to pay 60 years of accommodation costs over 15 years?

2) You should get the longest possible mortgage. €450k for 25 years @ 3% will cost you €2,100 a month. While the contract is for 25 years, you can overpay it if you want. Over 35 years, it would be €1,700 a month.

3) This is not my area of expertise at all, but if you are planning to have children, I would have thought you should do so sooner rather than later.

4) It might be better to plan the children first and then arrange your house buying and career around that.

5) So while you are able to borrow €450k to buy a house for €520k, should you be doing so? You might be better off with a cheaper home and have more financial flexibility to have children earlier.

6) You don't need to worry now about whether fixed or variable is better. When you are just about to draw down the mortgage, you can make that decision. The market could be very different then.

Anon55 said:

Paying 50e Avc and 200 Avc respectively

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Scrap this. Cash is king. Get as big a deposit together as possible. When you buy the house, get the mortgage down to a more comfortable level.

Then worry about making voluntary contributions to pensions.

Having said that, €250 a month isn't much in the general scheme of things. But make sure that you don't increase it.

Brendan

Brendan Burgess said:

1) You should not be aiming to pay off your mortgage in 15 years. That makes no sense? Why would you try to pay 60 years of accommodation costs over 15 years?

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I will tease this out a bit further.

You will have a mortgage of €450k on a gross income of €100k - or 4.5 times your income.

This is uncomfortably high.

If you need to take a break from the €60k salary, then it will be ten times your gross income.

So, if you do borrow this amount, pay it down to €350k as quickly as possible.

You still take out a 25 year or 35 year mortgage, but you pay it down rapidly. Cancel the pension. Forget about holidays. Get your mortgage down to a comfortable level where she can take time off work if she wants.

But best of all, borrow €350k in the first place and buy a house for €430k.

Brendan

Thanks so much for this Brendan. Appreciate your input. It's exactly the direction we were looking for and will review our goals based on this.

Female voice of experience here on babies. Mad idea that young women even consider IVF. Go for it. And space them so you don’t have two crèche fees at the same time.

Agree with Burgess, borrow now over longer term, makes it more affordable, but then overpay later when you’ve an idea of where you are at. Agree about using avc money to increase deposit. And also wonder why you’re maxing out borrowings, would a cheaper house not be much better. You actually don’t know, now, what type of house you need, versus what you want.

Thanks so much, really appreciate it. Great to get any insight into this. The IVF cover consideration was more of a background insurance incase we find ourselves having to shell out for that and things aren't as straightforward as expected. Based on this we will definitly review the type of house we were looking at. Thanks all.

The advice given already is spot on. My 2 cents is that you should try to have any and all kids before the mother hits 36.

Apart from childcare, the biggest expense might be one of you leaving the workforce or reducing working week. This is a major unknown, you have no idea what type of parent you will be or what type of children you will have until you have them! Try to set up your future to allow for flexibility in that regard. So if you reduce household income, then you take longer to pay off the mortgage. Or if you both remain working then mortgage gets paid off faster or you have more disposable income or pension contributions. Try to avoid a situation where you are forced to both keep working to cover your lifestyle, as that might not be what you want once children come along.

In my opinion at 32 you should take at minimum a 30-year mortgage to keep monthly fixed costs low. You can then overpay on a flexible schedule, it is essentially a free option. I'd consider doing something like a 90% mortgage and fixed for 2 years, over two years try to pay it down to 80%, and switch to a much better rate.

I will make a general statement, but I would guess that between the ages of 30-50 are when people will experience peak life costs (outgoings) and should have the largest amount of monthly free cash flow. Purchasing a house, decorating, childcare, new cars, maybe an extra car, family holidays etc are all going to be large costs. Doubling your mortgage payment for 15 years is an unnecessary extra cost, especially that by the time you pay it off your monthly cash flow needs should start to reduce anyway.

Thanks all. Really appreciate all the advice. Lots to think about.

One note about children: we're paying 1050/month creche fees. Wraparound primary school care for same creche is something like 700/month - that's them picking up when they finish school (at 1!), and doing full-time care for mid-term breaks and summer. The drop in cost is nowhere near what we imagined: I thought a few years of full-on fees for each child then ECCE would kick in, then school, and we would have minimal costs.

We're spacing a second so we hopefully will get some reduction with ECCE but again, childcare costs are so much more than I expected. We also imagined we would overpay our mortgage, and we haven't: home improvements/childcare/basic costs/ordering too much takeaway because we're exhausted from broken nights sleep. Children can be quite cheap, as everyone says, but you can have unexpected costs too: our daughter had some medical conditions in the first year, the public waiting list was over a year and we needed immediate advise so paid several hundred over repeat appointments to go private, there's the drop in salary to cover mat leave, and then there are savings you assume you'll make you can't because of your specific child (we were sure we'd use Aldi nappies, everyone says they're great, our child got a nappy rash in everything but the most expensive brand, etc etc).

Children are great, and worth it, but we were on similar salaries to you and also making huge savings, we're naturally quite frugal and having one non-sleeping baby and one statutory maternity leave really threw a spanner in the works. I wouldn't at all assume you'll be able to save at the rate you are now, or at all, with a new child: but with the proviso that they're all different and you may have a totally different experience.

michaelm said:

The advice given already is spot on. My 2 cents is that you should try to have any and all kids before the mother hits 36.

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Excellent advice but if she starts then the body gets good at it !!! Spacing of 2 years min is what I recommend. But each to their own As this is a money website I'll also mention that parents get fooled into buying the best of everything when there is absolutely no need. The best baby seat for eating is the IKEA one. Cheap and easy to clean. With no complication.