Best move for couple with €12k savings - mortgage Vs pension

[DevWil]

Age: 36
Spouse’s age: 35

Annual gross income from employment or profession:
47k - private
Annual gross income of spouse:
60k - private

Monthly take-home pay
6,500 approx combined

Rough estimate of value of home:
285,000

Amount outstanding on your mortgage:
219,000 @ 3.35%. Overpaying 10% monthly at the moment. 18 months on current fixed rate left, and 23 yrs in total.

No other debt

Savings and investments:
50k maturing end of 2021 from low interest savings account & 12k pot sitting in current account.

Do you have a pension scheme?
Neither have pension yet. Aim to start in 2021

Ages of children:
No children, no plan for them.

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

• What to do with €12k savings pot?
• Should we switch to be assessed as married couple for tax credits? Is there any benefit?

Mortgage or pension - what is the best decision to make with the €12k savings.
If mortgage is the better option, then is a lump sum the better option OR reduce the term (by 10 yrs) and start using that 12k towards the monthly increased payments. Could handle repayments of up to €1800 p/m vs €1300 now. When I looked at it it seems by paying €12k as a lump sum only saves less than €1k €400 in interest. Is the best way to attack the mortgage or to reduce the term? It seems that this is not the best use of the money?

Pensions - Both plan to start pensions next year. Really need to learn more about them and quickly. Any company recommendations? Also, if say €12k was put into one pension as a lump sum, what does this actually mean?

Thanks for any feedback.

 

[Brendan Burgess]

If you pay €12k off your mortgage, you will save 3.35% which is €400 a year. So I don't know where you are getting the €1k.

Your Loan to Value is 76% which is too high. So pay down the mortgage, ideally to below 60%. This will allow you avail of lower mortgage rates on your entire mortgage.

What are you doing with €50k in a low interest savings account? If you paid this off your mortgage, you would save €1,500 a year, risk-free and tax-free.

If it's low interest, check to see if you can cash it early.

Leave the term the same and have a lower contractual repayment. You can always overpay your mortgage.

When your LTV is 60%, stop overpaying and contribute to your pension.

Brendan

 

[DevWil]

Thanks Brendan for the reply. Getting the LTV to 60% before thinking about pensions is really interesting.

My mistake on the interest saved, that was one of my many typos in my rushed post. I've update it there.

The 50k was locked in a savings account for multiple years. The €12k is a test run for that really.

So if there was only €12k at play for now - what would you suggest would be most beneficial until 2022? Would it be the mortgage again in a lump sum? Do you generally advise against reducing the term and instead making lump sums?

Thanks a lot for taking the time to answer this!

 

[Brendan Burgess]

Do you generally advise against reducing the term and instead making lump sums?

No need for a new thread to discuss it.

Key Post - "Overpaying my mortgage - should I reduce the term or the monthly repayment?"

This question comes up in a variety of ways and the threads often go off topic with irrelevant calculations. The interest charged each year is exactly the same - we will return to this. Reducing the repayment is simply reducing the payment you are contractually obliged to make under your...

www.askaboutmoney.com

 

[DevWil]

No need for a new thread to discuss it.

Key Post - "Overpaying my mortgage - should I reduce the term or the monthly repayment?"

This question comes up in a variety of ways and the threads often go off topic with irrelevant calculations. The interest charged each year is exactly the same - we will return to this. Reducing the repayment is simply reducing the payment you are contractually obliged to make under your...

www.askaboutmoney.com

Perfect, thanks for that.