Extra pension contributions or pay lump towards mortgage

J

jaykay

Registered User
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Hi, not sure if this should go under makeover section as such. I'm wondering if there is a method to calculate the best way to choose where to put some extra cash? Choice is either AVCs or pay a lump towards mortgage. Let's say I have €30k.

I have a €300k mortgage that I hope to pay off in 10 years. Variable at around 3%. If I paid the €30k off it, the total interest would come down from €49k to €44k over 10 years. Saving of €5k. I used https://www.drcalculator.com/mortgage/ to calculate the interest.

My pension was started 5 years ago, I contribute 5% (€3500 per year) and the company matches it. If I start paying AVCs, the employer doesnt match that portion, but I am saving the tax on it. That would be at the higher rate of tax. So I could start paying an extra 5% a year, and save myself €1400 in tax per year. So my €30k towards AVCs would save me around €11k over the 8-10 years.

So the AVCs seem like the way to go. Am I correct there?

Age: 39
Spouse’s/Partner's age: 39

Annual gross income from employment or profession: 70000
Annual gross income of spouse: 55000

Type of employment: both private

In general are you:
(a) spending more than you earn, or
(b) saving?
(b) Saving.

Rough estimate of value of home: 700000
Amount outstanding on your mortgage: 300000
What interest rate are you paying? 3% variable over 10 years

Do you have a pension scheme? Contributions of 5% salary matched by 5% from employer
 
My own view is that a higher rate taxpayer should prioritise maximising tax-relieved pension contributions over paying down a mortgage ahead of schedule unless they have a particularly big mortgage relative to their income.
 
Thanks Sarenco, makes sense.
I can contribute up to 20% of my salary to pension for tax relief. The only downside I see is that money is locked away for almost 30 years and I can't touch it!
 
Your mortgage is comfortable
  • 43% Loan to value
  • 2.4 times your income
So this suggests prioritising your pension over your mortgage payments.

The only reason you might not do so would be if you plan to trade up within the next 5 years or so.

By the way, you should not be paying 3%. You should switch to Ulster Bank and pay 2.4% or else avail of one or more of the cash back offers.

Brendan
 
Cheers Brendan, yes I am paying 3% on a variable portion of €100k and 2.6% on a fixed portion of €200k.
I wanted the flexibility of paying off a lump, so wanted part of it variable for that.
 
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