House upgrade + saving for kids future.

B

Bangforbuck

Registered User
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8
Age: 35
Spouse’s/Partner's age: 34

Annual gross income from employment or profession: 42500
Annual gross income of spouse: 74000

Monthly take-home pay: 6050

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: 280000
Amount outstanding on your mortgage: 102000
What interest rate are you paying? 3.9% variable PTSB
Type of Mortgage: Variable. 27 years left. Paying back 517 a month.

Other borrowings – car loans/personal loans etc: 395 a month on car loan (5.9% interest for next 3 years Cost of credit in total is only about 1000) 120 a month on personal loan. (8500 left to pay over 9 years Interest rate of 7.250%. We know this needs to go and was a bad idea to take out.)

Do you pay off your full credit card balance each month?
If not, what is the balance on your credit card? No CC

Savings and investments: 16000 savings. 1200 in company shares scheme. (Paying in 125 a month salary foregone)

Do you have a pension scheme? Employer 10% of salary + contributions of 6% salary. Spouse employer 5% salary + contributions of 5%

Do you own any investment or other property? No

Ages of children: 4 and 1

Life insurance: We both have. I also have 10 times my salary life insurance through employer.
Health Insurance: Full family cover paid for by my employer.

Income/Expenditure Spreadsheet: I put our current figures through this spreadsheet and annual residue of approx 11000 (This is mostly made up of increase in salary for spouse from recent promotion.

What specific question do you have or what issues are of concern to you?
We are looking to do some upgrading in our home. We need approx 12000. We've been trying to do without for quite a few years now and are at the point where we now must go ahead and carry out these upgrades. We also want to clear the personal loan of 8500 asap. We were thinking of switching our mortgage to KBC to get a rate of 2.6% fixed over 5 years and to take out a top up of 20k to cover home upgrades and clear loan.

We are currently putting 280 from childrens allowance into savings accounts every month for kids education in the future. I know there are much better ways of using these funds but I'm not sure what to do. Should I take advantage of the share scheme at work? I can put in my bonus and twice the equivalent of my bonus into this scheme every year. I pay the PRSI and USC up front and can then take these funds out after 3 years without having to pay the PAYE (Obviously must pay tax on any profits on these) Should I instead use the government long term savings scheme for childrens allowance? Is there a low risk investment scheme I should consider?

I'd like to get an idea in general of what is the best approach we could take and will get us the best value for our money to upgrade our home and also save for our childrens future. Should we be instead putting as much money as we possibly can into clearing our mortgage earlier before our kids get to college going age and then use the money we had been paying into mortgage to now fund their education costs or is it better to save and keep mortgage at longer term. (We can also start reducing mortgage term by paying more once our childcare costs start to come down over the years - currently 1200 a month)

Many thanks for taking the time to read through this. We were thinking of going to a financial advisor until I saw someone mention that it would be worthwhile checking out this forum before paying through the nose for financial advice.
 
Bangforbuck said:
Should we be instead putting as much money as we possibly can into clearing our mortgage earlier before our kids get to college going age
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This is what I'd do. If not you're borrowing money to put it into a different account for their college. There's a psychological aspect to having different accounts for savings, but it's costume you money.

Build up a small safety net of 3 to 6 months expenses so you don't have to go into short term debt again, and start paying down debt with everything else.

The danger with rolling short term debt into a mortgage is you're paying it off over a long period. For example a car loan over 27 years won't make much sense once the car is gone. You need to be disciplined and pay extra so you're paying it off in a short period.

Overall you're in a strong financial position for your ages. Just keep on top of it - paying 3.9% on your mortgage is throwing money away.

I'll leave it to others to comment on work share scheme.
 
RedOnion said:
This is what I'd do. If not you're borrowing money to put it into a different account for their college. There's a psychological aspect to having different accounts for savings, but it's costume you money.

Build up a small safety net of 3 to 6 months expenses so you don't have to go into short term debt again, and start paying down debt with everything else.

The danger with rolling short term debt into a mortgage is you're paying it off over a long period. For example a car loan over 27 years won't make much sense once the car is gone. You need to be disciplined and pay extra so you're paying it off in a short period.

Overall you're in a strong financial position for your ages. Just keep on top of it - paying 3.9% on your mortgage is throwing money away.

I'll leave it to others to comment on work share scheme.
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7.25 5.9

Switching mortgage providers to get a better rate is an easy win.

Agreed, the OP is better off overpaying mortgage until kids are closer to college age. I follow a similar approach myself.

However, if I had loans where I was paying 7.25% and 5.9%, getting rid of these would be my first priority. Are there any penalties for paying them off early?
Secondly, I would complete a full Household Budget (lots of online tools available) to examine where my money was going each month (you'd be surprised where it's going), and forecast & save for any medium term future expenditures such as holidays, replacing cars, etc. I'd be ensuring I never need to take out a high interest loan again.
Then I would overpay the mortgage.
 
You are doing well at the moment. You are going through an expensive stage in life and are doing well by saving nearly €1,000 a month whilst making pension contributions of €14,200 a year.

With a bit of a financial rejig you could make your finances a lot easier.

At present you have total debt of about €125,000 with a range of interest rates with savings of €16,000 with a looming €12,000 expense. You have combined salaries of €116,000 so your debt to income is very manageable.

Given your ages and the fact you have a young family I would be looking to simplify everything. I would switch my mortgage and borrow enough to cover all short term debt and the €12,000 needed to cover the works in the house. This will result in a mortgage of circa €135,000.

€135,000 @ 2.6% over 27 years works out at €580 per month. This is only €63 a month higher than it is currently costing you. It will also free up an additional €515 per month by clearing the loans. This saving can be redirected towards your mortgage which will greatly reduce the term.

Once you have finished the necessary works I would look at doing the following.

Set up 6 months expenses in an emergency fund- Your €16,000 savings should cover this
Start overpaying mortgage. If you switch to Ulster Bank you can get the 2.6% fixed rate and overpay your mortgage balance by 10% a year
Increase pension contributions- for me not a massive priority considering you are doing well for your ages
Save towards future large expenses

Your kids education expenses realistically won't come into play for another 14 years, assuming no private schools. At this point you will more than likely have no mortgage, assuming you have no intension on moving house, so the expenses can easily be funded from monthly cash flow.
 
@lledlledlled
I completely agree - expensive debt should be repaid ahead of overpayment to mortgage. In my head I'd skipped the bit where they would repay expensive debt from increased mortgage balance.
 
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I agree with all above.
Pay off car loan and personal loan.
Switch mortgage to get better rate.
Aggressively pay off mortgage. On your household income, I think it would be realistic to pay off this mortgage a LOT sooner than 27 years. Like 17 years sooner!
 
Thanks very much all for your replies. Very much appreciated.

Just a few things I'd like to understand more.

I'm not sure about consolidating the personal loan and car loan into the mortgage. The car loan has abut 2.5 years to go and the cost of the finance was less than 1000 overall. Does it not make more sense to continue to pay this off and clear it rather than spreading it over the period of the mortgage? Would it be better to clear the personal loan with savings rather than use a top up from mortgage to clear it or would this be ok?

Also, I would love to increase the mortgage repayments. However KBC told us at the start of the year that we can't show affordability and wouldn't leave us switch to them to get the 2.6%. Not even just making the same 520 payment we have been making all along. The mortgage broker said there was nothing he could do. They based it off the fact that we had used some savings over Christmas and had used more in January to pay for car tax and property tax and things like that. I just don't get that, that's exactly what savings are for. He said we would have to spend another 4-6 months not touching our savings for anything and then try again. Since then my spouses salary has gone up by more than 20k and our incoming to outgoing shows we are well able to afford. But I wonder will they not agree to it again if I ask to increase the repayments.

I'd want to be paying off another 400 which is something we can do easily (personal loan will be cleared and can use childrens allowance towards it) Would have the mortgage payed off in under 13 years that way. It's incredibly frustrating to know that paying an extra 400 on the mortgage would not put us under any financial strain whatsoever but that the bank has decided we can't even manage 520. Not sure what to do about this. KBC will only allow to overpay 10% over course of fixed term. So I could only pay off an extra 12k over the 5 year fixed term rather than 24k that I am able to repay.

Also, just to add something else in. We have two cars. One of which will maybe last another 3 years. We both commute to work. I'll have to either start saving now for another car or take out finance down the road.

I'm really struggling to figure out how to plan this out properly. I'm absolutely useless when it comes to planning ahead financially speaking.
 
You have a high household income and a relatively small mortgage. Why are you carrying personal debt?

The fact that KBC declined to re-finance your mortgage should be a wake up call to you.

Bottom line; you are living beyond your means. Sorry if that sounds harsh.
 
Bangforbuck said:
Also, just to add something else in. We have two cars. One of which will maybe last another 3 years. We both commute to work. I'll have to either start saving now for another car or take out finance down the road.
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This is part of the problem with switching mortgage - banks see a pattern to short term debt. It's difficult to get out of continually borrowing to pay for things.

If you cleared the debt from savings it'd improve your affordability considerably to allow you to switch.

Bangforbuck said:
that's exactly what savings are for
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Saving to pay for expected things annually is just budgeting.
 
Bangforbuck said:
KBC will only allow to overpay 10% over course of fixed term. So I could only pay off an extra 12k over the 5 year fixed term rather than 24k that I am able to repay.

Also, just to add something else in. We have two cars. One of which will maybe last another 3 years. We both commute to work. I'll have to either start saving now for another car or take out finance down the road.

I'm really struggling to figure out how to plan this out properly. I'm absolutely useless when it comes to planning ahead financially speaking.
Click to expand...

Try UB as they allow 10% overpayment each calendar year.

The bank assumes this on your recent application. Your current car debt will just become a new car debt.

Have you drawn out a budget? Track every single euro and see where you're spending?
 
I think I need to explain things a bit further.

Over a year ago we were going to switch mortgage to KBC. They would not give a mortgage when it was one person on title but two on mortgage. We needed to wait a year for tax purposes to put both on title. Nothing dodgy, just because of gift tax etc. Had to wait until we were 3 years married. At the time we were going to look for 20k top up to do some work on the house. Mortgage broker advised that maybe we could take out a personal loan over a 10 year period to keep repayments low so that we could get started on what we wanted to do in the house and then after a year we could put two on title and go and apply for mortgage and top up and clear that loan and use the rest of top up to do whatever else we wanted in house.
So we did all this and at start of this year applied for mortgage with 20k top, thinking that there was no reason why we would be turned down. We had been told we could well afford it and there was no way there would be any issues, they had already approved us for it before we realised they couldn't take one on title only. But, second time around, they looked at previous 3 months and said we couldn't show affordability based on the fact that we spent some of our savings during that 3 month period. Savings which we had put money into to pay for Christmas period and taxes, insurances property tax etc. Basically they decided that we had more going out than coming in, which absolutely isn't the case. We didn't borrow to pay for these things, we saved in advance and paid for them, which surely makes sense? I have done up a detailed budget and we are living well within our means and saving. We are now 20k better off in salary on top of that. There's about 700 euro a month between pensions and share scheme that we are voluntarily contributing to and therefore if ever needs be can use those funds also towards repayment capacity. We're not frivolously spending money on holidays, weekends away, nights out and have no credit card debt. etc. We go nowhere and haven't had a holiday in years.

So now I'm wondering, was the mortgage broker having us on? Did he just give us really bad advice and was covering it up? Was it really the case that KBC just looked at the personal loan and then decided against us as some are suggesting here or was the mortgage broker being honest with us about affordability?

We could clear the personal loan today right away with savings and without using money from top up on mortgage. We could then only ask for a top up of 12k instead. But would 117 quid a month for that personal loan have been the deciding factor for not approving the switch to them?

I'm surprised that it's suggested that we are living beyond our means? Surely this would mean we can't cover our outgoings? We are doing this and saving, contributing to pensions and share save scheme every month. Again, I'm not the best when it comes to finances so maybe there's something I don't understand.

If we were left go ahead with our ideal scenario and clear the loan with savings and get mortgage switch to KBC with 10k top up and change repayments from 500 to 900 we would well be able to afford this and would then be in a much better position than now. Is there any way of making this happen? Not sure how to get this sorted.

Apologies for the essay's and if I'm not being clear and thanks for your replies.
 
Well, there's nothing you can do about the past but, if I was in your shoes, I would clear your personal loans ASAP and then build up a nice clean, uncomplicated savings record over the next six months.

You don't have to live like a church mouse but your bank accounts should show a prudent spending pattern.

You could then be confident that you could switch to a lower mortgage rate with another lender, with a top up if absolutely necessary.
 
Why don't you just get a top up from PTSB for the home improvement? Repay the personal debt, tidy up your finances, and then switch to a different lender next summer?

A broker isn't going to put in much work for you. They get paid a percentage of the mortgage, and you're looking for a relatively small mortgage.
 
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