Invest or pay off Mortgage

1st time poster avid reader - a somewhat familiar q but want to make sure I do the right thing.

Personal details
Your age: 47
Your spouse's age: 47
Number and age of children: 3 (12,11,6)

Income and expenditure
Annual gross : 130K private company
Annual gross of spouse: 80K public servant

Monthly take-home pay: 8-9K

In general are you:
(b) saving - somewhat.

Summary of Assets and Liabilities
Family home value: €850K
Mortgage on family home: ~210K
Net equity: 630K

Cash: €210K

Defined Contribution pension fund:
You - 27K / year DB + €410K DC
Spouse - €75K lump sum + 15K / year DB

Buy to Let Property value: €100K
Buy to let Mortgage: €50k (spouses house with brother) rent ~ covers mortgage.

Savings/state savings/s&p = €120K saving €500 / mnth.

Family home mortgage information
Interest rate - PTSB 2.5% fixed until end of 2025

Remaining term: 10 yrs
Monthly repayment: €2,200

Other loans = none

Do you pay off your full credit card balance each - yes

Rough annual expenses other than mortgage interest : ~ €70K

Other information which might be relevant

Life insurance: both covered with life, mortgage & income protection

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

- What to do with €220K (inheritance)?

Plan a - pay €170K off mortgage, €50K in savings. Then increase AVCs.

Should I put €50K in state savings or what specific investment would people advise?

Option b - Pay ~€100K off mortgage invest €120K (kids education etc) & increase AVCs?

Plan C - Pay €210K of mortgage & increase AVCs. Thinking €120K + 500/ month invested will cover & if not we can dial down AVCs later.

All guidance/other option appreciated.
Thank you again.

Fred2025 said:

Invest or pay off Mortgage

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Anything useful here?


Are you maximizing your pension contributions?

Fred2025 said:

Defined Contribution pension fund:
You - 27K / year DB + €410K DC
Spouse - €75K lump sum + 15K / year DB

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All are reasonable options subject to risk appetite. I personally wouldn’t go near state savings and would invest excess non pension savings into a diversified basket of equities.

One thing I would advise is to focus any non matched company AVCs into your spouses pension. It’s more tax efficient to have two equal sized pensions than one large one. Depending on accumulation rate and investment returns, the SFT might come into play for you (you’re already at >€1m). The tax efficiency reduces sharply on pensions from c.€800k and become pretty much non existent over €2m (and absolutely crippling above the new €2.8m threshold planned over a few years). Obviously a lot depends on future government plans for the SFT and TFLS, however with Ireland seemingly turning further and further left wing. It’s hard to be optimistic on that front.

Thank you - this helps - had not thought about that.

I had similar options, but not quite as much available to clear off last year. It’s a tough decision, weighing up the certainty, relief and mental clarity of clearing a great deal of your mortgage against the opportunity cost of having a v. large available ‘cash’ fund. Which you may never have again.

Most advice is to take the certain path, we decided to take the other path of investing the cash in a insurance fund with reasonable enough access, which should over the expected investment time (5-10 years) even out as pretty much the same or better outcome financially as putting the funds off our mortgage. However the key for us is the mental freedom of having the large fund available to us in case of any unexpected financial needs that arise. For us it outweighed the mental freedom having a smaller mortage.

It’s not in my opinion a black and white decision, it’s a personal one. We are happy with ours, but I’m sure we would likely be almost as happy with a smaller mortage also.

Fred2025 said:

Cash: €210K

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Fred2025 said:

Savings/state savings/s&p = €120K

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Fred2025 said:

Mortgage on family home: ~210K

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Absolutely, clear the mortgage now. You will be clearing it over the next 10 years anyway, so you might as well do it now.

You will still have €120k to maximise your pensions. I don't understand how much you have in them from the way you have laid them out, but it seems as if you can max both yours and your wife's after paying off the mortgage and still have cash left over.

Fred2025 said:

Buy to Let Property value: €100K
Buy to let Mortgage: €50k (spouses house with brother) rent ~ covers mortgage.

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What is the interest rate on this? You get tax relief on the interest, but if you are paying 5% gross, it's still 2.5% net, so you might as well clear that. But it's not a big issue and if the other joint owner wants everything equal, then that might be more important.

Setforlife said:

we decided to take the other path of investing the cash in a insurance fund with reasonable enough access

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@Setforlife You are taking a big risk and paying a high penalty for this comfort blanket. The investment return after charges and 40% exit tax has to exceed the mortgage rate. That will happen some of the time, maybe even most of the time. But there is also a risk of a sustained fall in the value of the investment.

@Fred2025 You do not need to take this risk. You will have two good salaries, you will have two well funded pensions, you will be mortgage-free, and you have a small investment property. Don't be contributing to the profits of the investment management industry.

Thanks Brendan & co - that’s my thinking. Looks like the majority is pointing to pay off as much of the mortgage as possible.

Correct on the rental property - joint ownership drives me to leave as.

Brendan Burgess said:

The investment return after charges and 40% exit tax has to exceed the mortgage rate.

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Minor correction. Life Assurance Exit Tax at deemed disposal or encashment time is 41% not 40%.

Brendan Burgess said:

@Setforlife You are taking a big risk and paying a high penalty for this comfort blanket. The investment return after charges and 40% exit tax has to exceed the mortgage rate. That will happen some of the time, maybe even most of the time. But there is also a risk of a sustained fall in the value of the investment.

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It’s certainly a risk, but not a big one in my opinion and it’s only a risk, you aren’t paying a ‘high penalty’ also, you are paying the expected taxes and charges which is part of the risk. I also expect the taxes to be 33% for 9 of the 10 expected investment years. I don’t disagree strongly with the advice to pay off the mortgage. I just personally don’t think it’s as black and white a decision as some do.

@Fred2025, what are some of your financial goals in life? E.g kids private schooling, their college education will require renting (you’re not near uni’s), retire early, etc.

Fred2025 said:

Looks like the majority is pointing to pay off as much of the mortgage as possible.

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Personally, I would clear the mortgage rather than pay down 75% of it.

Reduced outgoings gives you more flexibility with your monthly cash flow.

From the information provided, pay off your mortgage in full. You have loads of cash, probably too much.

Reduce the State Savings to about €50,000 and stop the €500 a month. €50,000 is your emergency fund.

Increase AVC's and start a regular investment account to use to fund college payments for your kids. How much you will need for college depends on whether they have to move out of home or not. But if it is your intention for them to go to 3rd level, it is something that will need to be funded in the future. A huge amount of students go on to do a Masters afterwards, so you should plan for that expense too.


Steven
http://www.bluewaterfp.ie (www.bluewaterfp.ie)

I would definitely pay off the mortgage. Thought experiment; if you had no mortgage, would you remortgage your house to obtain funds with no specific purpose? If no, then why have your mortgage now?!