Money in accounts - what to do

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yop

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Folks
In a quandary. Kids allowance going into CU account. 17k there after 6 years (2 kids). So by the time oldest is 12 will have circa 35k.
Wife has 50k. No pension.
I have 10k, company pension. I have Irish Life (formally Quinn) equity fund. 11k in it. Made 14% last year. I dont pay into it.
I have other company shares, circa 12k. CU account with 2.5k euro.

144k Mortgage - 1080 per month. 15 years left. Rate is 3.15%. House value is between 270-300k.


Part of me wants to take 10k off the kids CU account, 15k off the wifes and go to Gov bonds. But after 10 years will pay out around 4000 euro.
Then part of me wants to take 10k from that and put into a low risk Equity fund. Looking at some of the IL funds they will hit around 5-10% a year. So thats at a max 5k out after 5 years before tax.

Then there is the mortgage.

I think you are going to say pay it into the mortgage, get an LTV mortage with KBC (3%) and reduce the time you spend paying it back.

Sorry its a bit of a head wreck.
 
Yep! Youre borrowing at 3.1% (mortgage) and saving at (max) 1% in various savings accounts. I'd suggest that you and wife take the 50K from her account and reduce mortgage to 94K, reduces your interest, instant return.
I'd leave the children's allowance for the moment since its building nicely and will be needed in the future.

I would forget about equity funds and banking on 5-10% per year is folly. They could drop 20% next year! You can't invest with 5 year horizon.

Keep 6 months expenses as emergency fund (technically you have this with the CU + children's allowance). Use remaining to hammer mortgage. Paying off the 50K will reduce term by 6 years and save you 14K interest! Compare that to investing in government bonds you mentioned. They will return 4000 after ten years, while above approach will result in your mortgage being cleared. I know which I'd go for....
 
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username123 said:
Keep 6 months expenses as emergency fund (technically you have this with the CU + children's allowance). Use remaining to hammer mortgage. Paying off the 50K will reduce term by 6 years and save you 14K interest! Compare that to investing in government bonds you mentioned. They will return 4000 after ten years, while above approach will result in your mortgage being cleared. I know which I'd go for....
Click to expand...

100% agree with the statement above. Although I would go further and continue to pay the 1080 against the mortgage each month so the overpayments go directly off the principal. This way the number falls down much quicker and you should be mortgage free in around 8 years.

Thinking of where the kids are and education etc, it is by far the best option. You will simply not get a better return anywhere else.

Your Quinn Life funds - you are paying income tax etc before you take the money out, then you pay 41% EXIT tax on any profits you make, as well as a 1% levy to invest in the first instance. I would really debate if there is any merit in doing it, unless absolutely necessary. I have looked into this a lot over the last while and general consensus is it is a semi-futile activity. You are better off investing in a pension fund if you are thinking longer term, and only consider this if you have maxed out your pension contributions.


Once your mortgage is paid, you can then take a holiday to remember for the family and review everything then. I am in exactly the same boat as yourself.

Simply put (as was explained to me), you are borrowing money at 3.15% (after tax so gross 6.5%) to receive ~1% in interest. It is not a wise financial move.
 
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gnf_ireland said:
100% agree with the statement above. Although I would go further and continue to pay the 1080 against the mortgage each month so the overpayments go directly off the principal. This way the number falls down much quicker and you should be mortgage free in around 8 years.
Click to expand...

Sorry, I obviously meant pay the 50K lump sum AND continue paying the normal amount as well!
 
Great stuff lads. One other thing, house mort, LTV with KBC is 3% at the moment. That would reduce payments further. Think its worth a move. TBH I haven't looked at switching fees but I just seen the offer and the mortgage is less than 50% LTV.

So with regards putting 50k against the mortgage its looking like a 14k interest saving and around 6 years. Of course thats also the 1080 a month payment is it? So 70k in payments and 14k interest? Or have I read that incorrectly?

Interesting with regards the Quinn life funds. The money that is in there is recovering from a big crash in the bad time! I don't pay into it. I just let it grow. It currently will pay tax on 1100 euro. Do you think I'm as well to take that too and dump it against the mortgage?

Thanks v much for all the advice lads.
 
yop said:
So with regards putting 50k against the mortgage its looking like a 14k interest saving and around 6 years. Of course thats also the 1080 a month payment is it? So 70k in payments and 14k interest? Or have I read that incorrectly?
Click to expand...

Sadly its a little more complicated than that.
A 144,000 mortgage will cost you 180,925 over a 15 year duration @3.15% => interest cost = 36,925
A 144,000 mortgage where you make a once off over payment of 50k immediately will cost you 158,197 over a 15 year duration @3.15% => interest cost = 14,925. This assumes you continue to pay your normal repayment amount, and the mortgage finishes roughly 6 years earlier - so it becomes a 9 year mortgage.

This is because if you continue to pay the same amount, more is coming off the principal as the interest bill each month is reduced.

It is impossible to get a guaranteed return of 3.15% after tax anywhere else. That is why overpaying the mortgage is the best thing to do strategically once you have sufficient funds in a cash reserve. *caveat on pension fund as well that needs to be considered*


yop said:
Interesting with regards the Quinn life funds. The money that is in there is recovering from a big crash in the bad time! I don't pay into it. I just let it grow. It currently will pay tax on 1100 euro. Do you think I'm as well to take that too and dump it against the mortgage?
Click to expand...

Given you will pay 41% EXIT tax on any profits you make from this point onwards, to achieve a 3.15% after tax return you would need to be making 5.5% before tax each and every year. I think this may be achievable, but will take a level of risk to do so. That risk could also see you drop by 10% or 20% again at some point.

My quick calculation (based on an online utility around mortgage over payments) shows if you were to pay another 10k off the mortgage, it would mean your mortgage would finish a year earlier, and reduce your overall mortgage interest bill by 3,750 roughly. This is a guaranteed return.
>>A 144,000 mortgage where you make a once off over payment of 60k immediately will cost you 155,174 over a 15 year duration @3.15% => interest cost = 11,174. This assumes you continue to pay your normal repayment amount, and the mortgage finishes roughly 7 years earlier - so it becomes a 8 year mortgage.

I had the same conversation on here a while back. I encashed investments I had and paid it against the mortgage for the exact same reason. See the thread below
http://www.askaboutmoney.com/threads/financial-resolutions-for-the-new-year.201887/

yop said:
One other thing, house mort, LTV with KBC is 3% at the moment. That would reduce payments further. Think its worth a move. TBH I haven't looked at switching fees but I just seen the offer and the mortgage is less than 50% LTV.
Click to expand...

144k @3.15% for 15 years would cost you 180,925
144k @3% for 15 years would cost you 178,979
It works out at 2k in total over a 15 year period. If you get some costs associated with switching, then I would consider it. If you don't then I dont believe it would be worth your while. If you pay 50k off the mortgage these figures become less attractive.
You also need a KBC current account to get those rates and you may end up paying fees on that (in certain circumstances) so keep that in mind.

Also, KBC historically have not passed on interest rate cuts to customers. They have an exception currently but not sure how long it will last. It is something to be wary of. I am not sure about your current bank and their previous history here
*please note who knows what banks will do regarding interest rates in the future and who will be more competitive in 1 years time*

Despite the fact I believe everyone should switch if they can get a better deal, I am not sure the benefits for you personally makes it a good option. I think you need to consider the numbers - saving about 150 euro a year and make a decision from there.
 
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Thanks for all the details lads. Looking like we will go with 45k of a lump sum and continue to pay the 1080 a month.
Good site that one above there; Calculations looking like that 45k will save us 21600 euro and reduce by just over 5 years.

Extra payments: €45,000.00
Savings €21,619.78
New end date: Feb-27
New term length: 19 years, 10 months
Term reduction: 5 years, 2 months
Left 10 years
 
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