Mortgage/Savings advice

HansGruber

New Member
Messages
4
Age: 42
Spouse’s/Partner's age: 42

Annual gross income from employment: 131k
Annual gross income of spouse: 32k (3 day week: 18k)

Monthly take-home pay:€7,289

Type of employment: Private sector (secure) & public sector (spouse)

In general - saving c.€1,800 per month

Rough estimate of value of home: €330k (cost €390k)
Amount outstanding on mortgage:€265k
What interest rate are you paying? €144k @ 3.15%, €121k @ 0.9%
Other borrowings – none
Do you pay off your full credit card balance each month? Yes

Savings: €120k on deposit

Do you have a pension scheme? Yes, c€200k, max AVC top-up for last 2 years

Do you own any investment or other property? No

Ages of children: 2 under 6

Life insurance: Yes

Questions

Am in the process of moving mortgage to LTV<80% rate of 2.95%. Also know I should pay a lump sum off the 3.15% mortgage rather than having it sitting on deposit. Questions are as follows;
  1. How much should we look to pay off the mortgage in a lump sum?
  2. Presume we should reduce the term also?
  3. Should we look to overpay monthly also?
  4. Should we then prioritise savings for kids future education, paying down mortgage or maxing pension AVC top-ups each year, or a combination?
Also ideally we want to move to a larger house (c.€550k) in the next year or two also but are wary of increasing debt having being burned once already.

Any advice on the above appreciated....
 

RedOnion

Frequent Poster
Messages
4,436
Firstly, I assume you are jointly tax assessed so maximising your lower rate band while wife on reduced hours?

Also ideally we want to move to a larger house (c.€550k)
This should almost be your question number 1.

If your planning to move your going to need a good bit of cash available to do so. If you're going to sell / buy at same time, the equity in your house can be used for the 20% deposit you'll need, but I'd be aiming to have at least 10% of purchase price available.

How much should we look to pay off the mortgage in a lump sum?
You need to keep enough cash to cover any planned expenditure, and for emergencies.
Factor in above re house purchase.

Presume we should reduce the term also?
No. Keep the contractual length the same, but then overpay each month. You're with AIB? I'm almost certain you can set up a standing order to overpay.
By keeping the length the same, you can reduce repayment in future if you need to.

Should we then prioritise savings for kids future education, paying down mortgage or maxing pension AVC top-ups each year, or a combination?
By paying down mortgage is best way to save for their education. Put the money in now, and you'll be able to afford education when you get to it as you'll have a reduced (or fully paid) mortgage.
 

HansGruber

New Member
Messages
4
Thanks for the reply @RedOnion, very helpful. In answer to your points;

1. Yes, jointly tax assessed so no issue there.
2. Yes, looking to move to a bigger house is the number one priority really.
3. Will possibly look to pay 40-50k off the mortgage immediately, leaving 70-80k (on deposit??) as fund for emergency and future house move.
4. Yes I am with AIB and agree overpaying mortgage, post paying off lump sum, and not reducing the term gives more flexibility down the road.

Re point 2 - I guess we need to figure the better option between;
(a) sell existing house and buy another to trade up, or
(b) hold and rent existing house and buy a new one.

If (a) then agree should be ploughing excess cash into reducing the mortgage.
If (b) then presumably not a good idea as will need a lot of cash for the 20% deposit.

So I guess this leads to the question as to which is the best option between (a) and (b) above. For (b);
- current house is a 3 bed semi with mortgage repayments of €1,253 monthly.
- 1% would be added to tracker rate increasing payments by €60 monthly.
- rents for similar houses in the area are c.€2,000-2,100 per month.

Is there merit in trying to hold onto and rent out current house when moving on or is this riskier\more hassle than it’s worth ie. being a landlord, additional associated expenses, tax on rental income, potential future interest rate rises etc. ? What else should we consider in weighing this up?
 

HansGruber

New Member
Messages
4
Mortgage is in two parts with 23 years remaining;
€144k @ SVR 3.15% (which I will now move to LTV<80% rate of 2.95%)
€121k @ Tracker 0.9%
 

RedOnion

Frequent Poster
Messages
4,436
Ah, understood. I don't know what AIB do with tracker rate if it's no longer your PDH, but I thought the +1% was for people who wanted to move the rate to a new house? I'm not familiar with what they do.

There's an excellent key post on the subject that might provide some guidelines for you: https://www.askaboutmoney.com/threads/keep-apartment-as-rental-or-move-tracker.203907/

It's not something I'd personally do, but you'll need to run all the numbers on it.
 

HansGruber

New Member
Messages
4
Thanks for that. (and yes you are right the +1% is only where the tracker is moved to a new house)
 
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