Pay off mortgage in full with savings?

A

Alaw22

New Member
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Personal details

Age: 37
Spouse’s/Partner's age: 37

Number and age of children: 2 Children, 11 and 9

No childcare expenses.


Income and expenditure
Annual gross income from employment or profession: 65k
Annual gross income of spouse: 67k

Monthly take-home pay: 6k every 4 weeks.

Type of employment: Both primary teachers for 16 years. Teaching since 2008. Wife job shared for two years when the kids were young.

In general, are you:
We both save some money monthly but don’t kill ourselves.


Summary of Assets and Liabilities
Family home worth €350k with a €183k mortgage
Me: Savings 75k.
Spouse: 108k

Family home mortgage information
Lender: EBS
Interest rate: 2.75%
If fixed, what is the term remaining of the fixed rate?
Fixed until next February. 22 years left.


Other borrowings – car loans/personal loans etc

Do you pay off your full credit card balance each month? Yes
No other loans




Other savings and investments:

Do you have a pension scheme?



Only have our teacher pension. Would be interested in AVC’s but I think I should pay off the mortgage first?





Other information which might be relevant

Life insurance: Mortgage is in my wife’s name as she owns the house. She has mortgage protection. No other life insurance.

Health Insurance: Kids and wife with VHI.


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

  • We are currently saving with a view to paying off our mortgage before the fixed rate finishes in February. We have our savings in a few different accounts due to the cap in place by credit unions. It is earning very little interest. I decided against overpaying as I was told not to, instead to save the money and pay it off in a lump sum. If anything happened in the meantime, I would have the lump sum to fall back on. If we pay off in full we'll have around 10k of savings left.
  • After I pay off the mortgage, I think AVC contributions would be next with any spare earnings? Does this mean I can retire early then? I’m hoping to go the execution only route as the broker fees the likes of Cornmarket charge seem like a lot but need to do a lot more research on it.
  • What age can I retire at with full pension? Is it 40 years of teaching?
If a suitable house came along, we would be interested in selling and upgrading, but the house we have now is fine if a little small.

Cheers.
 
Alaw22 said:
I decided against overpaying as I was told not to
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Who told you not to and why?
The sooner you maybe payments the more you save.
The only caveat is where there is a penalty on a fixed rate mortgage but my understanding is that these generally calculate as zero these days.
Some lenders may also limit by how much you can overpay on a fixed rate.
Alaw22 said:
After I pay off the mortgage, I think AVC contributions would be next with any spare earnings?
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In general increasing/maximising pension contributions is the next priority after getting one's mortgage down to a comfortable level or clearing it.
Alaw22 said:
Does this mean I can retire early then?
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Impossible to say without more info about your pension cover situation.
Alaw22 said:
I’m hoping to go the execution only route as the broker fees the likes of Cornmarket charge seem like a lot but need to do a lot more research on it.
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Good idea - Cornmarket have always seemed expensive in the past at least.
Alaw22 said:
What age can I retire at with full pension? Is it 40 years of teaching?
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Does this help clarify at all?
Alaw22 said:
If a suitable house came along, we would be interested in selling and upgrading, but the house we have now is fine if a little small.
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This is pertinent because if you ARE going to move imminently then it may make more sense to hold onto sufficient cash for the purposes of a deposit/down payment rather than paying it off the current mortgage or into a pension.
 
ClubMan said:
Who told you not to and why?
The sooner you maybe payments the more you save.
The only caveat is where there is a penalty on a fixed rate mortgage but my understanding is that these generally calculate as zero these days.
Some lenders may also limit by how much you can overpay on a fixed rate.
Click to expand...
Just a friend but what he said made sense to me but might not have been accurate.

He said to put the savings in my own savings account and pay off the full mortgage when I have enough saved. The money is still accessable in an emergency, which it wouldn't be if I overpaid to the EBS in smaller amounts. I presumed that when overpaying, the savings made we're from reducing the length of term, thus paying less interest. I would still be reducing the length of term but all in one go and the savings would be the same. I've obviously got this wrong.

ClubMan said:
Impossible to say without more info about your pension cover situation.
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I'll have to do more research into teachers pensions but I thought that once you teach for 40 years you can retire on full benefits.

ClubMan said:
Good idea - Cornmarket have always seemed expensive in the past at least.
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Cheers for getting back to me in such detail. I know very little about the topic. Would LAbrokers be my best bet and is there much to it for an layperson to do? I do my own P21 etc, switch electricity etc every year so I'm not absolutely useless.
 
You have a very comfortable mortgage €183k on a salary of €130k - both jobs rock solid.

So there is no rush to clear the mortgage.

I think you should maximise your pension contributions first. Not sure how it works with public servants. Presumably it's the same as the private sector? You can contribute a total of 20% of your salary. Do you contribute 5% automatically, so you can contribute an additional 15% or €20k in total which will cost you about €12k net after tax. This will rise to 25% total when you hit 40, so you can contribute about €26k or about €15k after tax.

But even if you keep two years' pension contributions in cash, you will still have €160k left over.

So you should pay €160k off your mortgage now.

Brendan
 
Alaw22 said:
If a suitable house came along, we would be interested in selling and upgrading, but the house we have now is fine if a little small.
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So, is it worth keep the cash on deposit in case this happens?

How much would a suitable house cost?

I think you are going to have to sell your own home first. Let's look at the numbers

Let's say you trade up to a house worth €600k.
You will need a deposit of €120k
So you borrow €480k

On a salary of €120k, that would be 4 times salary. You might be able to buy the house without selling your own first.

So it really depends on how likely it is that you are going to trade up.

"If a suitable house came along" doesn't sound very urgent to me.

You both need to sit down and decide if you are actually going to look for a house to trade up to. If you are not committed to it, then pay off your mortgage.

But as soon as you do that, a suitable house might come along and you might not be able to buy it as you won't be able to sell your own house quickly enough.

Brendan
 
Alaw22 said:
Life insurance: Mortgage is in my wife’s name as she owns the house. She has mortgage protection. No other life insurance.
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What happens if you die?
Does she get her salary and a teacher's widow's pension? If so, you don't need life insurance.

If not, then you should take out life insurance.

Brendan
 
A lot to be said for having no mortgage
And what you save on repayments will help to start a education fund
 
Worth noting that when your fixed rate expires you will be looking at between 4.55-5.15% rates with EBS as of today, so monthly payment would likely go up.

If trading up is a near term objective you will need a deposit, three options are

1. Keep a portion of cash savings for deposit
2. Pay off mortgage and rely on house sale to be the deposit
3. Pay off mortgage and save up the necessary deposit.

Option 1 is probably the simplest but not the most efficient in terms of interest saving.

You're in a great position. It is probably also worth considering what you would do with the monthly disposable income from being mortgage free.
 
Hi all. So just to follow up on this, I decided to pay off our mortgage and shelve the new house plans in the short term. There was very little out there that interested us. My plan now is to build up a deposit and then to max out pensions contributions. I'll be looking to save about 80k in the next three years. I can see interest rates are starting to go back up. Would anyone have advice on an account that would suit best for me to deposit around 3k a month into and earn the best rate possible. It'd have to be fairly instant access as well. I've seen account from Raisin, Trade Republic etc but am not sure what's best for my situation.
 
Alaw22 said:
Hi all. So just to follow up on this, I decided to pay off our mortgage and shelve the new house plans in the short term. There was very little out there that interested us. My plan now is to build up a deposit and then to max out pensions contributions. I'll be looking to save about 80k in the next three years. I can see interest rates are starting to go back up. Would anyone have advice on an account that would suit best for me to deposit around 3k a month into and earn the best rate possible. It'd have to be fairly instant access as well. I've seen account from Raisin, Trade Republic etc but am not sure what's best for my situation.
Click to expand...
Trade Republic/ Lightyear easy.
You you set up one N26 metal account between ye, and save all there in 'Spaces' (like a vault that earns interest and you get paid monthly interest). Rates just went down yesterday for new customers. I get DES salary paid into N26. I love it.

David Kellegher.. https://davidkelleher.ie/ are very sound. They understand the silliness of teachers pensions, where most of us have no clue where we stand. I attempted to "buy back" pension yesterday for early years 1997 to 2000 when pension was not compulsory if part time. Even just to know a ball park figure, but they cannot tell me until before I retire.
Teachers Financial Advice Facebook group is helpful. They can set up executive only as well.

*Salary Protection* is a must. Skip Cornmarket as well for that. Ask DK above first.

For example, for myself, I attempted to buy AVC's. However, I may end up with just under 38 or 39 years, as retirement date has moved to 65. DK will be able to figure out..... no point over paying a defined benefit pension. They will not set one up if you do not need one.


Also Gerard Sheehy and LA Ferguson always give loads of advice here on PRSA's.
 
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