Pay off Mortgage or Invest 30k?

Age: 35
Spouse’s/Partner's age: Single
Annual gross income from employment or profession: E75,000
Type of employment: Sole Trader Civil Engineering
Expenditure pattern: I have always earned more than i spend and save whatever is left over.
Rough estimate of value of home E440,000
Mortgage on home E170,000 15 years left
Mortgage provider: Ulster Bank - In the process of changing to NIB LTV Tracker and reduce term to 10 years
Type of mortgage: Tracker
Interest rate: Ulster Bank 0.85% + ECB. NIB to give me 0.5% + ECB
Other borrowings – car loans/personal loans etc: None
Bills: ESB + GAS + Phone + NTL €300 per month
Car: Worth about 15k depreciating about 3k per year.
Insurance + Tax + Petrol €400 per month

Do you pay off your full credit card balance each month? Yes
Savings and investments: E60,000 savings in AIB current account
Do you have a pension scheme? Yes, after 8 years 12k in very poor performing Scottish Provident.
Changed to Canada Life and Standard Life 600pm Total for next 12 months and then review.
Do you own any investment or other property? No.
Ages of children: None.
Life insurance: I have Life Assurance with Ulster Bank mortgage

What specific question do you have or what issues are of concern to you?
Having sorted my Pension and Mortgage, I now wish to achieve financial Nirvana by sorting out the spare 30k i have in AIB.
60k - 20k income tax - 10 cashflow = 30k spare.
What would be the best way to go?
1) Pay 30k straight off mortgage when i switch over to NIB?
2) Rabo bank or similar for 3 years at 5% or An Post for 3 years at 10% with no DIRT?
3) Maybe split between the two?

I have enough exposure with my Pension now in Irish Equities, so i think stocks and shares are out?
Any other suggestions on what to do, also greatly appreciated.

Thank You.

Just one thing on your mortgage change - why are you changing to a 10-year mortgage? Personally, I'd leave it at 15 years and pay it off as if it's a 10-year mortgage.

For the interest rates that you quote (5% pre-DIRT and 3.33% no-DIRT), you'll be getting a better rate if you put against your mortgage (prob 4.9% or thereabouts, depending on what your NIB rate is). Having said that, there are many other savings accounts where you can get a much better rate than 5% so you may be able to earn more on deposit (post DIRT) than you save by paying off your mortgage. Have a look at the best buys section. Also, there are loads of threads here covering the "I have a lump sum, should I pay off my mortgage?" which have other good info.

Personally, I'd either split between the two (mortgage vs savings) or (more honestly), I'd save half in a high interest regular saver and buy some equities, considering the prices at the moment - I'd do this with a short-medium view (1-5 years). I'd pay off my (hypothetical) 15-year mortgage as if it was a 10-year one and throw more income against that on a monthly basis. I'm no expert mind you - that's just what I'd do.

Sprite

Thanks for that.Makes for interesting reading.

So it is of no advantage for me to change the term of my mortgage?
Once i increase the payments the savings on interest will be the same?
That could work well for me being self employed.

I would like to have a look at equities. I never thought of that before.
I will have search and see what i can find out.

Thanks.

Kenoby said:

So it is of no advantage for me to change the term of my mortgage?
Once i increase the payments the savings on interest will be the same?
That could work well for me being self employed.

Click to expand...

If the rate is the same for both a 15-year and 10year mortgage (and I can think of no reason why it wouldn't be) then you are in exactly the same position paying off a 15-year mortgage in 10 years as you would be paying a 10-year mortgage off in the same period. That's assuming this is a variable/tracker mortgage and not a fixed rate (for which there may be penalties for paying it off early). If you get the stats from the bank for your repayments for the 10-year mortgage, then you can apply those payments to the 15-year one but still have flexibility to reduce the payments to the min (for a 15-year mortgage) if the proverbial rainy day comes. Of course, the trick is to actually keep up payments on your 15-year mortgage at the 10-year rate!

Sprite

[Changing term of mortgage would probably cost you money , given that interest rates are increasing. Pay off some extra and this will significiantly reduce the number of years left to pay mortgage