Reduce your mortgage before starting pension?

[South]

Re: Brendan's comments on the Last Word last night

So there is an optimal 'down' % is there?

I wonder how they calculate that then

 

[ubiquitous]

Re: Brendan's comments on the Last Word last night

So there is an optimal 'down' % is there?

I wonder how they calculate that then

Presumably, this is a matter for each individual to judge.

 

[South]

Re: Brendan's comments on the Last Word last night

So a person should get their mortgage down before they start a pension, but how much they get it down by is up to them, fair enough.

 

[Purple]

Re: Brendan's comments on the Last Word last night

Lots of smoke and very little light.
How about a little less bickering and a little more constructive comment? I've seen it from both of you before so I know you can!

Can either of you suggest what income to mortgage ratio is optimal for the average family (private sector as this is a non-topic for public sector) before a pension should take precedence?
At what income to mortgage ratio should you not bother? For example if I have two kids, owe €300k and earn €100k what should I do?
If I owe €1’000’000 and earn €250’000 (two kids), should I do differently?

 

[tiger]

Re: Brendan's comments on the Last Word last night

2/3 of final salary is a good rule of thumb whether you're earning €25K or €250K if you want to maintain a similar standard of living. Obviously it depends on your financial commitments (kids still in college?) and plans (want to do lots of travelling).

In general I think we need a new set of rules, as lots of things are/will change:
- with a 20 year mortgage, you could spend the last 10-15 years of your working life pumping the extra into a pension. What if you have a 35 yr mortgage you'll be paying until you retire?
- how many years of retirement do you need to plan for? What will life expectancy be in 50 years time?

 

[South]

Re: Brendan's comments on the Last Word last night

What a crazy question with such little info and without a crystal ball

It is a matter of taste - like asking how much should a family spend on clothes!

Do these people on 250 k and 100 k respectively have pensions?

 

[oysterman]

Re: Brendan's comments on the Last Word last night

Can either of you suggest what income to mortgage ratio is optimal for the average family (private sector as this is a non-topic for public sector) before a pension should take precedence?
At what income to mortgage ratio should you not bother? For example if I have two kids, owe €300k and earn €100k what should I do?
If I owe €1’000’000 and earn €250’000 (two kids), should I do differently?

I think this is, on the contrary, a very interesting question. Like most important questions, it doesn't have a one-size-fits-all answer.

I'd suggest you might consider:

1) What would the impact on your family's finances be of a 2-3% rise in interest rates? If it would be serious, your mortgage is a potential problem you should consider working to reduce.

2) If you got sick, how long would your income continue at roughly its current level and how would you fund your mortgage after that? If you would be unable to afford to fund it, the size of your mortgage is an issue.

3) Is there a second income in your household? If one income had to be sacrificed, could you pay the mortgage?

4) How long before your normal retirement age will your mortgage be paid off? If it won't, it might well be worth tackling it to give you a possibility of taking early retirement. This is one of the reasons I'm wary of the 35-year mortgage culture. Banks don't want people debt free by their early fifties as so many of our parents' generation were - it gives them too much flexibility.

 

[South]

Re: Brendan's comments on the Last Word last night

it doesn't have a one-size-fits-all answer.

Exactly - unlike the comments on the last word!!

In any event Purple - an important point to consider would be mortgage interest relief.

You obviously get the tax break on mortgage interest up to the mortgage interest relief threshold, so it may make sense not to pay down the mortgage below this limit.

On the other hand, with a salary of the magnitude in your post - marginal interest rate tax relief is available on your pension contributions.

I would suggest, as a very general guide, (we do not have full details here before everybody starts giving out for giving a general guide ) that the optimal balance is that while you are gaining tax relief at the highest rate, you make pension contributions, once you reach the point where you are not getting marginal relief then consider investing those surplus funds towards repaying mortgage.

Don't forget you can also get tax relief on contributions to an income protection policy - so you could use this to cover the evenutality of falling sick also.

 

[Purple]

Re: Brendan's comments on the Last Word last night

Thanks Oysterman and South. I have already asked myself these questions and have a plan in place (big mortgage, big pension, two big salaries = happy days).
My point above was that it is far more constructive to have posts like the last few on the thread than a bickering match between two posters that are in a position to be far more informative.

 

[ubiquitous]

Re: Brendan's comments on the Last Word last night

My point above was that it is far more constructive to have posts like the last few on the thread than a bickering match between two posters that are in a position to be far more informative.

My deepest apologies if the above discussion bored you, upset you or failed to entertain or inform you. As one of the participants in the discussion, I thought that it was a useful exercise in that it teased out a few points in the "mortgage repayments v pension contributions" debate that triggered this thread. I do not count it in the least as bickering, especially as South & myself basically ended up largely agreeing with each other, at least to an extent, and the thread has continued to evolve usefully from there.

 

[Purple]

Re: Brendan's comments on the Last Word last night

My deepest apologies if the above discussion bored you, upset you or failed to entertain or inform you.

It did none of the above. Your posts are usually very informative and this is an interesting thread, I just thought the focus was very narrow in that is consisted of tit of tat answers on very specific issues. Your and South's posts around 12.00 were what I was referring to.

 

[CCOVICH]

Re: Brendan's comments on the Last Word last night

Can we please leave it at that and stick to the topic?

Thanks.

 

[OtherMe]

Re: Brendans comments on the Last Word last night

I agree with Brendan. Its important to reduce one's mortgage to a manageable level as early as possible. Tax advantages apart, there may little point in stashing surplus money away in a pension which can only be accessed at age 60 if the size of a person's mortgage would leave them (and their homes) vulnerable in the event of loss of employment, illness etc.

Isn't that what mortgage protection is for? To get you thru unexpected unemployment, illness etc?

 

[John Rambo]

Re: Brendan's comments on the Last Word last night

It's in interesting thread this...of a little old!I agree with Ubiquitous that the obsession with 2/3 of final salary is being used by salespeople to strike fear into people hearts. Personally I don't feel I'd need 2/3 of my final salary or even my present salary when I retire.When you eliminate residential and investment mortgages, raising children and the inherent costs of working someone could live quite nicely on not a huge amount of money. (certainly not €100,000 pa)

 

[Betsy Og]

Re: Brendans comments on the Last Word last night

Isn't that what mortgage protection is for? To get you thru unexpected unemployment, illness etc?

not really, mortgage protection is just a category of life assurance, so when you pop off this mortal coil the mortgage isnt left after you.

I think you're referring to payment protection which, as far as I recall, only applies to credit card bills - its pays your bill if you get ill etc. My view on these was that is wasnt worth the money, save your premiums into a rainy day fund. - the notion of "self-insurance".

The other aspect of this is PHI, permanent health insurance. So if you're out of work for more that 6 months and can never work in an occupation similar to what you had then it'll pay out. These are expensive, only give benefit in fairly extreme cases. Good thing is that they are often rolled into employer pension schemes, so a nice little perk but I'd say few enough of us would shell out for them out of our own pockets. More self-insurance.

 

[dodo]

Re: Brendan's comments on the Last Word last night

With irish stocks down over 26% in 2007 how can you say they are up as in this thread,It does not add up.What pensions say they are up and what one really gets in their retirement are 2 different things, Please expalin how irish stocks are down but pensions up.And have you seen the markets across the world fall this year

• Tax reliefs not used in one year do not get carried over to another year.
• It is interesting to see that the pension managed fund returns achieved by the top five Irish managed funds over the last five years are as follows:

Standard Life: 11% per annum
Irish Life Investment Managers 10.9% per annum
Eagle Star: 10.9% per annum
Friends First: 10.2% per annum
Hibernian Investment Managers 9.9% per annum

These returns would seem to be well ahead of mortgage interest rates over the last five years.

 

[ClubMan]

Re: Brendan's comments on the Last Word last night

With irish stocks down over 26% in 2007 how can you say they are up as in this thread,It does not add up.What pensions say they are up and what one really gets in their retirement are 2 different things, Please expalin how irish stocks are down but pensions up.And have you seen the markets across the world fall this year

Perhaps because (a) that comment was from July 2007 and (b) it was referring to specific managed funds which don't necessarily invest mainly/solely in Irish shares? Irish managed funds does not necessarily mean Irish stocks! Nothing necessarily contradictory in what South said as far as I can see.

 

[Fisher Black]

Re: Brendan's comments on the Last Word last night

With irish stocks down over 26% in 2007 how can you say they are up as in this thread,It does not add up.What pensions say they are up and what one really gets in their retirement are 2 different things, Please expalin how irish stocks are down but pensions up.And have you seen the markets across the world fall this year

The poster said that the figures shown were annual five year returns to July, they are still positive over five years to now...investing is a long-term game, a few months volatility here or there does not wipe-out stock markets.