Should I pay off my affordable mortgage?

Age:34
Spouse’s/Partner's age: 32

Annual gross income from employment or profession: 55000
Annual gross income of spouse: not relevant as this query relates to my own personal savings.

Monthly take-home pay 2200 just me.

Type of employment: Civil Servant

In general are you:
(a) spending more than you earn, or
(b) saving? Saving

Rough estimate of value of home 170000
Amount outstanding on your mortgage: 108000 (joint debt with my husband)
What interest rate are you paying?
2.75%+.5% mortgage protection (non changeable)
Other borrowings – car loans/personal loans etc None

Do you pay off your full credit card balance each month? Yes. Rarely used


Savings and investments:
9k current account but intend to buy 5k in prize bonds in Jan and need the rest for period of unpaid leave. Fixed term account of 100k about to mature.

Do you have a pension scheme? Yes public service pension topped up an AVC to allow early retirement with full pension.

Do you own any investment or other property? No

Ages of children: under 1

Life insurance: No


What specific question do you have or what issues are of concern to you?
Very soon, I have a savings account maturing with 100k. I have invested money in high interest fixed term savings accounts for the last few yrs.with rates and DIRT as they are I dont believe these products offer me much return any more.
I own my own home through the affordable housing scheme. I have owned it for 6 years and have a 20yr mortgage at which point I will own the house outright. Clawback applies if I sell before then.

Anyway my question is am I better to try and pay off some capital off my mortgage? Or are there other avenues worth considering?
I'm not very good with shares or anything so that would not be a road I'd like to go down.
Another important fact is that my home isn't my "forever home" and I would like to get another home with my family in the future probably before I own the house but would like to hold onto my affordable home until I own in outright with no obligation to the council in 2027.
So from a banks perspective if I wished to get a mortgage in the future would I be better to have very small debt on current home and some capital or am I better to have more capital at my disposal?

If the clawback did not exist, I would suggest that the simplest, least risky approach was to pay off the mortgage. You won't earn 2.75% after tax on any deposit.

Can you explain how the clawback works? If you sell it today, how much would you have to repay? You are probably right not to sell it today. I presume that it reduces the longer you hold the property? There may be a time when it makes sense to pay it as the clawback will be relatively small.

Are you allowed to rent out the house? Is there a clawback if you do?

Keeping the €100,000 available give you great flexibility. Depending on your husband's salary, you probably would get a mortgage.

You are paying 2.75% in interest on the mortgage and can probably earn 1% net on a deposit. So this flexibility is costing you €1,750 a year. That might be ok for a year or two, but if you are happy where you are for the next 5 years, it would cost you around €10,000. Probably not worth that.

Thanks Brendan. To answer your query
The mortgage is a 20year one and as I bought in 2007 with a reduction in price of 55% if I have to sell now I will owe the council 55% of what I sell it for at any stage in the next 4yrs. After year 10 the clawback owed back reduces by 10% per year (10% of the 55% if you know what I mean) until year 20 when the clawback is zero and I own the house fully.
If I rent the house out the years it is rented out for are added to the 20years I have to own it before its mine but I can rent out rooms under rent a room scheme, and then this would not happen.
My husband earns roughly 35-40k a year.
I am happy living where I am for the next 5yrs or so as we have a small baby and the thoughts of moving now are not appealing. So in this case, do you suggest the best option is to pay off some of the mortgage capital? I suppose I could probably pay off 50k and still have access to 50k?
Appreciate your expertise

Hi Newby,

You've chosen not to give much info re your husband but his details would certainly impact any advice you would get.

Does he also own a house? Does he have savings he could put towards your future family home? For instance as a couple you don't want to be over exposed to property but hard to advise without knowing full details.

So the revised figures are

Net value of house : €77k ( €170k -55%)

Clawback 2018 - 50%
Clawback 2019 - 45%
Clawback 2020 - 40%

You want to stay in the house for the foreseeable future.
The longer you stay in the house, the better.

You can't really rent it out either as that only postpones the problem.

It seems fairly clear to me that you will not be buying a new house for at least 5 years. Therefore you should pay almost the full amount against your mortgage. You don't need much of an emergency fund as you will have no mortgage payments to make and so will be rebuilding your savings again fairly quickly.

At some stage, you will have to bite the bullet. Sell and pay the clawback. But that will be determined more by the family circumstances than by the financial implications.

Life insurance
If you do pay off the mortgage in full, you will be losing the life insurance which comes with the monthly repayment, so you should consider taking out a new policy.

Goingforgold
My husband does not have his own house. Although the affordable home is in my name we make the repayments together so it is our home. Up until now we have paid for everything 50-50. But the 100k is my own personal savings, which may complicate things slightly.

He doesn't access to the savings I do. But would be considered a first time buyer on a new home, not that I think there's any benefit to this at the moment.

Brendan thank you. Great advice which will be considered seriously. And thank you for info on life assurance. I wondered how that would work!

Ok Newby, so you own one house and the savings you both have are entirely under your name, correct?

Therefore I would second Brendan's advice...stay put for now and reduce your mortgage with your savings. You seem to be able to save a lot in a short period, so you should have substantial savings again in a few years.

You won't have another mortgage to worry about (instead an asset) when you are purchasing your new home.

Goingforgold that is correct.
Goingforgold and Brendan.
Again thank you for sound advice. My suspicion was that this was the best move for me.great to have that suspicioun confirmed. Many thanks. Happy new year to you both
Newby79

Newby79 said:

Goingforgold that is correct.
Goingforgold and Brendan.
Again thank you for sound advice. My suspicion was that this was the best move for me.great to have that suspicioun confirmed. Many thanks. Happy new year to you both
Newby79

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More than welcome, congrats on getting yourself into such a good position - enjoy life with your young family