Pay Off Mortgage or Continue to Save

HandSolo

Registered User
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4
Hi all,

Long time reader, first time poster.

I'm in a lucky position at the moment to have savings of ~twice the value of the outstanding mortgage (60 + 120k). The mortgage is on a tracker at 1% and the savings are split between 3 savings accounts with 2.7%,2.5% and 1.65% interest rates. With DIRT and the rest I reckon I'm not too far off the breaking even between savings and the mortgage, I don't know whether to pay off the mortgage (and be left with half the savings) or keep going as is.

We've no interest in moving house, or buying an investment property so can't see the need to get another mortgage at any stage in the near future.
 
If you compare the mortgage rate with the net deposit rate, then there is very little difference.

Although you have no plans now to move house, circumstances change. You may wish to trade up and if so, being able to port the mortgage would be valuable.

If you are borrowing at just 1%, and you have a good income, you should consider investing directly in shares. It will give you the best long-term return and it seems that you can comfortably handle any falls.

Brendan
 
I don't know whether to pay off the mortgage .........


I paid my low tracker off, and have no regrets.

There is a lot of comfort in no longer having a mortgage.

To me the certainty of being debt free outweighed any potential and unquantifiable investment gain.

Each to their own.
 
It's the circumstances changing is the biggest worry, I've being made redundant twice and know how there isn't any real security out there anymore. There's a lot to being said for being mortgage free, but what happens with the deeds or are there additional solicitors fees? For years I was holding out with a discount on paying off early, weren't Ulster Bank giving an extra €1,000 off for every €5,000 paid?

2 posters here, and 2 different ideas, you can see why I'm torn.
 
I always thought that there was a possibility of a discount, but there is no chance now. The banks are not losing money on trackers anymore, so why would they give a discount?

Imagine the following scenario.
You pay off your mortgage and you are very happy to be debt free.
You lose your job - great, you won't have your mortgage payments to worry about.
But you have "only" €60k cash. When, that is gone, it's gone.
You may find that you have to borrow to keep going. If you do, it will be at well in excess of 1%.

It's nice to be debt-free when the debt is costing you 4.5% interest. But it's great to have debts when they are costing you only 1%.

Keep the cash. Invest it in shares.

If you lose your job, you will have money available to you.

If you lose your job and you are likely to be out of work for over a year, then check the social welfare implications of having €120k in cash. It may affect means tested benefits, in which case, you should pay down your mortgage. But don't worry about any of that now.
 
Great articles there. I think I'll leave it for now, I might take the money out of the lowest interest paying accounts and put them in some kind of long term savings.
 
Some great info here, thanks

May I ask for opinions?

My mortgage is 240K with AIB, 24 years left and about to be SVR of 4.15%. I have no other debts. My monthly is 1100 after TRS and we can afford it but not a lot more

Anyway my question is that I have 30K in cash so what would you do? A capital reduction? Use the 30K to cover higher monthly payments for a couple of years? Shares?...
 
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I expect that the lenders will introduce new low Loan to Value mortgages. So paying €30k off your mortgage, may well get you lower rate on the entire mortgage. Let's say it gets you a reduction of 0.2%. That means the return on your €30k would be around €1,600 (€[email protected]% + [email protected]%) . That's a return of over 5% net. Very hard to beat that.
 
Hi Brendan,
You say above that "The banks are not losing money on trackers anymore"
How has this happened ? I'm just curious.
 
During the banking crisis, the lenders were losing heavily on trackers when they had to pay very high deposit rates and also pay a premium for the deposit guarantee. So they were paying a lot more for deposits than they were charging their tracker customers.

However, the cost of funding has fallen dramatically over the past few years. Just look at the deposit rates. They no longer pay for the deposit guarantee as it's not needed anymore. Some trackers would be below the cost of funds, but many more are higher than the cost of funds, so they are losing little or nothing on the tracker book as a whole.

Of course, if they have to make further provisions for defaulting trackers, they will lose money. However, I think that they have over-provided for mortgage defaults at this stage and are more likely to be writing back provisions than making new provisions.
 
Sorry - another quick question.

I see KBC are offering a lower SVR so was just wondering if they agreed to switch my mortgage from AIB would it affect my TRS? My mortgage was first time buyer in 2008.

Revenue website says "Notwithstanding the rates of tax relief mentioned above, for individuals who purchased their first principal private residence on or after 1 January 2004 and on or before 31 December 2008, the rate of tax relief on the interest paid on the loan to purchase that property will, for the tax years 2012 to 2017, be 30%".

So if I was able to switch the mortgage does that mean I'm no longer paying off "the loan to purchase that property"?
 
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