Dilemma - clear mortgage or not?

A

Anon4this1

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Long story short....

c.€400k inheritance (after tax is paid)

Primary residence - c.€260k mortgage balance, with €1,200 p/m repayments (1.5% interest rate)
Rental property - c. €130k mortgage balance, with €650 p/m repayments (1.25% interest rate) and €1.1k monthly rent (way below market value, but not a lot I can do about that unfortunately )

I love the idea of being mortgage free on my primary residence, but €260k out of €400k is a very significant chunk, so I am most drawn to clearing the rental property, leaving a larger chunk, securing a larger income, and creating an asset I can sell, if I ever met hard times.

I was originally thinking about locking in €120k for 10 years in the National Solidarity Bond (via An Post), as it is very secure and a 10% guaranteed rate of interest, which is one of the best around for a 'safe' investment from what I can see. However in reality the return on this investment after 10 years is just €12k
If I use €130k to clear my rental mortgage I am securing the €130k in a property which is currently worth €215k, and I could sell if needed, plus I would earn (pre-tax) the same additional income in 18 months, than I would in 10 years via the Bond.

However I am conscious I might be missing something here., especially with the very low rate of interest I am currently paying... what would people's view be on my situation.
 
Anon4this1 said:
I was originally thinking about locking in €120k for 10 years in the National Solidarity Bond (via An Post), as it is very secure and a 10% guaranteed rate of interest, which is one of the best around for a 'safe' investment from what I can see. However in reality the return on this investment after 10 years is just €12k
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It's 1% interest per year. At the same time you'd be paying 1.5% interest on your mortgage. Better return by paying off the mortgage.

A full picture of your finances would be needed to give adequate advice.
 
Mortgage interest is costing you ~ 4-5k per year. Paying off your mortgage is also very secure.
I'd pay off the mortgages and be free.
At a minimum I would pay off my primary residence.
 
I'd pay off both, there is something nice about been debt free and owning your own property or properties
Then you can start using what would have been your mortgage payments to start building up a nice savings balance
 
How are the pensions looking? Any upcoming large expenditure (extension, new cars, kids moving away from home for college, etc.)?
 
HollowKnight said:
How are the pensions looking? Any upcoming large expenditure (extension, new cars, kids moving away from home for college, etc.)?
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Paying max into pension (8% me 12 % employer, so 20% in total). I was looking at AVCs as the next step, but haven't done anything about it yet
Completed an extension on the house last year
Nothing with the car for a few years
And stuck with the kids for a few years yet :p
 
Anon4this1 said:
Paying max into pension (8% me 12 % employer, so 20% in total).
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I might be wrong about this but I believe that the employer's 12% does not count towards the 20% (from a tax relief perspective).

If I'm correct, you could make larger contributions and still get tax relief. (Maybe you already know this, and hence your reference to AVCs.)
 
Thanks all.... after discussions with the other half last night.... now potentially more drawn to clearing the principle mortgage rather than the rental mortgage, really from a security point of view. It's just such a big thing (and not something I really thought I would ever be in a position to do) that its hard to make a definitive decision
 
Is it an occupational pension or a PRSA?
If it is a PRSA the employer contributions count towards the max if it is an occupational pension not!
In that last case you should make an AVC for 2021 by October to max out 2021 and also make an AVC for maxing out 2022 and potentially as well keep some money to max as well 2023. Especially if you are in the higher tax bracket. With the remaining amount clear the mortgage with the highest interest/primary residency
 
I have to say, I wouldn't even hesitate in this situation: pay off both mortgages.

If not you're effectively borrowing money (albeit currently at a very good rate, although that will probably not last) to invest in something else.

To paraphrase Brendan Burgess, if you were mortgage free and the bank offered you to remortgage your hoses for €400k so that you could invest in something else, would you do it? I certainly would not.

Pay off the loans and quit worrying, you will have plenty of cash flow to do what you want with when you are debt free.
 
You always have an opportunity cost - in the case here potentially not maxing out the pension while being on the higher tax band. This can be of more value than paying of a very cheap mortgage.
 
John Locke said:
If not [paying off your mortgage] you're effectively borrowing money (albeit currently at a very good rate, although that will probably not last) to invest in something else.
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That is very true about investing with your after-tax money.

But the tax breaks on pension contributions are very generous – I give an example in this post. So if @Anon4this1 has not maxed out their pension tax relief they should strongly consider it (as per @Merowig's above post).
 
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