How much mortgage debt is reasonable for us?

J

JB1990

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Personal details

Age: 34
Spouse’s/Partner's age: 36

Number and age of children: 2 (3 & <1)

Income and expenditure
Annual gross income from employment or profession: €125k + 10% bonus
Annual gross income of spouse: N/A: Career Break (previously €80k + 10% bonus)

Monthly take-home pay: €6.5k
Type of employment: PAYE

Saving about €1k per month on average.

Summary of Assets and Liabilities
Cash of €250k
Defined Contribution pension fund of €245k

Family home mortgage information
Currently renting €1.5k p/m

Other borrowings – car loans/personal loans etc

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

What specific question do you have or what issues are of concern to you?

Currently renting in Dublin from family at very low cost so current situation financially comfortable.

The rental and area no longer meets our needs with two children. We want (need) to buy. Mortage approved at €500k.

Is a €500k mortgage ok , assuming we return to 2x incomes in next 3/4 years? It would be a tight few years.

We are struggling to find good houses, that would meet our needs for the next 10 years + for <€700k.

Want to make sure we are not insane borrowing this amount.
 
Similar age and family setup here.

Agree with the above, while no need to drag every cent out of the bank in a mortgage, you do have a good salary, even on one income. Things will not be as tight as you think; repayments will be €2200, you wont be paying the €1500 rent, and your saving the gap anyway. Somewhere along the way your salary will likely increase another 2% or more too.

250K deposit and 500K mortgage, implies you are looking at 750k property? It is what it is. Put it in the context of your alternatives. The only real question would be do you need to buy in Dublin? Plus, I'd add, yes you do if your work requires you more than 2 days in an office - even a "short-ish" commute is no life especially if its your home and family are around there anyway, the savings will never be worth the family or even work time lost sat in a car or waiting for a yet again cancelled public transport.
 
Agree, doesn't seem insane at all.

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Interest rates should reduce over the next few years.

If you are making AVCs or other pension contributions which you can pause, you probably should do so. Make sure that you don't lose matching contributions from your employer.

And don't feel in any way shy of asking family members for short-term loans as your wife will be returning to work in 4 or 5 years. This is a very expensive time when your income might fall short of your outgoings, but when your wife returns to work, you will be in surplus again.

Brendan
 
Thanks all. Will be tight but hopefully manageable. Appreciate the steer!

We are approved and have the option or fixing at 3.9% for 3 years or 4% for 5, 7 or 10 years.

My gut is saying to fix at 4% for at least 7 years given we are stretching on 1x salary. However, Brendan's comment about rates reducing has given me pause for thought. What do people think is the best option in our circumstances?
 
If certainty really matters to you, then I guess fix, by school of thought is to fix only for short periods. If your income is rising you may want opportunities to overpay sooner than 7 years. Also, in general, over time, my bet is variable will be cheaper - banks want us to pay more for certainty. Rates are unpredictable, but the general sentiment is they will drop at least a little, and banks reducing interest rates on savings would support that (banks who had edged up to 4% for savings, pulling back a little).
 
There is a risk that rates might fool us all and rise. Fixing for ten years would protect you in that event.

Furthermore, ECB rates may fall, but Irish mortgage rates may not follow.

On the other hand...

ECB rates are expected to fall and mortgage rates should fall as well, if not point for point.
And when your wife goes back to employment, you will probably want to overpay the mortgage.

No one knows - but I think I would fix for three years in your shoes.

Brendan
 
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