Paying some of mortgage off

[dodo]

From January I will have available 70K and not sure what to do with it as coming of deposit. Opinions Welcome
Have about 100K mortgage left 0.5 above ECB tracker which I know is a great. With deposit rates so poor it does not seem attractive anymore .
When I went on to a mortgage calculator, if I knocked of 50K and kept my repayments the same it would reduce my mortgage by at least 12 years meaning I be mortgage free by 50.
I know interest rates will go back up and I would be able to add more money each month to reach target of no mortgage by 50. Plus wife should be going full time in her job next year meaning extra 200E a week take home.
I would put 20K in a deposit and 10K on account I can get at if emergency happens. I just know if we don't put money off mortgage we will go through it like Ian Wright used to go through Defenders.
Also worked it out if we added another 200E on top a month it will knock another 4 years off .
Be a nice feeling to be mortgage free

 

[ronaldo]

Paying off a mortgage gives some people peace of mind, and that's obviously a good thing. However, paying off a loan at 0.5% above ECB is probably the worst thing you could do from a long-term financial perspective.

Do you have any sort of pension? If it were me, I'd look into increasing pension contributions to the maximum allowable. This might make your monthly expenditure higher than your take home pay. However, you have your 70k to bridge the gap between the two.

I'd do the same for your wife when she returns to work.

When you think about it, you get money back from the government in the form of tax breaks and, in addition to this, you get long term, tax-free, growth likely to be well in excess of 0.5% above ECB.

This is probably the best long term plan - but also gives you some flexibility. If, after a few years, you have another child or one of you loses your job, you have a significant portion of the 70k left on deposit and can reduce the pension contributions.

If you feel you'll overspend by having easy access to 70k, you could work out how much take home pay you are sacrificing each year through increased pension contributions and use various fixed term deposits to achieve your goal.

For example, if increasing your pension contributions to the maximum allowable results in a reduction to net take home pay of 5k per year, you could put 10k in an instant access account, 10k in a 1 year term deposit account, 10k in a 2 year term deposit account, and so on. The interest rate, after DIRT, on all of these should beat your mortgage rate anyway.