Saving efficiency

[Conor001]

Hi Guys

I am 35 years old, not married, no children, no car, no loans.

Salary 90k/year.
Maximum pension 20%.
Emergency savings OK
Mortgage 200k, variable rate at 4.1%.
Savings of 2k/month

My question is, what would be the most efficient way to make work this extra 2k/month

1) Current account at 0.1% return but -2% inflation.

2) Savings account at 4%, but less fees and taxes (33% or 41% depending on your fund) is actually a ~2% return and inflation is at ~2%, so you neither gain nor lose.

3) Make mortgage overpayments of 4.1% interest but interest rates are likely to fall, so it would be better to wait for them to fall and then make the overpayments so you don't overpay interest.

4) Stocks/ETF/Crypto return 4-8%, but less fees and taxes probably 3-6%

5) Create a Business or buy to let, but for this you would have to save 20% deposit so again, what would be the best way to save that 20% or make that extra 2k/month work efficiently.

What would you do, another option?

 

[Savvy]

You don't mention if you have any other debts, but first step is to clear these.

Make mortgage overpayments of 4.1% interest but interest rates are likely to fall, so it would be better to wait for them to fall and then make the overpayments so you don't overpay interest.

I'm not sure I get you here as the converse is the case. If you pay an additional €2000 euro towards your mortgage today it will go off your balance and you are saving 4.1% interest on this. If the rates drop to 3% then you are saving 3% on the €2000. So it saves you more money in the long run to start paying it off now.

For me looking over the next 10 it's a no brainer I would be paying most or all additional monies off the mortgage. For example if you were just starting a 25 year mortgage your repayments would be ~1k, add in the 2k and you would be mortgage free in maybe 7 years. Less so with rates potentially dropping. Have a look at this calculator to play around with the numbers.

 

[Adelie]

Definitely the mortgage. The 4.1% interest is being incurred whether you overpay or not. Overpaying will only reduce overall interest charged. You’d need to take into account overpayment charges though.

 

[Pinoy adventure]

2k extra a month off the mortgage now rather than savings

 

[skrooge]

In terms of getting good feedback here, are there any other goals/objectives you want to achieve with your money?

In the absence of any other info I imagine most advice will give you to either focusing on minimising current costs (mortgage) or maximising your future pension. If you're contributing 20% already you're maxing out your pension contributions.

Your mortgage is costing you 4.1%. By overpaying you make a risk free saving of this %.

For options 1&2: To be better off putting it on deposit you'd need to earn that (+DIRT) to make it worthwhile i.e., 6.1%, Such a rate is not presently available. The fact your mortgage rate is variable also adds a degree of uncertainty here.

3&4: Investing or setting up a business (becoming a landlord) will attract a range of taxes and risk. Those tax rates are higher than DIRT rates so your required return well be even higher than the points above. For the possibility of higher returns your definitely have to take on more risk.

You mention becoming a landlord. Search the various forums here and you'll find plenty of them clambering to get out of the market right now.

Unless you're particularly risk averse or there's other info with sharing tackling the mortgage looks your best bet.

3) Make mortgage overpayments of 4.1% interest but interest rates are likely to fall, so it would be better to wait for them to fall and then make the overpayments so you don't overpay interest.

1) I would differentiate between expectations that the ECB will cut rates and if/when that might be reflected in your mortgage rate. Lenders were at pains to point out they didn't pass on the full amount of rate increases when the ECB was jacking up rates. I see no reason to assume they'll be generous on the way down.

2) Interest is calculated daily so you'll get the benefit of overpaying straight away. If rates do fall you'll still make a saving just a little less but I don't see any reason to wait for a possible mortgage rate reduction.

Definitely the mortgage. The 4.1% interest is being incurred whether you overpay or not. Overpaying will only reduce overall interest charged. You’d need to take into account overpayment charges though.

It's even better than that as there are no charges for overpaying a variable rate mortgage.