35 New Home Owner - Planning for future

[amanwithaplan]

I’ve just bought a house and I thought it was time to evaluate where I am.

I contribute 20% to my pension + 5% employer match. Prior to buying the house I was comfortably saving 1k a month on top of this. It looks like the total cost of ownership of the house will be higher than renting. I’ll probably finish the month with an average of €500 surplus. I’ll likely focus on overpaying the mortgage as much as possible with the fixed restrictions.

I bought the house with my partner. They are younger than me, on similar salary, lower pension value, but high savings rate. We split all the bills 50/50.



Personal details

Age: 35
Number and age of children: 0


Income and expenditure
Annual gross income from employment or profession: 78k + ~10k bonus

Type of employment: Private sector; secure role

In general: saving


Summary of Assets and Liabilities
Home: 500k, 20 year 450k mortgage fixed @ 3.95% for 4 years
Pension: 224k total
Old Company DC: 16k @ 1.25% AMC
Irish Life PRSA : 148k @ 1% AMC
Current Employer DC Pension: 60k @ 0.75% AMC
Company shares : Unvested worth net €6k
Share Account: 17k (I have some CGT losses carried over, learned my lesson there)
Cash has been used for deposit and fees for house

Monthly repayment: 2.7k / 2

Other borrowings – car loans/personal loans etc: 0

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?

I have questions about the pensions. Is it worth consolidating, particularly the smaller more expensive pension. Does having multiple pensions give more options?

Does overpaying the mortgage make sense or is that more of a physiological decision rather than financial?

I imagine in Ireland that the best return is pension, then paying off mortgage, and then ETFs.

Overpaying by 10% would reduce the term to 17 years. I think with overpaying, higher salaries, and likely refinancing in the future I could have the house paid off at 50ish.

My ideal goal would be to get to 800k in pension funds, and start to dial back work or rely on it less. I wouldn’t be aiming for full retirement, but I’d like to get to the stage where I’m not dependent on my job as my main income.

At current saving rate, with a 3% annual growth rate, I would hit that number around the same time as the mortgage is paid off.

I know people generally aim for bigger pension pots, but (currently!) I’ve no dependents, and low expenses. I’d have to reassess in a few years what the “real” value of the pension is but I think I could make do with 800k; taking the 200k tax free, and leaving the rest invested. I would imagine I would have another 100k+ of investments outside of my pension. I’d rather retire too early and return, than retire too late. I can always earn more money, I can’t earn more time.

I know anything could happen, and nothing goes to plan, but does this seem like an optimistic, but somewhat realistic plan for the future?

 

[Brendan Burgess]

Age: 35

Pension: 224k total

That is pretty good.

And you have a high contribution rate already.

I think you should focus on overpaying the mortgage.

A 90% LTV mortgage is very high. It only takes a 10% fall in house prices to put you in negative equity.

If you suffer an income drop and house prices fall, then again a lower mortgage means more equity in your home, which is a great feeling. I think you should stop paying any unmatched pension contributions and get your LTV down to 80%.

Overpaying the mortgage gives you a lot of flexibility. After a few years, you will probably trade up so having a lower mortgage is much better than a fat pension scheme.

Even if you don't trade up, an 80% LTV will allow you to get a better mortgage rate. You don't have to wait until the fixed rate is up. If you hit the 80% before then, you might get a better rate and no early break fee.

Brendan

 

[Brendan Burgess]

I bought the house with my partner.

Have you done a joint ownership agreement to cover what each of you owns and what each of you owes? Do it now if you have not done it.

You are probably assuming 50/50 ownership. But what happens if one of you wants to overpay their half of the mortgage?

I think you should both overpay it equally for simplicity. But it might suit one to overpay while the other stuffs their pension.

Brendan

 

[amanwithaplan]

Have you done a joint ownership agreement to cover what each of you owns and what each of you owes? Do it now if you have not done it.

You are probably assuming 50/50 ownership. But what happens if one of you wants to overpay their half of the mortgage?

I think you should both overpay it equally for simplicity. But it might suit one to overpay while the other stuffs their pension.

Brendan

Thank you for the replies.

That's something that I had thought about (not sure how I omitted it from my post, thanks for reminding me). But, no we haven't done it. I'll look into it.

It probably makes more sense for me to overpay the mortgage, and more sense for my partner to focus on their pension. But for simplicity we should both match each other, at least over a short time period.

 

[Scoobydoobydoo]

You mentioned "Partner",are you married/civil partnership?
Might be worth boxing that off in the near future to avoid a CAT (inheritance) if one of you were to pass...

 

[Brendan Burgess]

It probably makes more sense for me to overpay the mortgage, and more sense for my partner to focus on their pension. But for simplicity we should both match each other, at least over a short time period.

If it suits both your financial plans, then fine.

But it's easy enough to account for if you want to pay more than her.

If your mortgage is €445k when you sell the house and you have overpaid by €5k
You owe €220 and she owes €225k.

The interest rate is low so probably no need to adjust for it unless it goes on for a long time. Or you split up and start fighting over it.

But the agreement should read
"Either person may overpay the mortgage. Any such overpayments and saved interest will be reflected in the share of the mortgage owed by each person."

Brendan

 

[amanwithaplan]

That is pretty good.

And you have a high contribution rate already.

I think you should focus on overpaying the mortgage.

A 90% LTV mortgage is very high. It only takes a 10% fall in house prices to put you in negative equity.

If you suffer an income drop and house prices fall, then again a lower mortgage means more equity in your home, which is a great feeling. I think you should stop paying any unmatched pension contributions and get your LTV down to 80%.

Overpaying the mortgage gives you a lot of flexibility. After a few years, you will probably trade up so having a lower mortgage is much better than a fat pension scheme.

Even if you don't trade up, an 80% LTV will allow you to get a better mortgage rate. You don't have to wait until the fixed rate is up. If you hit the 80% before then, you might get a better rate and no early break fee.

Brendan

I've been thinking about this recently.

And I think overpaying the mortgage should be the priority.

Stock market valuations are high, as is my mortgage rate (compared to the previous few years). It's not a bad net return to pay avoid the interest. And I should focus on getting the mortgage down to a lower LTV to get a better rate.

If I'm shopping around at the end of my fixed term, and I go to move to a new mortgage provider, can I pay off an extra chunk of the mortgage?