Thanks !
Thank you all for taking the time to read my very very long and rambling post and then share your thoughts. This has been a valuable exercise. You've given me a lot to think about. It's an odd experience to read familiar names commenting on the OP's facts and then realise - that's me! Positive, but a little jarring at the same time!
I think I will need to take some time over the next few weeks to really chew over your thoughts. Particularly those which challenge my own preconceived views.
Thanks for all the ideas, and apologies for not acknowledging/replying to individual comments and suggestions. I have instead shared my initial thoughts on the general themes emerging:
(1) Pension:
I must pay in 5%, and my employer matches that 5%. My additional 10% AVC is not matched. The employer covers the costs of running the pension scheme so 100% of the contributions are invested. The investments (from recollection) are in low cost index-tracking funds (so these should be low fees - but I don't exactly recall if I checked that). I get 40% tax relief on the contribution. If I was to stop the 10% AVC reduce my contributions to just the 5% required by the scheme and matched by my employer than my net take home pay would be €3,323 per month (i.e. €300 more cash per month, €3,600 more cash per annum). However my pension asset would be €6,000 less per annum.
My initial reaction: I would be reluctant to reduce my pension contributions. I will consider this further over the weeks to come, but my gut says no.
(2) Switch:
This is something which I have not really looked into. One of the points that attracted me to AIB was that they seem to be competing on the basis of the lowest variable rate. My concern with switching to a fixed rate with another bank is what would happen after the initial 2 year fixed period ends. I assume I would then go on their standard variable rate at that point unless I fixed again. I'm concerned I could get stuck with a higher rate after the 2 years, and (since I may still have a high loan to income multiple) I might find it difficult at that time to switch back / elsewhere. As such my inclination is to stick with AIB on the basis that it is the devil I know.
Perhaps I have a blindspot here?
(3) Extra Payments:
The consensus seems to be that paying the extra €500 is a good idea. I am going to proceed with that.
I will have to chew over whether to also use the remaining €500 of my €1,000 'pay myself first' money to make extra mortgage payments. I agree that it doesn't make sense to invest it, and that I should have enough of a cash cushion with the €25,000. Also it doesn't seem to make much sense using it for a sinking fund for possible car replacement etc when I already have an emergency fund (it seems improbable that I would need both at the same time).
That just leaves the 'live a little' point. I might make a soft commitment to pay the second €500 against the mortgage but allow myself to use it for fun stuff every 2 or 3 months if the notion strikes me.
(4) Amount and use of emergency fund monies:
I agree that holding €25,000 in cash earning little to nothing in interest (which is then subject to DIRT) while having €225,000 in mortgage debt is inefficient.
Yes, paying €13,000 down against the debt would save on interest and reduce the term (and the minimum compulsory monthly payments would also be reduced which increases security to a degree).
However I draw comfort from the notion of 12 months of expenses. Perhaps I'm still a little traumatised from the last recession. It was a difficult time, and we're at the 10 year anniversary, so it has been fresh in my thoughts.
While I will think on it further, my gut is telling me to hold on to the full €25,000 (at least for the next few years until Brexit plays out). The extra €13,000 in cash (if used just for mortgage) is equivalent to 13.5 months of payments of €961, and there is a lot of security in that.
Perhaps its overkill, but I will sleep easier with the extra cash and there is value in that.
Exercise:
Since Brendan's views are the most challenging, I have set them out below to force me to really consider them.
My understanding of his view is that I should consider:
(1) Using the full €1,000 per month of my 'pay myself first' money against the mortgage. [ + 1,000 pm cash to mortgage] #
(2) Reducing pension contributions to the amount the employer will match (5%) and pay it to mortgage [ + 300 pm cash to mortgage]
(3) Reducing emergency fund to €12,000. [ + 13,000 cash once off to mortgage * ]#
(4) Re-mortgage at lower fixed rate with Ulster Bank. **
#[I reread the forum posts after preparing the calculations below, and I now see Brendan actually suggested I use some of the money to live a little/worklife balance, and suggested 10k buffer rather than 12k but I'm not redoing the calculations now!]
* For the sake of argument I am going to assume my emergency fund is already at 25k (as that is what I will be comparing it against). Not perfectly accurate, but close enough.
** As it is not certain whether I can re-mortgage with UB, nor what would happen after the 2 year fixed period expires, I am going to exclude this option from the calculations below. It's something I need to explore further.
Abbreviations used:
T: Time remaining to fully payoff of the mortgage at this rate of overpaying (currently 29 years if I do nothing).
S: Amount of interest which would be Saved.
EMCR36: Estimated Minimum Compulsory Repayment after 3 years (36 months) of this plan. (i.e. if in 3 years time I can no longer afford/wish to make extra payments, what should my minimum monthly payment with AIB then be (assuming no change in rate).
Note on calculations. I calculated TR and IS using the Karl's mortgage calculator app. I have confidence in those figures. However I calculated the figures for EMPR36 by fudging the figures in an excel amortization spreadsheet I found online so its possible the EMPR figures may not be entirely correct. For the purpose of the calculations I have assumed there would be no change in interest rates.
Results:
'No Action' [961 + no extra payments per month]
'My initial proposal' [€961 + extra €500 per month.]
- T:16y3m S:€51,099 EMCR36: 949 pm
'My revised proposal' [€961 + extra €1,000 per month.]
- T:11y5m S:€69,178 EMCR36: 866 pm
'Brendan Max' (1) + (2) + (3) above: [€961 + extra €1,300 per month + once off €13,000]
- T:9y1m S:€79,357 EMCR36: 757 pm
'Brendan Reduced-Pension' (1) + (2) above: [€961 + extra €1,300 per month]
- T:9y9m S:€75,367 EMCR36: 817 pm
'Brendan Reduced-Cushion' (1) + (3) above: [€961 + extra €1,000 per month + once off €13,000]
- T:10y8m S:€74,009 EMCR36: 807 pm
Conclusion:
I shall have to ponder on the above. A ten year term is attractive.
However right now my gut is telling me to keep the larger cash sum of €25,000; keep pension as is; pay extra €1,000 into mortgage (perhaps with a break or two for fun); then re-evaluate in a year. The interest expense on €13,000 a year at 2.95% is €383 but I think that's a small price for a little extra peace of mind in the immediate term.
Please share your thoughts or point out if I've blundered. Thanks.