41 years old and looking for advice on 35k

S

Settingup

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Hi,
I've been reading this forum for a while, huge benefit to me and I thank you for providing this platform. I'm only just in a place where I've covered off the foundations on the flowchart and looking at future decisions.

Personal details

Age:41
Spouse’s/Partner's age:34

Number and age of children:1 - 5yrs


Income and expenditure
Annual gross income from employment or profession: 70k
Annual gross income of spouse: 62k

Monthly take-home pay - 7000

Type of employment: e.g. Civil Servant, self-employed.

In general are you:
(a) spending more than you earn, or
(b) saving? Saving


Summary of Assets and Liabilities
Family home worth €370k (probably a little more now) with a €325k mortgage
Cash of €20k
pension fund: Old employers €26k + 6k
Company shares : NA
Buy to Let Property NA


Family home mortgage information
Lender - KBC
Interest rate - 2.25%
Type of interest rate: fixed.
If fixed, what is the term remaining of the fixed rate? 3yr Finishing April 2025

Remaining term: (Original term is not relevant) 27yrs
Monthly repayment: 1389

Other borrowings – car loans/personal loans etc

None
Do you pay off your full credit card balance each month? Y
If not, what is the balance on your credit card? 0


Other savings and investments:

Do you have a pension scheme? Y with work employer 10% + me 15%. Just increased to the 25%. Qualify for UK also.
Partner - none currently, set up for Jan.

Do you own any investment or other property? No.

Other information which might be relevant

Life insurance, medical insurance & death in service x4 through work.


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

Life only just started to settle in the last year or so after paying high rent, childcare costs have come down (for now) & job changes. we are a little late getting our forever home but that's done, plan to have another child in the next 12-18 months which will require c8k fertility costs. Started over paying mortgage the last 6 months by €250p/m. Should our focus outside of maxing out pensions be getting the mortgage below 80%. Due to receive 35k early 2024, is it best all to go against mortgage or somewhere else for education fund? I think our emergency fund is fine plus have credit union account & high limit credit card (0 balance) just incase.
 
I wouldn’t be in a hurry to pay down the mortgage, at 2.25% it’s not expensive.
 
cremeegg said:
I wouldn’t be in a hurry to pay down the mortgage, at 2.25% it’s not expensive.
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Agreed. Probably better off putting cash into Trade Republic and earning 4% and then using it to get mortgage to beliw 80% LTV if needed when fixed term comes to an end.
 
Well, you could put the €35k on deposit for a year @4% and earn a grand total of €262 (after tax) more than you would save by simply paying it off the mortgage @2.25%.

Depends what value you place on your time, but I wouldn’t bother jumping through all the hoops of opening another account and filing a tax return just to make €262 - I would simply pay it off the mortgage.

Beyond that, I think you should both prioritise maximising your tax-relieved pension contributions, relevant to your respective ages, over paying down your mortgage ahead of schedule.

Your mortgage balance is already fairly comfortable as a multiple of your joint income and, well, you’re not getting any younger.

If you do find you are building after-tax savings (after maximising your pension contributions), then just throw it at the mortgage until it’s gone.

Keep it simple.
 
Do you have adequate health insurance for your partner that covers% of IVF? With your timeline you might have sufficient time overcome any waiting periods on any upgrades but you would want to check the t&c etc
 
What does the post baby two net family income look like ? Your first child will still be quite young and afterschoolholiday care can be a lot. Do some rough numbers on this, one or both of you may wish to scale backworrl a bit so see what that would mean for other plans.
 
Settingup said:
Due to receive 35k early 2024, is it best all to go against mortgage or somewhere else for education fund?
Click to expand...

Your best education fund is to overpay your mortgage. You get a risk-free, tax-free return of the mortgage interest rate.

So it's either contribute more to a pension or pay down the mortgage.

I do like the idea of getting the Loan to Value down to 80%. It gives you a lot more flexibility and lower rates when your fixed rate is up.

So I would probably get it down to 80% now - then stop overpaying it and stuff the pension.

Brendan
 
Sarenco said:
Well, you could put the €35k on deposit for a year @4% and earn a grand total of €262 (after tax) more than you would save by simply paying it off the mortgage @2.25%.

Depends what value you place on your time, but I wouldn’t bother jumping through all the hoops of opening another account and filing a tax return just to make €262 - I would simply pay it off the mortgage.

Beyond that, I think you should both prioritise maximising your tax-relieved pension contributions, relevant to your respective ages, over paying down your mortgage ahead of schedule.

Your mortgage balance is already fairly comfortable as a multiple of your joint income and, well, you’re not getting any younger.

If you do find you are building after-tax savings (after maximising your pension contributions), then just throw it at the mortgage until it’s gone.

Keep it simple.
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There is value to having cash on hand that can be withdrawn without notice or penalty if needed. The OP's position is not such that he needs a large rainy day fund at the expense of return on investment, but if a rainy day fund can be achieved at no cost, or in fact with a bonus of about €350 up to the end of the fixed rate, then that is what I would do.
 
Sarenco said:
Well, you could put the €35k on deposit for a year @4% and earn a grand total of €262 (after tax) more than you would save by simply paying it off the mortgage @2.25%.

Depends what value you place on your time, but I wouldn’t bother jumping through all the hoops of opening another account and filing a tax return just to make €262 - I would simply pay it off the mortgage.

Beyond that, I think you should both prioritise maximising your tax-relieved pension contributions, relevant to your respective ages, over paying down your mortgage ahead of schedule.

Your mortgage balance is already fairly comfortable as a multiple of your joint income and, well, you’re not getting any younger.

If you do find you are building after-tax savings (after maximising your pension contributions), then just throw it at the mortgage until it’s gone.

Keep it simple.
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I’m probably being thick but how does a 4% return on 35k = €262 after tax?
 
adox said:
I’m probably being thick but how does a 4% return on 35k = €262 after tax?
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Sarenco said €262 would be how much MORE than the € saving made by paying this off the mortgage. Not the isolated interest on €35k @ 4%
 
You need some cash - children costs are hard to predict because plans can change; parent decided to stay at home/not stay at home massively varying child care costs, illness, fertility costs. 20k is not too bad - might be better to frame in terms of months of outgoing costs - so know potential outgoings in plan b scenarios.

After this stuff the pension as it is tax efficient- it looks like as a couple you pay the higher rate of tax, so no better return will be found than limiting exposure to this. Not clear if 35k referenced is gross income (to be taxed) or if it's something else. I'd divert it to pension if it means limiting tax exposure- the mortgage below 80% if more a nice to have not a need.
 
Scoobydoobydoo said:
Do you have adequate health insurance for your partner that covers% of IVF? With your timeline you might have sufficient time overcome any waiting periods on any upgrades but you would want to check the t&c etc
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I've gone back through our policy cover and yes it was worth the review to check what's already on office and balance whats worth the upgrade thanks for highlighting.
 
time to plan said:
There is value to having cash on hand that can be withdrawn without notice or penalty if needed.
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There is indeed.

But the OP already has a cash reserve of €20k, which should be sufficient.

I don’t feel very strongly on the point but, if I was in the OP’s shoes, I would just pay the €35k off the mortgage for simplicity.

The more important point is that the OP and his partner should prioritise maximising their respective tax-relieved pension contributions.
 
Brendan Burgess said:
Your best education fund is to overpay your mortgage. You get a risk-free, tax-free return of the mortgage interest rate.

So it's either contribute more to a pension or pay down the mortgage.

I do like the idea of getting the Loan to Value down to 80%. It gives you a lot more flexibility and lower rates when your fixed rate is up.

So I would probably get it down to 80% now - then stop overpaying it and stuff the pension.

Brendan
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Thanks for the feedback, max out pensions now is loudest advice, I know we are way behind and then chip away at the mortgage for the next few years. The 35k is net, so I may build up a slightly heavier emergency fund although the plan is both of us remain in FT work but she takes 1.5yrs maternity, all outgoings are kept below one salary so although we may not be saving heavy there's no concern in that period with part of it full pay. I will take a good look at trade Republic. Thanks again all.
 
Sarenco said:
Well, you could put the €35k on deposit for a year @4% and earn a grand total of €262 (after tax) more than you would save by simply paying it off the mortgage @2.25%.

Depends what value you place on your time, but I wouldn’t bother jumping through all the hoops of opening another account and filing a tax return just to make €262 - I would simply pay it off the mortgage.

Beyond that, I think you should both prioritise maximising your tax-relieved pension contributions, relevant to your respective ages, over paying down your mortgage ahead of schedule.

Your mortgage balance is already fairly comfortable as a multiple of your joint income and, well, you’re not getting any younger.

If you do find you are building after-tax savings (after maximising your pension contributions), then just throw it at the mortgage until it’s gone.

Keep it simple.
Click to expand...
TR 4% =
35000 * 0.04 = 1400.
Remove DIRT 41% = 826e

Mortgage 2.25% =
35000 * 0.0225 = 787.5e

So the differential is actually 38.50e unless I am missing something?

Plus I am not sure why on this forum and most places people do not calculate and include the reduction of the Prinicpal when overpaying their mortgage. The reality is that dropping 35k on the mortgage is not a direct 2.25% gain per year but its HIGHER because you also have a lower principal amount to be paid.

My own mortgage was not reduced by X% (x=interest rate) when I overpaid but closer to (X*1.5)% as the principal payment is also reduced.
 
boomshine said:
TR 4% =
35000 * 0.04 = 1400.
Remove DIRT 41% = 826e
Click to expand...
DIRT rate is 33%, not 41%.

To be absolutely accurate, the “return” on paying down a mortgage ahead of schedule is the weighted average interest rate over the remaining term of the mortgage.
 
Sarenco said:
DIRT rate is 33%, not 41%.

To be absolutely accurate, the “return” on paying down a mortgage ahead of schedule is the weighted average interest rate over the remaining term of the mortgage.
Click to expand...
Good catch I stand corrected, in that case the final difference I can see is 150.50 eur.


How is this mortgage return calculated?

I had let's say 200k eur mortgage at 3.25%, I overpaid 20k and my monthly payment reduces by 92euro from 945e to 853e as I reduce the payment not the term length.
As there's 12 months in the year total is 1104e that's a return not of 3.25% but of around 5.5% and 'tax free'.
 
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