Advice to make AVC for 2020 or keep saving?

rynos80

Registered User
Messages
8
Age: 41
Spouse’s/Partner's age: N/A

Annual gross income from employment or profession: 77K with bonus
Annual gross income of spouse: N/A

Monthly take-home pay: 3102*. After all deductions i.e. AVC and Health insurance

Type of employment: PAYE, private.
Spouse: nil

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

Rough estimate of value of home: 225k bought in Nov 2019
Amount outstanding on your mortgage: Approx. 187k
What interest rate are you paying? 2 years fixed @ 2.3%, 23 years plus. Mortgage repayment + overpayment is 1086

Other borrowings – car loans/personal loans etc: n/a.

Do you pay off your full credit card balance each month? n/a
If not, what is the balance on your credit card? n/a

Savings and investments: 22K in deposits

Do you have a pension scheme? yes, defined contribution 7% employer contribution and pension pot 29K started late (2019) invested 100% in equities. Now maximizing from 2021 by bonus lumpsum payment plus 1000 AVC each month.


Do you own any investment or other property? no

Ages of children: n/a

Life insurance: yes – 4 X Base salary for death benefit
Spouse: n/a

Question: I want to file my 2020 tax return, and I don’t to know if I should fully maximize my remaining AVC for 2020 of around €10,000 which will cost me €6,000 from my savings after relief?
I’m overpaying my mortgage to bring down LTV to 79-80% by end of the 2-year fixed term in November and can switch to available lower rate. Future plan to sell the apartment and upgrade to a house in 3-4 years timeframe.

Looking forward to your helpful responses on the forum.

Thank you
 

Brendan Burgess

Founder
Messages
44,626
Future plan to sell the apartment and upgrade to a house in 3-4 years timeframe.

This really is the key.

Your priority is to pay down your mortgage and build up plenty of equity to allow you to trade up when you want to.

So, only pay the minimum required into the pension. No AVCs or back dating.

On a salary of €80k, you will get a maximum mortgage of €280k.

At the moment, you have €60k between equity and savings.

So you could buy for €340k.

You need a deposit of €68k or 20% of €340k.

So it's very tight.

Build up equity or cash which will allow you to trade up. That is your absolute priority.

With more equity, you will have more choice of houses and more choice of mortgages and probably a lower rate.

When the trade up is sorted, you can start stuffing your pension fund.

Brendan
 

Brendan Burgess

Founder
Messages
44,626
By the way, there is no need to wait for two year for the fixed rate to end.

You can pay your savings of €22k off the mortgage now. There may be a small early break fee, but it's likely to be well worth it.

Brendan
 

rynos80

Registered User
Messages
8
This really is the key.

Your priority is to pay down your mortgage and build up plenty of equity to allow you to trade up when you want to.

So, only pay the minimum required into the pension. No AVCs or back dating.

On a salary of €80k, you will get a maximum mortgage of €280k.

At the moment, you have €60k between equity and savings.

So you could buy for €340k.

You need a deposit of €68k or 20% of €340k.

So it's very tight.

Build up equity or cash which will allow you to trade up. That is your absolute priority.

With more equity, you will have more choice of houses and more choice of mortgages and probably a lower rate.

When the trade up is sorted, you can start stuffing your pension fund.
 

rynos80

Registered User
Messages
8
Hi Brendan,

Thanks for your insightful response, you made valid points.

I've just contacted the bank and the break fee is Zero. Example, if I pay €10K off the mortgage from my savings today, so that would leave me with savings of €12K. But my time frame is still 3-4 years, would it be okay to still build more savings or as mentioned, your position would still be to pay down now (could save on interest), switch to available lower rate, and continue to build more savings?
 
Last edited:
Top