Back to work after maternity leave, what to do with savings?

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Registered User
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Age: 32
Spouse’s/Partner's age: 37

Annual gross income from employment or profession: €47,000
Annual gross income spouse: €56,000

Type of employment:: Both public sector

Expenditure pattern: In general are you spending more than you earn or are you saving? Currently saving.

Expenditure: Car (insurance, tax, petrol) €250pm, we both go to work together so only have one car and no public transport costs.
VHI, home/life insurance, pension, gas, electricity, NTL, Eircom, mobile phone (v.low at about €45 pm in total), food, etc. Nothing out of the ordinary.


Rough estimate of value of home: €420,000
Mortgage on home €340,000 (as of Feb 2007)
Mortgage provider: AIB
Type of mortgage: Discounted tracker variable
Interest rate: 3.6% for 12 months (Feb 2007-Feb 2008)
Current repayments are €1670 per month

Other borrowings – car loans/personal loans etc: None

Do you pay off your full credit card balance each month? Yes

Savings and investments:
SSIA - €17,000 sitting in a BOI a/c (4% gross p/a until Oct 2008)
Regular saving going into same a/c: €150 pm (6.75% ECB+2.75% until Oct 2008)
Northern Rock: €3,600 (4.5% gross pa) Demand online account
Credit Union: €3,000
AIB savings account: €3,000 (not sure what the interest is but its not much)

Do you have a pension scheme? Yes, both of us have public sector pensions

Do you own any investment or other property? No

Ages of children: 1 child, aged 7 months

Life insurance: New Ireland Term assurance, both lives covered for €340K. Cost €66 pm


What specific question do you have or what issues are of concern to you?
At the moment we’re doing fine and haven’t any problems, but I’m finishing my maternity leave next week and going back to work and now we have to factor in crèche fees. The baby is going to a crèche which is going to cost €990 pm.

I’m also wondering what we should be doing with our savings? They’re a bit all over the place at the moment due to both of us having different accounts. We don’t have any personal debt (apart from the mortgage) so I’m wondering should we invest, or pay a chunk sum off the mortgage? We only got the mortgage in Feb 2007 so most of it is interest at the moment. If so, how much should we pay off? I like the security of having cash available if we’re stuck.

We both have full time pensionable public sector jobs so they’re pretty safe. We also have salary protection so if either of us are sick we still get paid.

Our mortgage is currently at a discounted rate until Feb 2008. Should we change it then? Should we think about fixing?

If we decide to have more children I’ve no idea how we could afford to pay two lots of crèche fees. I could go part time but we would still have crèche fees to pay and I’m not sure if it would work financially.

Any advice would be great, thanks.
 

Brendan Burgess

Founder
Messages
44,873
Most of the savings accounts you have are paying higher interest than the rate on your mortgage. For that reason, you should not use your savings now to pay off your mortgage.

You can't really make any decision on the mortgage until February next when the discount ends, so don't worry about it until then.

In February, if the mortgage interest rate is higher than the deposit rate you are getting, you should pay most of your savings off your mortgage.

Overall you are doing well. In the early years of a mortgage you will usually find it difficult, but salary inflation will sort that out over the coming years.

Brendan
 

ClubMan

Registered User
Messages
44,339
Mortgage on home €340,000 (as of Feb 2007)
Mortgage provider: AIB
Type of mortgage: Discounted tracker variable
Interest rate: 3.6% for 12 months (Feb 2007-Feb 2008)
Current repayments are €1670 per month

...

Savings and investments:
SSIA - €17,000 sitting in a BOI a/c (4% gross p/a until Oct 2008)
Regular saving going into same a/c: €150 pm (6.75% ECB+2.75% until Oct 2008)
Northern Rock: €3,600 (4.5% gross pa) Demand online account
Credit Union: €3,000
AIB savings account: €3,000 (not sure what the interest is but its not much)
Most of the savings accounts you have are paying higher interest than the rate on your mortgage. For that reason, you should not use your savings now to pay off your mortgage.
As far as I can see only the regular saver falls into this category when you look at the net (post DIRT) returns. The NR account just matches the mortgage rate (maybe a bit ahead once mortgage interest relief is taken into account?). The others don't seem to be paying higher interest than the mortgage is charging which means that better returns may be had by reducing the mortgage. Of course there are other considerations when deciding whether or not to do this.
 
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