Best use of savings

Hi,


Age: 37
Spouse’s/Partner's age: 36

Annual gross income from employment or profession: 90000
Annual gross income spouse: 50000

Type of employment: e.g. Private Sector/Civil Service
Expenditure pattern: In general are you spending more than you earn or are you saving? no

Rough estimate of value of home: 480000 on PPR
380000 on Investmnent property

Mortgage on home :170000 plus 70000 top up to buy investment property
Mortgage on Investment property :210000
Mortgage provider: EBS

Type of mortgage: Tracker,
Interest rate :4.9 tracker on the ppr
4.9 on the investment mortgages

Other borrowings – NONE

Do you pay off your full credit card balance each month. YES
If not, what is the balance on your credit card?

Savings and investments: 105,000 in savings 6,000 in shares
Currently saving approx 2000 per month.

Do you have a pension scheme? YES BOTH

Do you own any investment or other property? YES as above - Rent is 1200/month. Has been occupied without a break since bought in 2004.

Ages of children: NONE

Life insurance:

I'd like to know how we could maximise the savings we have. Should we use most of it to pay off the PPR mortgage?

Thanks, this is a nice new thread!

You appear to have everything under control.

I take it you are declaring this income to revenue. Even if a loss you have to declare it as it will turn to a profit at some stage in the future See the revenue [broken link removed]

Remember it is the interest only that is deducted from rental income not the full repayment. You can also use the interest from the 70K top up loan. You can't however use the 70 K for interest relief against your PPR mortgage. You also have to be registered with the PRTB in order to claim this relief

Savings and investments: 105,000 in savings 6,000 in shares

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You state that you both have pensions. Check out the expected payout carefully. You should get a pensions statement every year.
Many private pension now are defined contributions and the level of contributions may not allow for a decent pension.
I'm sure there is also scope to make additional contributions to the civil servants pension.

See the pension board calculator and have a good look at the assumptions they make. Revenue allow 2/3 of final salary. The pension board calc only calculates to 2/3 of salary less state pension

You could use the savings to drip feed into the pension. If you make a lump sum payment to an AVC before Oct 31 you can get tax relief against 2006 salary.

Hi Asdfg,
Thanks for your reply.
Rental income is being declared (just doing up the 2006 returns now), and we are registered with the PRTB.
Would you advise putting the savings into pensions, as opposed to paying off a lump sum on our PPR?
Thanks,
Ger.

Personally I would hold on to approx 3 to 6 months net salary as a safety net.

I would then look at the possibility of putting as much as possible into both your pensions. You need to see what the shortfall in your current pensions are going to be in relation to the max allowed by revenue. There is normally plenty of scope for AVC contributions. Any contributions you make, you get back almost half due to tax relief. This is subject to revenue rules so you could drip feed from your savings account into your pension every year for a number of years. Work out the figures on how much you need bearing in mind that you will get back approx half your contributions each year.

If anything left over pay off against the mortgage.

Interest rate :4.9 tracker on the ppr

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This rate is a bit on the high side considering the proportion of equity you have in your PPR. Ask them to reduce it. Mortgage market has become more competitive in past year or so. 4.9 was probably a good rate when you took out the mortgage, but no longer is.

You are borrowing at 4.9% to put it in a savings account earning probably around 3.2% after Dirt.

So you are losing 1.7% of your savings each year or around €1,700 (+/- a little depending on mortgage interest relief and what deposit rate you are getting).

You will save €1,700 by paying it off your mortgage.

You can easily afford to max out your pension and you should do this first.

With your income and level of savings, you do not need an emergency fund. Your bank will give you an overdraft or your lender will remortgage or give you a payment holiday if you need the money.

The only reason you should not contribute to a pension is if you might need the money in the short term, which looks unlikely.

Brendan

Hi,
Thanks to all for your replies, much appreciated,
Ger.