Moneymakeover Coming off fixed rate end of 2027. Looking for advice on overpayments, want to be mortgage free

[steph3n]

Personal details

32, single, no children

Income and expenditure
€58k base gross income + Overtime

Monthly take-home pay: Varies with OT, conservative average approx €3900k + Rent a Room income €800 pm. This is after 13% ER pension contribution & 12% EE.

Saving €1200 pm

Expenses €315 Utilities/Bills/Insurance, €200 Service Charges, €34 car tax, €100 subs, €100 holiday fund + variable general living expenses eg groceries, shopping going out

Summary of Assets and Liabilities
Family home value: €330k
Mortgage on family home: €181k
Net equity: €149k

Cash: €20k
Defined Contribution pension fund: €66k
Company shares : €1k

Total net assets: €236k

Family home mortgage information
Lender BOI
Interest rate 3% fixed until October 2027

Remaining term: 27 Years
Monthly repayment: €913 inc max 10% overpayment + €15 mortgage protection

Other borrowings – car loans/personal loans etc

None

Pension information

Value of pension fund: €66k

Other information which might be relevant

N/A for income protection, life insurance etc, was lucky to get mortgage protection
My base of €58k is increased by €1400 as a health insurance allowance which i avail of and comes out of my pay. LPT comes out of my salary also.

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

I basically want to aggressively attack my mortgage once I come off my fixed rate at the end of 2027 by putting everything I can against the mortgage repayments. Has anyone any advice or experience of this. I feel like given I have rent income and much higher pay than when I took out the mortgage I should be able to pay at least 1800 total PM against the mortgage. I also plan to buy a car next year for approx €25k which is current focus of my cash savings and then it’s on to coming off the fixed rate and overpaying mortgage. I don’t think I want to lock myself in to another fixed rate so i have flexibility to reduce overpayments if needed. Has anyone been in a similar position can offer any advice or whether I need to reduce expectations or potentially increase overpayments. Also the option to reduce pension contributions. Any thoughts would be much appreciated I would just love to get the mortgage paid off and think it could potentially be done in 10 years while still maintaining a reasonable standard of living

 

[Brendan Burgess]

32, single, no children

€58k base gross income + Overtime

Mortgage on family home: €181k

Why are you obsessed with paying off the mortgage? You are young. Your mortgage is comfortable. The interest at say 3.5% is about €500 a month, which you can easily afford.

There is nothing wrong with having borrowings for an asset from which you get great value.

you have higher priorities.

 

[Brendan Burgess]

Cash: €20k
Defined Contribution pension fund: €66k

Being able to buy your car without borrowing is the priority and you are in a position to do that now. If you have to borrow a small amount short-term, no problem. Make sure you have a credit union account, so you can borrow money if you need to.

Your next priority is to start maxing your pension fund. This is such a tax efficient way of long-term savings. It ranks well ahead of paying down your mortgage. Unless you are planning to trade up in the next 5 years.

 

[Brendan Burgess]

was lucky to get mortgage protection

Does this mean that you have a limited life expectation? If so, then maybe overpaying the mortgage takes priority to maxing the pension contributions if you don't expect to live long enough to get a pension.

 

[Brendan Burgess]

I don’t think I want to lock myself in to another fixed rate so i have flexibility to reduce overpayments if needed.

This would have been my advice up to a few years ago. But the banks compete on the fixed rate and have very high variable rates because so many people just default to them when the fixed rate ends.

But no need to make a decision until the current fixed rate is up.

 

[steph3n]

Thanks mate really appreciate the replies.

I don't know why but I just love the thought of owning my home outright and not having any repayments on it but yeah I guess this is what I'm looking for as I know there's no need for it and i can probably get better value elsewhere.

No not necessarily limited life expectancy but my condition makes me outside life companies risk tolerance if that makes sense.

I just feel that I'm already contributing plenty to my pension and I know it's backwards but the peace of mind of having no mortgage I think trumps the return I'd get in pension/investments.

I guess a mortgage advisor next year will be able to help and advise me on some of this next year anyway when the time comes.

 

[ClubMan]

I guess a mortgage advisor next year will be able to help and advise me on some of this next year anyway when the time comes

Be careful here - deal with an independent advisor and not a (glorified) sales person tied to a specific financial institution or with a vested interest in selling you something. Arguably you will get more independent feedback/suggestions by posting here on Askaboutmoney.

 

[Brendan Burgess]

I don't know why but I just love the thought of owning my home outright and not having any repayments on it

I just feel that I'm already contributing plenty to my pension and I know it's backwards but the piece of mind of having no mortgage I think trumps the return I'd get in pension/investments.

To be frank, there really isn't a rational basis for such thoughts.

Some people have a horror of borrowing. And they know people who always borrowed to fund their lifestyle and never made any progress in life.

But you are the very opposite. You have made progress. You have bought a house on your own. The mortgage is comfortable. You have a fair start to your pension.

If there were no tax reliefs on pension contributions, then you would be absolutely right to pay down your mortgage.

But you get tax relief on your pension contributions. The fund grows free of taxes. So it makes absolute sense to max pension contributions.
Even if your life expectancy were limited, it would still be right as your estate would be much larger as a result of pension contributions.

 

[Protocol]

I just feel that I'm already contributing plenty to my pension and I know it's backwards but the piece of mind of having no mortgage I think trumps the return I'd get in pension/investments.

If you really feel that way, and I partly agree with you, then try to do two things:

(1) get the lowest rate on the mortgage
(2) overpay the mortgage each month

 

[steph3n]

Thanks guys! Food for thought. Maybe a middle ground of fixing for 3-4 yrs on a reduced term of maybe 15 years which would be 1.1k repayments, and maybe gradually increase my pension contributions towards the 20% and also look at the new Swedish model investment scheme they launch next year and put a little into that.

*Edit as can't reply due to limit*

 

[Brendan Burgess]

fixing onto a reduced term of maybe 15 years

This is not a good idea as you have not fully emotionally committed to not clearing your mortgage. If you are "stuck" for 15 years, you might resent it and the break fee could be big.

 

[Wildling]

I was off the same mindset as yourself and somewhat older when I paid off my mortgage early at 49 as a single person. I achieved this by overpaying monthly and it has enabled me a financial freedom and a better quality of life to which I am extremely grateful and appreciative off. I suppose it all depends on what you value and take that into consideration.

I can't give you the expert fianancial advice but I can tell you, it, I know exactly where you are coming from.

 

[RentingD]

I wouldn't over pay for the reasons others have said. Also if you have a condition that might affect your ability to work in the future then try and get income protection, mortgage protection is only in case you die as far as i know. You only have to worry about living, not dying.
Also I don't know if you are interested in meeting someone or a long term relationship. That could happen next week and change it all

 

[jpmackey]

I have the same mindset as you. I aggressively double paid my mortgage every month for the first few years and eventually triple paid it to fully pay it off after only 4 years total.

But importantly I am a member of a very generous defined benefit pension scheme inc avc so I wasn’t neglecting that side of things.

It was a great strategy for me and I don’t regret it one bit. It gave me and my wife a great sense of financial freedom - no matter what happens now nobody can take our house from us. It also freed up my mind to think “what next?!” in terms of what we do with our money. So I had the headspace to get serious into researching investing (stocks etc) and pile all my excess income into a significant portfolio. Of course, mathematically I probably would have been better off doing it the other way around (invest first, pay off mortgage second), but personal finance is more a psychological conundrum than a mathematical one! I am now free to invest “risk-free” with money I don’t need, because we own our house outright.

Just sharing my experience; you need to take all the various mindsets/knowledge on here in totality and decide what sits right with you.

 

[CharlieMac]

and maybe gradually increase my pension contributions towards the 20%

If you have extra money to spend after the essentials of daily living are paid for then you should not delay putting 20% of your gross income in to your pension and take the max amount of tax relief you can get given your age. That is more important than paying down your mortgage ahead of schedule. Sounds like you can do both but you should max out your are-related pension contributions as a priority.