CU Loan, Pension, Mortgage - What to do

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New Member
Messages
2
Age: 34
Spouse’s/Partner's age: 34

Annual gross income from employment or profession: 90000
Annual gross income of spouse: 58000

Monthly take-home pay:
7350

Saving approx 3k/month

Type of employment: Private + State

Rough estimate of value of home 400000
Amount outstanding on your mortgage: 245000
What interest rate are you paying? 3.1% approx 1050/month

Other borrowings – car loans/personal loans

Credit union 35k @ 7.9percent, 7 year term, approx 31k outstanding

Do you pay off your full credit card balance each month? No CC

Savings and investments:

35k joint savings

Do you have a pension scheme?

Yes 5% from myself, Company contribution 8%

Do you own any investment or other property?

No

Ages of children:
1 and 3

Life insurance:
Death in service and mortgage protection.

Our house was finished this year (helping us to tare through our entire savings in the process) and there's still work to do and money to spend but they are nice to have's rather than musts. We tip away every month spending around 500 and 1000 on the house per month.
I could sink approx. 30k easily to finish the outside and outstanding items inside.

Some questions:
1. What's my best options with the CU Loan? I'm thinking I need to clear it asap but don't want to leave myself exposed
Leaning towards lumping 15k into it and looking for a lower interest alternative (if they exist??)
2. I'm also planning on upping my pension contributions to 8/10% going forward - I assume this is a no brainer?
3. I read elsewhere that I have the option to lump into the pension before the end of October and backdate the AVCs for last year/this year? Should this be done
4. Should I look at the mortgage or leave it be until the CU loan is cleared?
5. Anything else I should be thinking about?

Another thing to note is my wife is talking about going part time, 3 days a week. which would drop her salary to roughly the 20% tax cut off rate, 35k.
 

50andOut

Frequent Poster
Messages
59
1. Pay off the CU loan all of it. nearly 8% interest beign paid out whilst u earn nothing on the 35k savings. I am not sure where youfeel exposed - 2 decent salaries and saving 3.5k per month, you will quickly build up an emergency fund.
2. yep, I would go further an increase to the max for your age
3. yes you can back pay for prior year up to your cut off for the prior year. however I would sooner pay off the CU loan and focus on increasing pension going forward
4. I think there are better rates out there than 3.1. after CU, Pension and emergency fudn are sorted, maybe look to over pay this to bring under 50% LTV and then switch to a better rate
5. health insurance

50+O?
 

New2This

Registered User
Messages
30
I agree with almost everything 50andOut said except the first point, you need a cash emergency fund. Nothing is certain in the current climate so you need a safety net. My opinion is keep enough to cover 6 months of expenses and then pay the rest off the CU loan immediately, then instead of saving 3k a month overpay the loan by that much and have it cleared early next year.

Once the CU loan is gone the €3k plus the repayments that you are making on that can be redirected first to pension (to the max allowed 20% for your age) and then to overpay your mortgage. You have to get rid of the CU loan before looking to switch mortgages as it would impact on your likelihood of approval. However if you are with AIB on the variable rate you should be able to reduce the interest rate with just a property valuation.

Discuss it with your wife to see if she will hold off until after the CU loan is paid off and you have switched to a better rate as then you will be in a much better position for this change in income. You both should also take a look at expenses, you have €3,300 after your savings and mortgage there might be some areas where you can save there.
 

Brendan Burgess

Founder
Messages
42,205
Other borrowings – car loans/personal loans
Credit union 35k @ 7.9percent, 7 year term, approx 31k outstanding

Do you pay off your full credit card balance each month? No CC

Savings and investments:
35k joint savings

I agree with almost everything 50andOut said except the first point, you need a cash emergency fund.
This is getting absolutely ridiculous now.

New2This

Could I ask you a question.

Say you have two good salaries coming into the house.
You have just finished paying off loans but you have no cash on hand.
You are saving €3k a month.

Would you go into a bank and ask for a loan of €24k at 8% , "just in case something happens"?

Of course you wouldn't.

The OP should clear that Credit Union loan in full immediately.

The question is whether they should pay down the mortgage.

With no borrowings and two good incomes, they do not need 6 months's expenses.

If they are going to lose their job, they will get plenty of notice and can start putting a savings fund by at that stage.

And if they both suddenly get fired without any redundancy payment, they can borrow from the Credit Union.

Brendan
 

New2This

Registered User
Messages
30
Brendan, I respect your opinion in general but there is a big difference in having debt already and taking out new debt. You can only make the decision based on where you are now, not where it would nice to be. It's a logic fallacy to say not paying off a loan is the same as taking out a new loan.

Assuming the loan is a 5 year loan the repayments would be approximately €708 a month if they put their €3k savings as an overpayment of the CU loan for the next 11 months i.e. pay €3,708 they will have paid off the loan in 11 months and only paid about €1,255 in interest. To me the peace of mind of knowing you can still feed your kids and heat the house if you lose your job is well worth that interest cost.

If they do as I suggested and figure out what their emergency fund should be and then use the excess to reduce the loan the overall interest cost and time to clear the loan will be less again.

They currently have expenses of €4,300 a month, so even if we assume they both ended up on the PUP they would have a short fall of over €1k a month, how would they fund that? No bank or credit union is going to give them a loan and they could end up putting it all on credit cards and be in a much worse situation.

In boom times maybe it makes sense to empty savings to pay off debt but in the current climate telling people that it's ridiculous not to keep an emergency fund. I don't know how you think the would have plenty of notice if they are going to lose their jobs, 1 months notice isn't unusual in the private sector and 1 month of their current savings (€3,000) wouldn't cover 1 month of their current expenses (€4,300).

We don't know how secure their jobs are, if they both work for the same employer or not etc. So in all likelihood it is probably unlikely they would both lose their jobs at the same time and might be able to manage on 1 salary. Having access to some cash ( I didn't say they should keep it all) gives them options.
 

Brendan Burgess

Founder
Messages
42,205
We don't know how secure their jobs are,
Well one is a public servant, so that is safe enough.

If he were concerned about his job, it is the type of thing he would mention. He has an employer who contributes 8% to his pension fund, so it's quite likely to be a good, solid employer.

They are spending money on "nice to haves" which they could easily stop doing.

There have been many examples of people paying a high price for this emergency fund , but this is by far the worst example.

They have absolutely no need for it and should clear their Credit Union loan in full immediately.

Brendan
 

NoRegretsCoyote

Frequent Poster
Messages
1,834
Monthly take-home pay: 7350

Saving approx 3k/month



What interest rate are you paying? 3.1% approx 1050/month

Ages of children:
1 and 3
After mortgage and saving you are left with €3250.

Do you pay childcare for two pre-schoolers and have all other living expenses for just over €3k a month?
 

flashforward

New Member
Messages
2
Thanks all for the replies. From the input from everyone I'm going to lump 24k into CU, and pay the remainder in 2/3 months.
I am planning some landscaping works so I will need some cash to keep this ticking over in the mean time.

After mortgage and saving you are left with €3250.

Do you pay childcare for two pre-schoolers and have all other living expenses for just over €3k a month?
Do you think we should be saving more or less/month?

See rough breakdown:
Childcare ~ €650/month
Essential shopping (Food + Baby) ~ €650/month
Shopping Online/Clothes/Toys ~ €320/month
Entertainment/Take Away ~ €200/month
Insurance/Tax/Fuel ~ €320/month
CU Loan €545/month
Mortgage €1050/month
House Furnishings ~ €500/month
 
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