Fulltime public service employees :Keep Saving or put lump sum towards Mortgage

J

John_Jo

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Hi Folks,
Need a little help/advice. Myself and my wife are both public service workers. We are both workering fulltime. Her contract is a little precarious as it rolls over every 6 months. Mine is safe.

We have two properties. One which we live in together, 208K mortgage outstanding (at 2.3%) probably with a current market value of 195K (I hope!) The second property is a rental property (built on family land), rented all year round with 120k mortgage outstanding. Probably worth 375k (even in these hard times). We are managing quiet well to pay off both mortgages as the rental income helps with the second property. During the good times we managed to save up a lump sum of 25K approx. (rolling 100 day account 3.25% interest) I am keen to keep it in reserve for the rainy day but my wife is keen to reduce the mortgage.

What are peoples views? Reduce the bigger mortgage by paying in the lump sum or hanging onto it for flexibility.
A couple of things to bear in mind: In January my wages will reduce by 6% and hers by 5%. Her job position is precarious. I am 31 and she is 32 and we would like to start a family soon which would mean trying to survive on one income.

Any advice would be greatly appreciated.
Thanks
J.
 
No doubt you'll get lots of opinions, here's mine.

Start living on one salary now. See how you would cope if you started a family. The other salary can go to increasing your savings to cover maternity expenses.

Separately, keep 3-6 months cash for emergencies. As a public service worker you are not going to lose your job, so decide how much this would need to be.

Work out how much the 120k mortgage needs to be reduced so that the rent would cover its mortgage..
This would take the pressure off a single salary to cover 2 mortgages, you'd have a rainy day fund plus a maternity fund.
 
Thanks D8 Lady. Thats some sound advice. Great to get someone with a neutral perspective. We don't really discuss these issues with members of either of our families as we like to have a little bit of financial privacy. Thanks again. J
 
sell the rental property and clear your mortgage on your family home

this gives you huge financial security (i.e. no debts) as you move into the kids phase
 
Thanks Kemo Sabe. Problem is the rental property;
1, Its built on family land which makes its sale a little more difficult. Not really comfortable cashing in and we don't want to be viewed as gold-diggers.
2. Why sell now when the market is depressed and its rented full time anyway?
The property we live in is in a city and will eventually be too small if we end up with say 2 children, but this is where the larger mortgage is. The rental property is out in the country, over 100 miles from our daily work. Complicated I know. Thanks for the advice anyway. J
 
For tax reasons, you should concentrate your repayments on your home mortgage, and not the rental property. You may well be financially better off going 'interest only' on the rental property, and letting the state subsidise you with uncapped mortgage interest tax relief.

Given your future life changes (kids etc), I would be inclined to keep the cash on hand for the time being.
 
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