How much mortgage should I take on?

Parsons

Registered User
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4
Age: 43
Spouse’s/Partner's age: 41

Annual gross income from employment or profession: 159,500 plus 20-40% Bonus yearly +30-50k shares yearly
Annual gross income of spouse: 0

Monthly take-home pay 7333

Type of employment: employed by multinational

In general are you:
(a) spending more than you earn, or
(b) saving? Save currently 600-1000 monthly

Rough estimate of value of home 625,000
Amount outstanding on your mortgage: 400,000
What interest rate are you paying? 3.7% UB - Being investigated as part of the Tracker mortgage examination, have not been told am impacted as of yet

Other borrowings – car loans/personal loans etc :0

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

Savings and investments:20K savings Shares: 35K vested 135K to vest over next 4 years

Do you have a pension scheme? : Yes currently paying 5%, employer paying 7%

Do you own any investment or other property? Yes: Apartment worth 295K, Mortgage 260K on rate of 3.65% UB.

Ages of children: 6 & 8

Life insurance: Yes with work 4.5 times my salary plus pension for my partner. Partner has 300k life insurance


What specific question do you have or what issues are of concern to you: I would like to sell both properties and Trade up and move to another house, new build in an area I would like to bring up my kids. Current area is not ideal and we have had some problems here. The house I would like to move to is 825K, have currently been approved for 616k @ 2.95% (3,282 a month) but really do not want to take out such a big mortgage and would like to get a lower one of 580K where I would use equity from both places, savings and some shares. Am I taking on too much debt based on my current situation?
 
OK, let's look at your current assets to include the ones which will vest in the near future

Equity in home: €225k
Equity in investment property: €35k
Savings: €20k
Shares :€170k
Total assets: €450k

House price: €825k

Mortgage required: €400k (initially it will be higher but you can pay down the shares against it as they vest.)

Which is less than twice your total salary package.

That seems fairly comfortable to me.


My only concern is that you have very low savings for such a high salary package.

Clearly, you should hold off selling your current home until you hear the outcome of the tracker review. Your mortgage will be a lot lower and you will be able to move it to the new property although at about 1% higher rate.

But you should put your investment property on the market now and get that tied down.

You should also sell your vested shares in case of a fall in share prices.

You also need to allow for a fall in the €135k yet to vest, but it seems to me that even if they crash by 50%, you will still be able to afford your mortgage.

Brendan
 
135K to vest over next 4 years
You also need to allow for a fall in the €135k yet to vest, but it seems to me that even if they crash by 50%, you will still be able to afford your mortgage.
I would be concerned with any assumption on yet to vest shares. Anything can happen which would render them close to worthless. I would personally base all calculations on the fact they do not exist, and then once they vest sell them and de-risk your debt

I think you can afford the new mortgage, but you are very dependent on your salary remaining as is and costs not rising too much. The revised repayments would be in the region of 2900 euro a month before any interest rate increase, so this is something to keep in mind. How much wiggle room does your monthly budget allow for this?

How secure is your role and your company in Ireland? How easy would it be for you to get another role in the morning, and what hit would you take salary wise if you did?

Ages of children: 6 & 8
When you wish to move area, I assume you have factored schools into the discussion. Have you thought about second level schooling and whether you wish the kids to attend private v public schools? How equipped do you think your finances are for this, and have you any savings plan in place for the education (either 2nd or 3rd level)? It is something to keep in mind, for obvious reasons.

Do you have a pension scheme? : Yes currently paying 5%, employer paying 7%
You have not disclosed your pension fund amount, but you are contributing which is good. Obviously you have to keep this in mind in any discussions around increasing expenditure...

Good luck with the decisions...
 
Thanks Brendan! Great to get an outside view as am quite nervous on this
Mortgage required: €400k (initially it will be higher but you can pay down the shares against it as they vest.)
If all my shares don't vest for 4 years, I will have to have a higher mortgage of approx. 580K to cover this and include extra for sale of properties, stamp duty etc
My only concern is that you have very low savings for such a high salary package.
Yes it is low, however I tend to save to pay for items rather than loans...bought a new car last year plus got an attic conversion a few years back, all paid for by cash. I also have had to supplement the mortgage on the investment property by up to 1000/month due to loan rents for a long period plus rent controls.

Clearly, you should hold off selling your current home until you hear the outcome of the tracker review. Your mortgage will be a lot lower and you will be able to move it to the new property although at about 1% higher rate.
I wasn't aware that UB will let you do this....will check into this
 
Thanks @gnf_ireland

I think you can afford the new mortgage, but you are very dependent on your salary remaining as is and costs not rising too much. The revised repayments would be in the region of 2900 euro a month before any interest rate increase, so this is something to keep in mind. How much wiggle room does your monthly budget allow for this?
This is what makes me nervous in terms of a rate rise, am currently saving approx. 600-1000 a month but actually could save more than this and be a bit more frugal to pay for this but depends on how high the rates will rise


How secure is your role and your company in Ireland? How easy would it be for you to get another role in the morning, and what hit would you take salary wise if you did?
It is pretty secure but suppose you never know, I do feel I could pick up a role in a short enough timeframe and have a good network in my field of work.

When you wish to move area, I assume you have factored schools into the discussion. Have you thought about second level schooling and whether you wish the kids to attend private v public schools? How equipped do you think your finances are for this, and have you any savings plan in place for the education (either 2nd or 3rd level)? It is something to keep in mind, for obvious reasons.
I have decided to keep the kids in public school, and I have started saving about 3 years ago for university where I have set up a credit union account for both of the kids - only about 5k at present in each account but will up that as time gets nearer. For last few years, I have taken home 15-20k bonus after tax each year so plan to use some of this to bolster their education accounts.

You have not disclosed your pension fund amount, but you are contributing which is good. Obviously you have to keep this in mind in any discussions around increasing expenditure...
I have approx. 350K across 2 pensions to date

I don't want to find myself struggling, spent a number of years like this before and don't want to go back there which makes me nervous taking risks. All other houses we have looked at in the area are older houses at around 650k- 700k that need about 150k-200k of work which is pushing me more to the newer build but I am nervous.
 
This is what makes me nervous in terms of a rate rise, am currently saving approx. 600-1000 a month but actually could save more than this and be a bit more frugal to pay for this but depends on how high the rates will rise
Would you consider a longer term fixing period such as 5 or 10 years to offer a level of security here? It is worth considering and most allow you to overpay by 10% within incurring a penalty (but always worth checking with them)

It is pretty secure but suppose you never know, I do feel I could pick up a role in a short enough timeframe and have a good network in my field of work.
A number of people in my company are in a similar position to this now. 2-3 years ago they would have said their jobs were as secure as most, whereas now the future is no where near as bright. Will they get other roles - probably within a 6 month window. Will they take a salary cut to do so - probably unless they are very lucky. Once you get to a certain level, moving around becomes a lot more difficult and this is something you do need to keep in mind

I have decided to keep the kids in public school,
You need to be very careful around where you pick housing wise in that case. A lot of areas where private is the default, the public school options are no where near as strong. For example, if you look at Blackrock/Booterstown the public school choices would be poorer than Kilmacud/Stillorgan area - outside of the irish secondary schools which are difficult to get into. You need to keep a very close eye on admissions policies of the schools in the areas you are looking at..

All other houses we have looked at in the area are older houses at around 650k- 700k that need about 150k-200k of work which is pushing me more to the newer build but I am nervous.
Sadly this is the way housing has gone in Dublin - the only thing about the older houses is depending on what state it is in, you could in theory stay there for a few years and then do the renovation job. I understand its not only the cost of renovations at the moment, but actually getting a builder is getting increasingly difficult also.

Do you own any investment or other property? Yes: Apartment worth 295K, Mortgage 260K on rate of 3.65% UB.
I also have had to supplement the mortgage on the investment property by up to 1000/month due to loan rents for a long period plus rent controls.
I would do a simple calculation on the investment property and determine if it is worth holding onto as an investment or not. If it is not, after all costs, taxes etc, then you seriously need to consider offloading it. It is simply not worth holding onto it.


My only concern is that you have very low savings for such a high salary package.
Yes it is low, however I tend to save to pay for items rather than loans.
I don't want to find myself struggling, spent a number of years like this before and don't want to go back there which makes me nervous taking risks.

Finally, I do think you need to do a serious review on your spending. You take in ~7300 a month excluding bonus & share options. Your mortgage is around 2k a month, and I assume you have no childcare costs. Lets say you are saving 1k of that- leaving 4300 a month spending each and every month. That works out at 51600 euro a year AFTER childcare and mortgage. I appreciate some of this may be on the investment mortgage top-up, but it is still quite high. You are a very high earner, but I think there may also be a habit of high spending as well. I think there may be a sizeable amount of lifestyle inflation going on. You should have considerable more savings than what you have, given your earning power, and being honest a 5% pension contribution is not going to maintain that lifestyle once you retire. The kids are young yet, and the costs there are only going to increase (esp since you are not paying childcare fees). I think you should do a budget, work out where the funds are going and decide if that is a reasonable lifestyle for you as a family unit. It does seem high to me and I think you could cut out some spending without even noticing a change in your lifestyle .....
 
Would you consider a longer term fixing period such as 5 or 10 years to offer a level of security here? It is worth considering and most allow you to overpay by 10% within incurring a penalty (but always worth checking with them)
Yes would definitely consider this...will look into it further

Sadly this is the way housing has gone in Dublin - the only thing about the older houses is depending on what state it is in, you could in theory stay there for a few years and then do the renovation job. I understand its not only the cost of renovations at the moment, but actually getting a builder is getting increasingly difficult also.
With some of the houses I am seeing on the market are executor sales and need a lot of work to make liveable - I would only move if I felt it was a Trade up, don't want to step down or side step

I would do a simple calculation on the investment property and determine if it is worth holding onto as an investment or not. If it is not, after all costs, taxes etc, then you seriously need to consider offloading it. It is simply not worth holding onto it.
Yes agree, have done this and am definitely selling, its loss making. Currently empty as I prepare for sale so paying over 2k a month on this for mortgage

Finally, I do think you need to do a serious review on your spending. You take in ~7300 a month excluding bonus & share options. Your mortgage is around 2k a month, and I assume you have no childcare costs. Lets say you are saving 1k of that- leaving 4300 a month spending each and every month. That works out at 51600 euro a year AFTER childcare and mortgage. I appreciate some of this may be on the investment mortgage top-up, but it is still quite high. You are a very high earner, but I think there may also be a habit of high spending as well. I think there may be a sizeable amount of lifestyle inflation going on. You should have considerable more savings than what you have, given your earning power, and being honest a 5% pension contribution is not going to maintain that lifestyle once you retire. The kids are young yet, and the costs there are only going to increase (esp since you are not paying childcare fees). I think you should do a budget, work out where the funds are going and decide if that is a reasonable lifestyle for you as a family unit. It does seem high to me and I think you could cut out some spending without even noticing a change in your lifestyle .....

I tend to agree I need to do a review on spending. Currently my monthly payments out for bills, savings, kids activities are approx. 2.9k
 
Currently my monthly payments out for bills, savings, kids activities are approx. 2.9k
Leave savings out of the budget - that's what you have left after you have your income/expenditure done
Don't forget to include annuals, whether they be car/house insurance, Christmas spends, health insurance or whatever, and divide them by 12

Whether you include holiday spend into annuals, or deduct it before calculating your savings figure is up to you.

Even if you ignore it from that point on-wards, its a very valuable exercise to see what you spend each month and on what. You can obviously spend your own money on whatever you wish, but good to know where its going !
 
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