How to maximise financial security

[Cathbarr]

Age: 36
Spouse’s/Partner's age: 35

Annual gross income from employment or profession: 59000
Annual gross income of spouse: 50000

Monthly take-home pay 6000k

Type of employment: public sector/private sector - finance

In general are you:
(a) spending more than you earn, or
(b) saving? Saving approximately 1000k per month (have spent a lot in the last few months on home improvements approximately 8k)

Rough estimate of value of home 370000
Amount outstanding on your mortgage: 94000 900e per month 10 years left
What interest rate are you paying? Currently 3.3 but switching soon to 2.35% repayments will stay the same as we are reducing the term also when we switch

Other borrowings – car loans/personal loans etc Husband 350pm

Do you pay off your full credit card balance each month? Yes
If not, what is the balance on your credit card? 0

Savings and investments: approximately 10k between us.
Have just set up an investment of 250e per month to save towards college fees

Do you have a pension scheme? Yes public sector pension/Husband setting one up this year.

Do you own any investment or other property? No

Ages of children: 5 and 7 (hoping to have another in next 18 months) childcare cost of 100e per month as both in school.

Life insurance: yes


What specific question do you have or what issues are of concern to you?
What should we be doing to make life a little easier on ourselves and to ensure financial security in future? The plan is to pay our mortgage off the year before our eldest goes to college so that will free up money every month to go towards those expenses and also to have the investment to use towards it if needed.

 

[imalwayshappy]

I wouldn't be saving the 250 euro per month for college when you have an expensive car/personal loan paying 350 per month. Clear that down first. By the time your eldest starts college your mortgage will be pretty much cleared freeing up 1k per month which you use to fund college fees etc. I would:

1. Clear the car loan (I assume its expensive no info given bar repayments).
2. Husband set up pension fund and contribute the maximum he can.
3. If any additional income is left put it against the mortgage / enjoy your hard earned cash .

 

[_OkGo_]

You are in a healthy financial position overall with LTV of 25% and LTI of 0.86 so while I understand your eagerness to clear the mortgage, I don't think it is the right thing for you to do.

What should we be doing to make life a little easier on ourselves and to ensure financial security in future? The plan is to pay our mortgage off the year before our eldest goes to college so that will free up money every month to go towards those expenses

Currently 3.3 but switching soon to 2.35% repayments will stay the same as we are reducing the term also when we switch

While you can comfortably afford the €900 payment, reducing your term removes flexibility. And flexibility provides financial security. You should be extending the term as much as possible (not always possible when switching) to free up your finances to fund your spouses pension and to cover costs of child #3 when they arrive.

For example, a 25yr term at 2.35% would give you a minimum payment of ~€415 per month. So almost €500 of extra cashflow for you to use as you decide instead of being obligated to pay the mortgage. You could use this to:

• Fund pension. Spouse can contribute 20% of salary (€10k). After tax relief, this would be €6k from your net income or €500/m net income.
• Use the cashflow to pay for extra childcare when #3 arrives
• Or choose to overpay mortgage instead of being obligated to pay it, especially if interest rates rise in the future
• Clear the car loan ASAP
• Build a cash reserve 4-5 years before 3rd level as a buffer

You are clearly saving much more than €1000/m because you have built up a lot of equity in your home at a young age so I think you will still have a large capacity to overpay your mortgage even when fully funding your pension. But I don't think you should target being mortgage free before 3rd level. It might happen anyway with salary increases/bonuses etc

But to put it in perspective, if you still had €50k outstanding in 10 years time with 15 years term left, your minimum payment would be €330. On your income, that would be very comfortable even with 3rd level costs and would be a better position to be in if you save for a few years just before they are both in 3rd level together.