Invest lumpsum, pay against mortgage or switch mortgage provider

[pebbledash]

Age:
33
Spouse’s/Partner's age:
32

Annual gross income from employment or profession:
E43,000
Annual gross income spouse:
E11,000

Type of employment:
Public & private

Expenditure pattern:
Saving about €150 a month

Rough estimate of value of home
E230,000
Mortgage on home
E250,000

Mortgage rate:
Fixed at 4.9% until June 2010
33 years to go

Other borrowings – car loans/personal loans etc
None

Do you pay off your full credit card balance each month?
Yes

Savings and investments:
Have approx 60k to invest

Do you have a pension scheme?
Pay into one public sector pension

Do you own any investment or other property?
No.

Ages of children:
2 months

Life insurance:
Yes.

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

I know everyone says that you shouldn't be saving when you have a large debt/mortgage but I really don't want to put my lumpsum against the mortgage. We have known what it's like to be pretty poor and I never want to be in the situation again where I don't have cash in the bank. At the moment we are good at budgeting but I feel that it would take us a long time to save 60k and that surplus cash would in reality get sucked into daily expenses rather than being saved.

We have been unable to remortgage due to negative equity. Would any bank accept us to remortgage at a lower rate and shorter term than we are currently on if we agreed to leave our lump sum in a deposit account with them for 4 years?

 

[Brendan Burgess]

You should read this thread first "Should I use a lump sum to pay off my mortgage?"

After you go off the fixed rate, it is likely that the variable rate will be much higher than you can earn on deposit. In that case, you are arithmetically better off paying a lump-sum off your mortgage. Why not pay off €50k of it and keep €10k as an emergency fund?

Banks are very flexible these days. If you subsequently get into trouble, they will be more open to giving you a payment holiday, if you have reduced your balance through a lump-sum.

I don't think that any lender will get into a complicated deal with you for you to leave your deposit with them. The switcher market is closed at the moment, but it may reopen when markets return towards normality.

Don't focus on the term of your loan. The rate is the most important issue. A bank may give you a lower rate if your loan is only 82% loan to value.

You should ask your current lender if they will give you a discount for bringing down the LTV.

Brendan

 

[pebbledash]

Thanks for the reply.

Unfortunately my own bank won't budge on their rate. The LTV was pretty good when we bought and their rates weren't good then either. Due to being on one income at the time no other bank would touch us.

I still feel that paying money off the mortgage isn't the best option right now as the plan for the cash down the road is for training which would greatly improve my partner's job prospects and training now isn't an option with baby. Also if the switcher market opens up again I'd much prefer to get away from my current lender whose rates are always among the highest on offer.

Thanks for the advice on the term, I always thought it was an important factor. Would the ideal not be a shorter term and a lower rate?