Investment property / Pension / Paying off the mortgage /

bbari1

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Age: 43
Spouse’s/Partner's age: 36

Annual gross income from employment or profession: €100K
Annual gross income of spouse: 0

Monthly take-home pay: €5,500

Type of employment: Private health sector, secure job, 10 years in the same company

In general are you:
(a) spending more than you earn, or No
(b) saving? €2K per month

Rough estimate of value of home: €430K
Amount outstanding on your mortgage: €210K
What interest rate are you paying?: 2.75% - AIB

Other borrowings – car loans/personal loans etc: 0

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: €100K

Do you have a pension scheme? No

Do you own any investment or other property? Yes (Tracker of 0.75%, remaining term 20 yrs. pre tax profit of €12K p/a.)

Ages of children: 3, 10 and 12

Life insurance: to pay the loans only


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

1 - re investment property: I had a question about if I should sell the investment property. I didn't realise that I could ask all of my stupid question in this section and posted this question in another section yesterday. I got the answer that I should hang onto this property for now as it generates gross profit of €12K p.a. and all of the net proceeds are being used in full to pay off the capital.

2 - re pension: I never joined pension. Being a single earner, i always wanted to have max take home money (perhaps being stupid). Employer can match up to 5% of the contribution. Should I must join the pension now? is it too late or better late than never?

3 - re mortgage of PPR: Should I pay lump off the mortgage? and how much should I pay off? Should I increase the monthly repayment amount or just pay the lump sum once a year?
 

HollowKnight

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212
Where are your savings of 100k? Earning what interest?
I think I would pay a lump sum against mortgage and max out pension contributions. Make sure to avail of the employer contribution.
 
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RedOnion

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Employer can match up to 5% of the contribution. Should I must join the pension now? is it too lat
Better now than never.
At a very minimum contribute 5% and get employer matching. It's free money.
But I'd be contributing more. You don't have to put in extra every month, but do it backdated each year if you're worried about commuting more than you can afford.

I'd be paying at least 50k off the PPR. It's the same as getting 5.5% taxable interest.
50k cash is more than enough to be comfortable as a rainy day fund.
 
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bbari1

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but do it backdated each year
Can you please explain how will that work? e.g. if I contribute 5% of my annual salary in 2020, there will be ER contribution of 5%. Anything additional (which you call backdated?) won't be matched by the employer - am i right in saying that ?
 
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RedOnion

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Can you please explain how will that work? e.g. if I contribute 5% of my annual salary in 2020, there will be ER contribution of 5%. Anything additional (which you call backdated?) won't be matched by the employer - am i right in saying that ?
Sorry, I didn't explain it.
You have to put in 5% each month for employer matching.
At you age you can put in up to 25%. So, the extra 20% you can put in each month, or at anytime prior to October the following year and claim tax relief on it. So if you're a bit worried about budgeting you don't need to put it in each month.
If you start a pension now, you can put in a lump sum of 25% of last year's salary and claim tax relief on it. So a 25k kick start will only cost you 15k net.
 

goingforgold

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263
You're in a good position financially, 220k equity in home, 70k equity in investment property and 100k savings. All you need to address is pension so start putting at a very minimum 1k per month into pension and avail of employer contribution also. You'll still be saving 1.4k per month as the 1k pension contribution will only cost ~600 euro after tax. Also you don't need to be saving huge amounts of cash as you already have more than enough in the bank.

You are exposed enough to property so invest in pension which is the most efficient way of saving for retirement and also gives you exposure to stock market, which you should have at your age...definitely not too late to start a pension...If you were to max out contributions between now and retirement you could build up an extremely sizeable fund based on your current salary.
 

bbari1

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56
Thank you for your suggestions.
in summary, I should...
1 - Keep the second property
2 - Join the pension with max contributions (perhaps 10% contribution by me plus 5% of ER contribution)
3 - Pay off at least €50K of the PPR mortgage.
 

bbari1

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56
Another question.....

The rental property isn't on the joint name as I purchased that before we got married. is it possible to have co-ownership of it? if yes, what is involved?
Why? I was thinking if its on the joint name, then half of the income can be transferred to wife (house wife) and it will reduce my tax bill?
 

bbari1

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Why can't i allocate 50% of the income to wife (as a self employee) after she's a joint owner?
 

RedOnion

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Why can't i allocate 50% of the income to wife (as a self employee) after she's a joint owner?
Hi, technically you need to transfer the house into joint names, and then the income can be split for tax purposes.

There is no stamp duty or capital gains tax on transfer between spouses.

However, you've a pickle. Because there's a mortgage, you would need banks permission to transfer. Then it'd come to light that it's no longer your PPR, and you'd potentially put your teacher rate at risk.

It might be possible instead to put a partnership agreement in place, or transfer the beneficial ownership 50% to your spouse. They're more open to questions from Revenue than a legal transfer.
 

bbari1

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What is your secret to a family of 5 living off ~2,500 a month? This seems pretty tight over a year?
You meant 3,500?
No secret, we don't smoke, don't drink, don't eat out, we prefer to spend €50 on buying food and enjoying bbq at home over eating out. Yes, very boring and you may think that we aren't enjoying our life ;)
 

RedOnion

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The use of AVC to receive tax relief on rental income is fully discussed in the following thread. I would advise to read it through fully where it is all clearly explained.


The OP has already been advised to contribute to pension using PAYE income. The maximum tax relieved pension contribution he can make is based on his earned income.

While well meaning, your advice might be misunderstood by people who don't have the in depth knowledge of tax legislation that you possess, so it's important that you explain it fully.
 

Brendan Burgess

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40,539
I have moved the discussion about setting pension contributions against rental income to this thread, so it can all be kept in one place.




Brendan
 

bbari1

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56
Hi,

Just a question about the interest charged on the mortgage account....

in Dec, my outstanding balance was €208K and the quarterly interest charged in Dec was €1,442.

in Feb, along with couple of monthly repayments, i paid lump sum and brought the o/s balance down to €103K. Quarterly Interest charged in March was €1,242.

I'd hoped that the interest charged would be a lot less than the previous quarter as the o/s amount was reduced by 50% in Feb (in the middle of the quarter). or this is now how it works ?

interest rate is 2.75%.
 

cloughy

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190
It depends what was the dates for the interest period, as whilst it was applied end of December it could have been for mid month periods.

Should be easy to calculate if you know the dates of the interest periods, and repayments,
 

bbari1

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56
next quarter
Your interest should be €704
If not then ring the bank for an explanation
I used Karl's calculator, i put loan fig as €104,028, int rate 2.75% and term as 10 yrs as this is when payment is close to what I'm paying and it returns the interest charged for the quarter close to what you said but I'm charged €726.74.

My statment looks as below,

Balance
16/03/2020​
Interest- 1,242.60- 104,028.80
01/04/2020​
Payment 998.78- 103,030.02
01/05/2020​
Payment 998.78- 102,031.24
01/06/2020​
Payment 998.78- 101,032.46
16/06/2020​
Interest- 726.74- 101,759.20

Should I enquire or I'm miscalculating the figures?
 
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