Just bought house - money makeover

AsianDub

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Age: 36
Spouse’s/Partner's age: 37

Annual gross income from employment or profession: 60k
Annual gross income of spouse: 69k

Monthly take-home pay: ~6.7k

Type of employment: Private sector, public sector

saving: 2k a month

Rough estimate of value of home: 480k
Amount outstanding on your mortgage: 430k
What interest rate are you paying? 3.3% fixed for 1 year PTSB
Mortgage payments per month: 2k
Mortgage term 27 years.

Other borrowings – car loans/personal loans: None

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

Savings and investments: Savings 130k

Do you have a pension scheme? Yes, private pension at 5%. Public sector pension

Do you own any investment or other property? No

Ages of children: None (yet)

I have just bought a house with my wife. I don't see it as the house we will be in when
we start a family so decided to hold back savings and not put more of a deposit down so
we would have capital to move to a bigger place when we can. Tried for years to get the "life house" but that wasn't working out. Feel now I'm speculating which worries me.

I am wondering if this was a wise move. As I see it if we can't move or are happy to remain there then I can put more into the mortgage then. We went with 1 year fixed with PTSB to get the cash back which will be put into the savings and we will move to another lender next year.

I'd also like to invest some of it as it's been sitting there earning nothing over the past few years. I have no experience with investing. I see advice of maxing out pension contributions
being given and paying down debt as quick as possible but would really like to try and use our savings in the best possible way. Retiring a little earlier with cash in the bank would be the goal.
 
You have a huge mortgage.

Use your savings to pay it down. This is the equivalent of getting a guaranteed 3.3% tax free return on your money.

It's probably more, because with a lower Loan to Value, you will be able to get a lower rate on your entire mortgage.

I really don't understand the argument about having a deposit to buy another house? When you want to move to another house, you are going to have to sell your own house. You could buy another one and keep your present house as an investment, but that would be most unwise.

In my view, forget about pensions until you have a much lower mortgage and have moved into your final house.

Brendan
 
Thanks for the reply and advice. Appreciate it.

It is a big mortgage but it just seems to be the norm with anyone I know in Dublin at the moment. Not saying it's right. In fact it's lunacy and
I never thought we'd take on this much debt. I guess with the savings we don't have to.

My thoughts about keeping the savings to buy another house is in case the one we just bought loses value and we have to rent it out instead of
selling it. We can still move with having the required 20%.

I'd also like to accumulate wealth and feel I need capital to do this. The mortgage repayments plus interest may negate any wealth generated. Is that correct? I am good with money with respect to saving but bad with it in terms of making it work for me. Are you basically saying lower your debts first and then look at investing?

Thanks again.
 
Hi Asian

You could invest the €130k in the stockmarket. And you might get a return over the next few years of 5% a year. You would pay an average of 40% tax on that, so you would get a net return of 3%. But the risk is huge. We are in very uncertain times. No one knows what will happen when QE is stopped. You do not want to borrow money at 3.3% to buy shares at present.

You could buy an investment property. But you already have a €480k stake in the property market. If house prices rise, you will do very well anyway. And if you are keeping your savings in case you need to move quickly to buy the house of your dreams, well it will be no use to you if it's invested in another property which might be very difficult to sell.

If you thought you might be moving in the next 12 months, maybe two years, then keeping the money on deposit might be ok. But if not, then just pay down your mortgage.

Brendan
 
I’m not sure I’d agree with that...

3.3 times salary is prudent and within the Central Bank rules.

€430k isn’t a huge mortgage either.

At one time there were no Central Bank rules and lenders were giving out 5 times a couple's gross income. That did not mean that they were prudent.

They do not have children yet, but presumably it's part of the plan. His wife may face a big cut in income or may stop earning altogether. €430k is 7 times his income. Even €300k is 5 times his income.

Even if they both continue earning, this will seem a very large mortgage when interest rates rise.

Brendan
 
The more I think about it the more I think you're probably right.

I wouldn't mind moving in 2-3 years time but that mightn't happen.
It's a new build so we will have to stay in it for a minimum of 5 years or give up
the HTB grant. If the market increase is greater than the grant then no big deal.
I'm taking whatever cash I can get. HTB, bank cash back.

Personally I'm not sure if it's a good investment and would want to get out
at the right time whenever that is but we needed somewhere to live
and queuing for this was easier than the multiple bidding wars we've been in
over the last few years. Wanted a home not an investment.

I will re-assess next year and will probably pay off a chunk of the mortgage then.
I may even just go get a cheaper mortgage altogether in the future and forget about the dream
house.

Thanks
 
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