Looking for advice on investing a lump sum

M

M@rathon

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Age: 40
Spouse’s/Partner's age: 42

Annual gross income from employment or profession: 70K
Annual gross income of spouse:80K

Monthly take-home pay 6k

Type of employment: one private, one public sector

In general are you:
(a) spending more than you earn, or
(b) saving? Saving 3-4K per month


Rough estimate of value of home 600K
Amount outstanding on your mortgage: 250K
What interest rate are you paying? 3.5 % SVR

Other borrowings – car loans/personal loans etc None

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

Savings and investments:
125K in a crap int rate old savings acct,
40K in KBC fixed term deposit account due to mature shortly,
2 x 13K in EBS family saver account (max deposit 1K per month) and
the same in a joint EBS family saver (1K per month),
small balance in a credit union account

Do you have a pension scheme? Yes

Do you own any investment or other property?
apartment on a very good tracker in a great rentable area
approx 1600 pm - tenant gone, going to AirBnB

Ages of children: NA

Life insurance: Mortgage Protection only


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

Thinking of switching Mortgage providers to avail of the cash back and lower int rate before they stop doing cash back deals, plan then is to overpay on the variable while still saving a decent amount each month

The 115K is a recent windfall to me and I have no idea what to do with it

Thinking of investing some in State Savings, putting a small amount in a DeGiro account for investing in ETFs

Should I pay some off the mortgage or use it to refurbish - it's an old house and could do with some tlc

Keeping it in a low int rate savings account seems like a total waste but i like the idea of rainy day money - just not that amount of it I suppose.

I drive a 20 year old car so upgrading that is an option I guess.

All suggestions gratefully received...
 
@M@rathon The advice you will get on here is very consistent in your situation

1. have a rainy day fund of 3-6 months of expenses in an easy access account. This will be pay close to 0% interest currently
2. determine any major spends you have in the short term - car and house renovations are obvious ones and consider the priority of them
3. Look at your mortgage LTV and your pension pot size. Mortgage LTV is solid, no idea on pension pot? Do you have a gap based on what you would like to be versus where you are? Keep in mind one of you is public sector. Do you need to consider paying some AVC's for 2017 and 2018 (you will get tax back on those as well)
4. The rest use to pay off your mortgage. It gives you a guaranteed after tax rate of around 2.75% roughly depending on who you look to switch to. You will not get the same on deposit anywhere.

On the renovations, what state is the house in? How urgent are they? is it structural (knocking walls) or cosmetic (windows, wiring etc)? The cost of extensions, especially in Dublin, at the moment is rather high !

My personal advice is boost the pension fund and decimate the mortgage before being any more creative. The tax on savings/investments are way too high currently.

And if its a windfall - go take a holiday and enjoy it ! That cruise in the Caribbean is calling as the snow falls outside (ok maybe its hail!!)
 
Hi M@rathon

Firstly, it looks like you are in great shape financially - congratulations!

Here's what I would do in the near term if I was in your shoes:-
  • Use as much of your savings as you consider necessary to update your home to make it comfortable and appropriate for your needs;
  • Throw the balance of your savings, other than an amount equivalent to around six months of your typical household expenses, at your home mortgage;
  • Don't shorten the mortgage term - reducing your monthly payments gives you more flexibility;
  • Get the property revalued and get yourself onto the very lowest mortgage rate available at your LTV (which may, or may not, be with your current provider);
  • Use the improved cash-flow to maximise your pension contributions/AVCs - you get tax relief on contributions of up to 25% of your gross income at your respective ages;
  • Maintain a high allocation to global equities for the time being in your pension funds (around 75% would be my suggestion, with the balance in cash/bonds); and
  • If there are any savings left over on a monthly basis, keep throwing them at the home mortgage until it's paid off in full.
Did you run the numbers to decide that it makes sense to retain the investment property rather than simply cashing out any available equity and paying down the home mortgage?

Also, are you sure that you want to commit the necessary time to running a short-term letting business and that you are familiar with the various legal and regulatory issues (planning, OMC, tax, etc.) that are specific to that business?

Finally, are you comfortable that you have adequate life assurance and income protection cover in place for your circumstances?

Hope that helps.
 
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