Money Makeover Assessment

[SharkT]

Age:
43
Spouse’s/Partner's age:
40

Annual gross income from employment or profession:
€85,000 + 5,000 Bonus

Annual gross income spouse:
75,000 + 5,000 Bonus

Monthly take-home pay:
€7,800 approx

Type of employment:
Private sector

Expenditure pattern:
We are generally good savers

Rough estimate of value of home
€600,000

Mortgage on home
€380,000 remaining and 19 years 3 months left on mortgage.
Just bought house last year. Also just began overpaying mortgage by €1,000 a month.

Mortgage provider:
AIB

Type of mortgage: Tracker, interest only, fixed rate
Variable

Interest rate
3.1%

Other borrowings – car loans/personal loans etc
None

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

Savings and investments:
€100,000 Cash from recent inheritance. Already used some inheritance/saving cash to reduce mortgage and now overpaying by €1,000 a month to reduce the term. We need about €25,000 to do some jobs and furnish house also.

Do you have a pension scheme?
Me €170,000 - 10% Company and 10% AVC (I retire at 60)

Partner €60,000 - 10% Company and 10% AVC (Retires at 65)

Do you own any investment or other property?
Yes. Value €280,000. Mortgage tracker ECB + 1.15% €220,000 remaining(21 years). Formerly our family home but rented since we moved for €1,950 a month gross but agency looking after it. Will have to make tax return in Oct for this also.

Also inherited half family home with brother which we both use as a weekend holiday home. Value €330,000 of which I own half. (Obviously have bills/maintenance cost for this also)

Ages of children:
Currently 1 child aged 2. Hoping for at least another.

Life insurance:
Mortgage protection only

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

A lot has happened in the last year and we are still doing up and furnishing the new house so it’s hard to determine how much we are saving at the moment. We are getting used to the new utility costs and plus we need to keep in mind our Tax liability and preliminary Tax to be paid in Oct this year.

I’m really just looking to see if what we are doing is good enough - Overpaying the mortgage and paying 10% pension AVC each. We are probably carrying too much cash so once we build this a bit more and get the needed renovations done/furniture bought, we may look at paying off another 20-25 k in the next year or two.

Our jobs are not especially secure though we have both been there over 10 years so would get redundancy, but if we were to look for new jobs salaries would be lower than currently are.

All going well once things settle down we will probably still have a surplus of savings each month. Should we look at overpaying the mortgage more or upping our pension contributions? Or just continue to save and once we build up a bit of cash pay 5k or 10k off the mortgage on an ad hoc basis?

I feel our pensions are probably a little light especially if I’m retiring in at 60 but we do have the investment property which we see as a kind of potential pension whether we were to sell for a lump sum or continue to rent as an income.

We also have the family home which my brother and I could sell if needs be. We may do this in the next 5 years anyway.

I realise we are probably over exposed to property and interest rates at the moment which is why we have been concentrating on paying down the higher rate mortgage.

I’m conscious we have no income protection either but not sure if we really need it.

I’m open to any suggestions or opinions. Thanks.

 

[Sarenco]

Hi SharkT

A few thoughts:-

• While they are expensive, I don't think you should look at having appropriate life cover and permanent health insurance (PHI) as optional extras;
• I suspect you would be reluctant to sell your share of the inherited property but you do have a considerable amount of capital tied up in that property, which represents an opportunity cost;
• It looks like you fell on the right side of Minister Coveney's rent control lottery! That's a fantastic yield at an attractive financing rate – I would try and hang to that property as a rental if I was in your shoes; and
• Personally, I think you should prioritise maximising your AVCs ahead of paying down your PDH mortgage ahead of schedule (but I'm sure others will disagree with me on this point).

Hope that helps.

 

[SharkT]

While they are expensive, I don't think you should look at having appropriate life cover and permanent health insurance (PHI) as optional extras;

I do have Permanent Health Insurance but should probably look into life cover alright.

I suspect you would be reluctant to sell your share of the inherited property but you do have a considerable amount of capital tied up in that property, which represents an opportunity cost;

Correct. This isn't an option at the moment for various reasons and appreciate it is an opportunity cost but it will probably happen within 5 years. And we are getting to enjoy and appreciate it at the moment as well so that's a factor.

It looks like you fell on the right side of Minister Coveney's rent control lottery! That's a fantastic yield at an attractive financing rate – I would try and hang to that property as a rental if I was in your shoes;

You're right there. I realise how lucky I am with my timing and hope to keep this long term.

Personally, I think you should prioritise maximising your AVCs ahead of paying down your PDH mortgage ahead of schedule

I'm leaning towards this myself though slightly concerned about my debt level. Of course I realise I'm in a good position overall.

Appreciate your thoughts and taking the time to reply. Thanks Sarenco!

 

[Sarenco]

I'm leaning towards this myself though slightly concerned about my debt level

While I wouldn't put too much emphasis on this point, it is worth noting that pensions assets do not vest in the Official Assignee in a bankruptcy scenario.

 

[Brendan Burgess]

Hard to know what to do.

You have €230k in your pensions and you are contributing €46k more each year. That seems like a lot to me. After 17 years, you will have a very big pension fund. Don't forget that your pension is taxed when it's received as a pension. You get around 25% of the fund tax-free under the current legislation, but that may well change within 17 years. Of course, it could become more favourable as well.

You have mortgage protection covering the €380k - I don't think you need any further life insurance with your wealth. It's also likely that you have some cover within your pension fund.

Who is the tracker mortgage with? If it's with Dankse or BoSI, it's possible that they might do a deal with you for early repayment at some stage. I would certainly ask them before doing anything with the €100k.

If your tracker is with one of the main banks, then there is no advantage in paying down the tracker, so I would simply pay it all off against the mortgage on your home, keeping enough for whatever expenditure you envisage in the next few months. You don't need an emergency fund given the excess of your salary over your expenditure and the fact that you will get redundancy if you lose your job.

Brendan

 

[Brendan Burgess]

With €545k net assets, excluding your pension fund, I don't think you need to worry about either your debt level, much less, the insolvency legislation.

If you decide to contribute more to the pension now, the fact that you are not paying down your mortgage, should not be a major worry.

As you expect to sell the half owned property in the near future, you will halving the mortgage on your home anyway.

Brendan

 

[Sarenco]

Hi Brendan

I may have misunderstood your post but you seem to be advocating paying down the (deductible, tracker) mortgage on the rental property ahead of paying down the (non-deductible, non-tracker) mortgage on the PDH.

Is that what you meant to say?

 

[Brendan Burgess]

Hi Sarenco

I can see how you might have read it like that, so I have clarified it.

Brendan

 

[SharkT]

You have €230k in your pensions and you are contributing €46k more each year. That seems like a lot to me. After 17 years, you will have a very big pension fund. Don't forget that your pension is taxed when it's received as a pension. You get around 25% of the fund tax-free under the current legislation, but that may well change within 17 years. Of course, it could become more favourable as well.

Is our pension contribution each year not €32k (20% of 85k+75K)?

You have mortgage protection covering the €380k - I don't think you need any further life insurance with your wealth. It's also likely that you have some cover within your pension fund.

We actually have mortgage cover for around €450k as we got it before we reduced the mortgage. I could probably cancel this and get it cheaper now.

Who is the tracker mortgage with?

It's with UB so no hope of changing. We are happy to hang on to this asset I think anyway but I see your point.

Thanks you both for the replies - they kind of confirm my own thoughts which is helpful and puts my mind at ease that I'm on the right track.

 

[Steven Barrett]

You look as if you are doing pretty well Shark T, there is nothing that really jumps out.

You might be a bit light on life cover. If something happened to either of you, mortgages are paid off, widow (er)s pension, rental income. Will that be enough to replace lost income and comfort money (it's hard to imagine the impact of a parent dying).

Have you talked about what secondary schools you would like your children to go to? Private schools are €6k - €7k a year. Add in college and you're looking at a fair whack. It's no harm in looking at putting structures in place now to fund school and college in the future, especially as your kids are so closely aged, there will be a lot of overlap. The earlier you start saving the less it will cost you.

But well done, you are in a great financial position.



Steven
www.bluewaterfp.ie

 

[SharkT]

Thanks Steven, Valid points and something I will have to take account of also. I think I was unclear but we only have one child at the moment. But hope for another. Schooling will be public but college hopefully will be a consideration so something we will have to plan for.

I'll have to give the life cover a bit more consideration.