Newly married couple with <50% mortgage to value house.

I

investluke

Registered User
Messages
7
Age:
30
Spouse’s/Partner's age:
30

Annual gross income from employment or profession:
E80,000
Annual gross income spouse:
E35,800

Type of employment:
One private sector, one public sector (primary school teacher)

Expenditure pattern:
My spouse would have zero "sense" when it comes to financial matters, she leaves the entirety of it to me. She doesn't load up on credit card debt or anything like that, but she does not track expenditure or savings - does not even have online banking to check on current status.
For the past 18 months all of my savings were being put towards a wedding, now that that is out of the way I am waying up whether to put my excess income into investments or paying off mortgage early.

Rough estimate of value of home
E800,000
Mortgage on home
E282,000 - we bought in 2014 at bottom of market for below market value (purchased off family member)
Mortgage provider:
KBC
Type of mortgage: Tracker, interest only, fixed rate
Variable Interest Rate
Interest rate
3.75% (I have enquired and there are no penalties associated with paying off lump sum or increasing/decreasing amount to repay.)

Other borrowings – car loans/personal loans etc
None

Do you pay off your full credit card balance each month?
Neither of us currently use credit cards.

Savings and investments:
E15,000 savings. ~€6,000 in shares.

Do you have a pension scheme?
Spouse has her state teaching pension.
I pay nothing into a pension currently but company I work for is currently looking at setting up a pension which would have 5% employer contribution. However if I was to leave within two years of signing up for the pension and of my employers contribution is returned to them.

Do you own any investment or other property?
No.

Ages of children:
None but we are hopeful that this will change shortly

Life insurance:
Yes.

What specific question do you have or what issues are of concern to you?
I estimate that I have roughly €800 in "spare" income at the end of the month. As stated, this was previously going into saving for a wedding and I'm now considering what the best way to use this is.
My spouse currently has a standing order of €100 a month leaving her account to go to the credit union.

€15,000 currently in place from the wedding I regard as my 6 month buffer (this would allow us to live very comfortably if anything bad should happen to either of us.)

What worries me is that I could comfortably stay with my current employer for another 3-5 years, but would not advance within the organisation and also doubt I'd receive any pay increases in this time. I also fear this might impact future job opportunities, I also know that if I was to leave my current employer I would be taking a significant pay cut.

Also given that we are hoping to start a family soon, I realise that it makes sense to start financial planning towards this.

In terms of current options, I realise that I can start overpaying the mortgage. Currently our mortgage is due to be paid off in February '45.
If I increase the repayments by 625 per month, this can be paid off by May '33. Which sounds very nice indeed.

I don't think it's realistic that I'd be able to keep overpaying the mortgage to this level for the entirety of it, but was wondering if it best to overpay as much as I can while I have the money.

Does it make more sense to overpay the mortgage rather than max out pension contribution at this time? Or am I looking at this wrong.

Any advice would be much appreciated.
 
Well, first things first.

If you do not already have a KBC current account open one so that they give you a 0.2% reduction on the mortgage rate.

KBC do not pass on rate cuts automatically to existing borrowers. But you can request that you be put on their 3% interest rate.

So you can cut the interest you are paying by 0.75% immediately.

Brendan
 
You don't need anything like €21,000 in an emergency fund. With two of you working in relatively secure jobs.

Keep the €6,000 in shares and use the €15,000 to contribute to a pension or pay down your mortgage.
 
Although your mortgage is small in relation to the value of your home, it's quite big in relation to your salaries.

It's 2.35 times your combined income.

If you wife wants to take a career break, it's 3.5 times your sole income. And if you do take a salary cut, it would be a higher proportion of that.

At age 30, you have plenty of time to contribute to your pension fund.

So I would save through paying down the mortgage.

It doesn't make any financial sense for your wife to be saving through a credit union when you have a big mortgage. However, as she is so bad with money, it might be a good discipline for her to have. And if she has a savings record with them, she will be able to borrow from the Credit Union if this emergency manifests itself.

Brendan
 
Thanks Brendan, your advice is much appreciated, I had no idea about KBC and the extra reduction of mortgage rate, I'll give them a call and enquire.

Guess, i'll start lumping on to the mortgage repayments.
 
Good advice from Brendan. I was in similar circumstances to yourself over 4 years ago when our first was born. My wife took a career break (which hasn't ended yet), and it was a lot of mortgage to manage on an 80k salary.
Pay down as much of your mortgage as you can, but my advice would be to keep the existing term to leave yourself flexibility if you need it. Starting a family is expensive! Review your situation occasionally - you can ask your bank at any time to reduce the remaining term if it suits, but remember that's generally a permanent reduction (unless you remortgage).
And get that mortgage rate reduced ASAP!
Best of luck.
 
Thanks RedOnion, so are you suggesting paying more off but not reducing the term? I don't quite understand how that works as surely if you are paying off more the term naturally get's shorter?

I've already called in relation to the mortgage rate reduction and am waiting for a call back.
 
Another option with overpayments is to keep the term the same, but that would reduce the 'normal' repayment amount each month.
I know mentally it's nice to know your mortgage will be repaid by a milestone date (in my case before the kids start college), but don't unnecessarily put yourself under pressure if you're planning to start a family.
The interest charge is calculated on your outstanding balance, so either way you're reducing the overall cost. Once you've a young family, and know you're comfortable meeting the repayment with all the extra expenses, reduce the term then.
Just keep chipping away at it!
 
My 2 cent:-
  • KBC will require a valuation to allow you to move on to a lower LTV rate - here's a link to their panel of valuers - https://www.kbc.ie/our-products/mortgages/existing-customers/valuers. It's definitely worth the cost/effort;
  • I wouldn't prioritise paying down a mortgage @3% ahead of contributing to a pension scheme - particularly if it meant passing up a 5% employer match;
  • Conversely, I wouldn't invest in equities (outside of a tax advantaged pension fund) while carrying a mortgage - I'd sell those stocks and use the net proceeds to pay down the mortgage ahead of schedule;
  • A mortgage balance of 2.35 times your combined income sounds quite reasonable for your stage in life; and
  • A liquid cash reserve of €15k doesn't sound at all excessive to me in your circumstances.
 
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