Pay off Mortgage or continue investment approach

Cooky75

New Member
Messages
5
Hello,

First time posting but would welcome inputs on my situation and what the key benefits are for changing approach?

Age: 46
Spouse’s/Partner's age: 45

Annual gross income from employment or profession: €120K
Annual gross income of spouse: €78K

Monthly take-home pay : €7,800

Type of employment: Private Sector

In general we are saving, trying to optimise pension contributions while also paying off mortgages.

Rough estimate of value of home - €360K
Amount outstanding on your mortgage: €245K
What interest rate are you paying? 2.3% fixed rate with UB but due to end 31/ 12/21 and will most likely switch to AIB’s green 5 year fixed mortgage rate @ 2.1%

Other borrowings – €78K mortgage on investment property which was our former home, no other debts.

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

Savings and investments:

Diverse Investment portfolio of shares which includes RSU’s from employer: €173K

We both participate in employer share matching scheme, buy 3 and get one free once we hold for three years.

Do you have a pension scheme? Yes, we both have pension through employer.

Total value: €918K

Do you own any investment or other property? Yes, estimated value €220K

Rental income/ annum - €13K

Ages of children: 13 and 10

Life insurance:

We both have death in service benefit linked to pension pays out 4 times salary + balance of retirement account.


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

Does is make sense to maintain current approach or should we focus on reducing mortgage with some of the investment funds or selling investment property? Ideally want to have financial independence by mid 50’s and feel current approach is serving us well but have not done and not sure how to calculate the impact of changing the approach. Rental property is in good location with good long term tenants and is managed by property manager for reasonable fee.

We intend to use funds from employer share matching programme to make lump sum payments on mortgage at future date and willing to take risk that investment return will outperform mortgage interest rate over time and we feel comfortable with mortgage payments at the moment.

 

DK123

Registered User
Messages
100
Hi Cookie 75.For sure maintain current approach.YOU GUYS HAVE AN IMAGINERY PROBLEM.Relax.enjoy life. smell the roses.be thankfull.In my humble opinion.P,S Inflation will reduce the morgage repayment as time goes on.A lot of people including professionals do not seem to understand this.My god, please dont be wishing your life away.Enjoy every moment of what you have achieved now and forever!Methinks,
 

RedOnion

Frequent Poster
Messages
6,208
and willing to take risk that investment return will outperform mortgage interest rate over time
Well, if you are happy with that risk, on an after tax basis, then your current approach makes sense.

Have you done a full analysis of the investment property? Is it worth keeping for the amount of equity tied up in it?
 

RedOnion

Frequent Poster
Messages
6,208
P,S Inflation will reduce the morgage repayment as time goes on.A lot of people including professionals do not seem to understand this.
Continously saying something doesn't mean it makes any sense.
 

Cooky75

New Member
Messages
5
Well, if you are happy with that risk, on an after tax basis, then your current approach makes sense.

Have you done a full analysis of the investment property? Is it worth keeping for the amount of equity tied up in it?
thanks for the feedback, short answer is no and that is certainly worth doing as likely getting better return from share portfolio. If we were to sell it then would most likely put balance against home mortgage. We have tracker mortgage on that property so reluctant to give that up while rate is so low.
 

DK123

Registered User
Messages
100
Well, Red Onion ,if you dont understand this simple thing. perhaps look back to the 60 years ago,where for example a morgage on an irish house would have been maybe 1 k euros for 20 years.Anyway this is just my humble opinion and for sure i dont know every thing.but i believe what i say.
 
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RedOnion

Frequent Poster
Messages
6,208
Well, Red Onion ,if you dont understand this simple thing. perhaps look back to the 50 years ago,where for example a morgage on an irish house would have been maybe 1 k euros for 20 years.
I'm the one who doesn't understand?!

Oh yes, I forgot. You've explained this one eloquently before. You believe history repeats itself, and we'll see the same inflation rate that pre-Euro Ireland experienced in the 70s & 80s. Ah yes, sound footing to be giving someone advice.
 

DK123

Registered User
Messages
100
Thanks Red Onion.I am not qualified to give advice.I am just trying to use /give a bit of common sense after living 75 years on this earth and i have always been interested in investment etc,[Wisdom and Experience]in a friendly discussion.Perhaps we could get the "experts" to comment here.Thanks.
 

DK123

Registered User
Messages
100
Not so sure Gordon. . i think we have already almost 5 percent inflation, and there is an old saying in investment. . "If you look back at the past you will see glimmers of the future"P.S.[Might take you upon that bet] [joke]
 

Baby boomer

Registered User
Messages
545
You have 140k equity in your rental property. It's generating a rental income of 13k pa. Not sure if that's gross or net after interest and management fees, but even if it's gross that's a pretty good return on your equity. If it's net, it's even better. Any capital appreciation would be a bonus on top of that. Plus with a tracker, interest is very low anyway.

Keep it.
 

Cooky75

New Member
Messages
5
You have 140k equity in your rental property. It's generating a rental income of 13k pa. Not sure if that's gross or net after interest and management fees, but even if it's gross that's a pretty good return on your equity. If it's net, it's even better. Any capital appreciation would be a bonus on top of that. Plus with a tracker, interest is very low anyway.

Keep it.
thanks for the feedback @Baby boomer , it is a net figure. The gross figure is €15.6K, so the €13K is after management fees, interest and some minor maintenance items. Mortgage on this property is approx €7K/ annum.
 

NoRegretsCoyote

Registered User
Messages
3,453
Do you own any investment or other property? Yes, estimated value €220K

Rental income/ annum - €13K
Normally I would say reduce exposure to property.

But you are pretty heavily exposed to equities through work and pension schemes already. Having approx 10% of your non-PPR net wealth in Irish property is not a very heavy exposure.
 

Baby boomer

Registered User
Messages
545
thanks for the feedback @Baby boomer , it is a net figure. The gross figure is €15.6K, so the €13K is after management fees, interest and some minor maintenance items. Mortgage on this property is approx €7K/ annum.
Then it's a brilliant return. Of your 7k mortgage payment, probably less than 1k is interest. The remainder comes off the capital and grows your equity.

It also diversifies your asset portfolio. With nearly a million in pension funds between you, which should be almost entirely in equities, plus your direct equity holdings, it's not a bad idea at all to have some property assets as well.

It's a great investment - keep it.
 

NoRegretsCoyote

Registered User
Messages
3,453
Other borrowings – €78K mortgage on investment property which was our former home, no other debts.

Do you own any investment or other property? Yes, estimated value €220K

Judging by your age and that you have a tracker I'm guessing you probably paid more than €220k for the property.

Just bear in mind that you will start to accumulate a CGT liability if the value rises above €220k.

If house prices rise this gain could be more than your annual rental profit.
 

Cooky75

New Member
Messages
5
Judging by your age and that you have a tracker I'm guessing you probably paid more than €220k for the property.

Just bear in mind that you will start to accumulate a CGT liability if the value rises above €220k.

If house prices rise this gain could be more than your annual rental profit.
thank you @NoRegretsCoyote , I am aware of the CGT liability in the event we decide to sell and we actually paid €215K at the time so my €220K estimate is probably on conservative and there could be another €20 or 30K in equity based on recent sales in the area.
 

NoRegretsCoyote

Registered User
Messages
3,453
I am aware of the CGT liability in the event we decide to sell and we actually paid €215K at the time so my €220K estimate is probably on conservative and there could be another €20 or 30K in equity based on recent sales in the area.
Okay just beware that even if house prices don't change you will build up a CGT liability as proportionately the time you lived there becomes less and less. If you lived there ten years and tenants five years the liability is 5/15*Gain*33% but in five years it will be 10/20*Gain*33%.

It's not huge in the scheme of things but worth bearing in mind.
 

Cooky75

New Member
Messages
5
Okay just beware that even if house prices don't change you will build up a CGT liability as proportionately the time you lived there becomes less and less. If you lived there ten years and tenants five years the liability is 5/15*Gain*33% but in five years it will be 10/20*Gain*33%.

It's not huge in the scheme of things but worth bearing in mind.
thanks again for the input as I was not aware of this and while it is unlikely to influence my decision, it is good to know.
 
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