Paying Lump Sum off Mortgage

[Yama]

Hi, I'm looking for updated information on the idea of paying a lump sum off our mortgage as oppossed to having it in savings. Hopefully this is the correct forum.

Some Info:

Age: 34
Spouse’s/Partner's age:35

Annual gross income from employment or profession: 45000
Annual gross income of spouse:50000

Type of employment:
Private

In general are you:
saving some each month, and over paying mortgage by 600/month

Rough estimate of value of home
€350000

Amount outstanding on your mortgage:
€96000

What interest rate are you paying?
Tracker .85% above ECB

Other borrowings – car loans/personal loans etc
None

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


Savings and investments:

Do you have a pension scheme?
Yes, and both paying AVC's

Do you own any investment or other property?
No

Ages of children:
6,3,1

Life insurance:
Yes


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


We have a mortgage with 96k remaining. Its a tracker at .85% above ECB. repayments are €552.23/month, but have been overpaying it for the last 2 years by €600 extra/month so have just over 7 years left with it if this repayment could be continued.

We have also been saving hard for our kids future, and have approx 54k savings in BOI in a 6 month ICS Bond Acc, which is due to expire.

We are considering paying the lump sum off our mortgage, (which if we can keep up the overpayment, would have the mortgage paid off in 3 yrs and 7 months.) as we are worried about leaving it in the Irish banks. Our eldest is only 6, so we would have several years to save again when the mortgage would be cleared.

Alternatively, should we deposit it in a Rabo or Nationwide Uk deposit account? or any other suggestions?


We'd appreciate advice on this.

Thanks

 

[paddyodoors]

Hi and welcome to AAM

Firstly your situation is a nice problem to have! You are obviously well positioned, .

The basic calculation that you need to do is work out if you can earn more by leaving on deposit than you pay in interest on the mortgage. With a tracker at .85 above ECB, I assume you can get a better deposit rate.

Deposits up to a certain amount are state guarunteed, (€20k I think) so provided you cap your deposit per instition at that level, the concern over Irish banks is a mute point.

I would not be in any rush to pay down the much coveted tracker mortgage!!

Paddy

 

[Mrs Vimes]

I would stop overpaying the mortgage immediately. You'll get a better rate after dirt and the state guarantee is 100k. Look into an post for tax free savings plans. If your children's education is your target then you can afford to tie up sums of money for a long time and get a better rate (but beware if ecb goes up by too much).
You're talking about enough money to warrant getting a financial advisor to have a good look at how to get the best return on your money and as I said, you'll certainly do better than 1.85% which is what overpaying the mortgage is getting you. Your mortgage company must be delighted.
I know there is a huge psychological benefit to not having a mortgage, but if you get a better return you can pay it off even quicker.
Well done on being in such a good position.
Sybil

 

[Yama]

Thanks.

I suppose what is really on our minds is what we've seen on this forum and elsewhere-

what guarantee can the government offer if it defaults or the IMF came in?

can deposit accounts be frozen and/or could a large % of your deposit be taken or taxed?

 

[niceoneted]

Yama I have been thinking along your lines too, wondering what to do. I am currently getting some work done on my house so at least it is to the standard I want it. I may pay off even 5 -10 k off the mortgage just to make some use of the savings.
What about 10k for an account each for the kids on the 10yr government bonds or savings certs. at least there would be a fund for each of them for college. you could pay some off the mortgage. I am one for thinking of the psychological impact too of not having to pay a mortgage.