Paying Lump sums towards your mortgage

C

cheap-skate

Registered User
Messages
5
I have 20 years remaining on my mortgage of approx 180k. I recieve a fixed bonus of 5k net every year. Using the Mortgage calculator I looked at the option of using this entire bonus to make an additional annual repayment towards my mortgage. The result is a 7 year reduction in the term of the mortgage and a saving of €42k in interest over this term. Is this a no brainer or would it make more sence to invest the bonus?
 
you said it already, no brainer.
cheap-skate said:
I have 20 years remaining on my mortgage of approx 180k. I recieve a fixed bonus of 5k net every year. Using the Mortgage calculator I looked at the option of using this entire bonus to make an additional annual repayment towards my mortgage. The result is a 7 year reduction in the term of the mortgage and a saving of €42k in interest over this term. Is this a no brainer or would it make more sence to invest the bonus?
Click to expand...
 
i'd look into putting the 5k bonus into your pension, depending on your age you can put a lump sum each year into the pension and avoid tax payable on that lump sum if u had chosen to take it as pay,
certainly i'm a big fan of paying extra each month off the mortgage, even an extra 50 quid a month can make a huge difference in the long run.
 
While pensions may be tax efficient I have a problem with topping these up because you cannot determine value at any given point (please correct me if this is just because of my lack of knowledge).

If your company runs an Employee Share Ownership Plan (ESOP) you can request that the bonus be paid in shares using your Gross Bonus to purchase, which will give you comparable tax efficiencies. You will then leave them in trust for 3 years but will have access to the Gross Amount after that time. At all times you will know the value of this 'investment' which in my mind is a better option and you also have the flexibility to choose your own investment vehicle after 3 years.

If your company does not have an ESOP but is a publicly traded company it might be worth suggesting it to management. The ESOP has to be approved by the Revenue but it is one of the few real tax efficient options available to PAYE workers and is worth pursuing.

ECB interest rates are still historically very low and I believe there are better investment options available that will give you a better return over 20 years (imo).

Good luck.

cheap-skate said:
I have 20 years remaining on my mortgage of approx 180k. I recieve a fixed bonus of 5k net every year. Using the Mortgage calculator I looked at the option of using this entire bonus to make an additional annual repayment towards my mortgage. The result is a 7 year reduction in the term of the mortgage and a saving of €42k in interest over this term. Is this a no brainer or would it make more sence to invest the bonus?
Click to expand...
 
dodo said:
you said it already, no brainer.
Click to expand...
Not necessarily. If the original poster has any higher than mortgage rate debts or is not already contributing to a pension as webtax mentions these may be issues meriting prioritisation.
 
Thanks for the responses, to clarify, the bonus I recieve has gone through a Share ownership scheme so the is no tax liability remaining. I have been recieving the bonus for 3 years now and the first amount is now matured and this will continue annually. I have a good pension scheme and also make addition contributions so i'm well covered on that side I think.
 
You must log in or register to reply here.
Back
Top